Celtic Tiger Chained By Europe

Now that Ireland needs aggressively low interest rates to stimulate the ailing economy, it is not getting them. This summer, when the economy here became the first in the industrialized world to fall into recession since the credit crisis began, the European Central Bank actually raised interest rates, worried more about the rise of inflation across the euro zone. Although the ECB has since cut rates twice, it has kept them higher than the Federal Reserve's benchmark rate and the Bank of England's. That strategy, economists say, makes sense for euro zone countries such as France, which is not in recession, but not for Ireland.

To be sure, few in Ireland are talking about abandoning the euro, credited with preventing the runs seen in recent weeks in nations including Iceland and Denmark, which have kept their own currencies. But many here concede that the euro is also working against a quick recovery. The relatively expensive currency has driven up the cost of doing business in Ireland, worsening woes here as Dell and the other multinationals that planted their flags in Ireland years ago shift jobs to countries with lower labor costs.

"It's great to be part of the club when everything is going well," said Mark Doyle, marketing director for Green Isle Foods. A frozen-food exporter with a focus on the English market, the company has been stung by the euro's recent strengthening against the British pound. "There is no other way for us to prosper other than inside the European Union, but we have to make sure that we are looking out for Irish interests, even when they might diverge from Europe's."

As Ireland struggles to contain the crisis, it is locked in a delicate dance with the European Union. The alliance's leadership in Brussels, for example, is demanding that Ireland cut public spending to meet E.U. standards for budget deficits. But the Irish government -- facing diminished tax revenue and a deficit as high as 6.5 percent this year -- is struggling to comply.

While nations around the world are cutting taxes to stimulate their economies, Ireland is adding an income levy as high as 2 percent. Protests have already forced the government to roll back at least one controversial plan that would have made Irish people older than 70 pay for medical care, which became free to seniors in the late 1990s.

Still, the government is moving ahead with a slew of other unpopular measures, including cuts in education that will mean a reduction in the number of teachers nationwide. It is also scrapping plans to give inoculations to girls to prevent cervical cancer. There is talk now of public employees taking a voluntary 10 percent pay cut.

Ireland's one independent financial move in recent weeks -- a measure to guarantee all banking deposits in October -- brought a sharp rebuke from European leaders. Dublin should not, they said, act alone.

Nervous investors have driven up the cost of borrowing on world markets, even for European nations like Ireland, Spain and Austria that were once considered surefire bets. To avoid paying higher and higher borrowing costs, analysts say, the government here may need to risk the future of its retirees by dipping into the national pension fund if Irish banks need help.

Though no national polls have yet been released, some analysts say the Irish may be growing increasingly resistant to the more centralized Europe envisioned by many of its leaders. Earlier this year, the Irish cast a vote against the Lisbon Treaty, rejecting what many described as a European Constitution that would have given more power in E.U. officials in Brussels.

The crisis is also zapping Irish confidence and presenting this proud nation with a hard reality check. The seemingly endless years of riches after so many of struggle seem, for the time being, to have come to an end.

"We're very scared," said Siobhan Tobin, 23, a public kindergarten teacher in the town of Naas, 20 miles south of Dublin, and one of hundreds of teachers across Ireland who may lose her job in the coming months. The budget cuts would have the newest teachers -- like Tobin -- ousted first.

"I think there is a concern that Ireland is a small country that could be bullied by Europe, but I also think we are looking at ourselves and our society," Tobin said. "Was the Irish miracle for real? What will the future be like? We don't know anymore."