One Cheer for Ireland

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Aidan Crawley / Bloomberg / Getty Images

Irish Prime Minister Enda Kenny speaks at a tech summit in Dublin on Oct. 30.

When the republic of ireland wakes up on Dec. 15, everything will look much the same as it did the day before. The sky will be blue or — more likely at the midpoint of one of the rainiest months of a rainy climate — gray. Yet this will be a country transformed, the first of five deeply indebted euro-zone nations officially to leave bailout programs that helped shore up their faltering economies and rescue Europe's single currency from immediate danger.

Broke and broken in November 2010, its banking system rotten with bad debt and its landscape disfigured by half-built, speculative developments, Ireland has metamorphosed in the three years since taking a bailout into a European role model with its open economy and enterprising spirit. Its soon-to-be-former masters from the troika of the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) — the institutions that administered the bailout and policed its tough terms — hail Ireland's performance as proof that pinching your nose and swallowing the bitter medicine of austerity pays off. Speaking on a conference call on Nov. 7, Craig Beaumont, the IMF's mission chief in Dublin, lavished praise. "Ireland's progress will become an example that we will learn from in the future."

Such bouquets are well earned — officials from Spain's "bad bank" Sareb have drawn on the expertise of its older Irish counterpart, the National Asset Management Agency, for example — but Ireland seems reluctant to catch them. There will be no ticker-tape processions to mark Ireland's return to financial independence, just the publication in December of the government's sobersided medium-term economic strategy with a continued focus on debt reduction. "Exiting the bailout and regaining our economic sovereignty will be an important step on Ireland's road to economic recovery, but it will not mean an end to our economic problems or an end to tough decisions," says Ireland's Taoiseach (Prime Minister) Enda Kenny in an e-mail to TIME.

In fact, for Kenny and his coalition government, the decision-making will get tougher. Loss of economic sovereignty hurt national pride but also gave him useful cover for persuading Irish voters to swallow nearly $20 billion worth of spending cuts and tax rises. As a result, Ireland can borrow on bond markets again; investors and trade partners have regained confidence. Joblessness, at 13.2% — a percentage point above the euro-zone average forecast for 2014 — is declining. But many Irish at home, and many dispersed across the globe as emigration ticks upward, are suffering, not celebrating. The bailout exit "validates" their hardships, in the words of a senior Irish government official, but there's no immediate end to austerity in sight.

That's partly because the mess created during Ireland's party years requires so much cleaning up, but it's also because so many of the country's problems lie outside its borders. "We need the European Union and the euro zone to succeed," e-mails Kenny. Though Ireland has boosted trade with the U.S. and China, almost 60% of Irish exports are destined for other E.U. countries, with neighboring Britain the single largest trade partner. But moves toward closer European integration designed to strengthen the union have actually weakened U.K. commitment to it; Britons may get a chance to vote themselves out of E.U. membership in a 2017 referendum.

Meanwhile, the stresses that threatened to blow apart the euro zone have not gone away and risk being compounded by new strains. Unemployment in Spain and Greece stands above 25%. Italy, the euro zone's third largest economy — far too big to be bailed out by other members — cannot seem to shake off recession. France, the euro zone's second largest economy, has just seen its credit rating downgraded for a second time by ratings agency Standard & Poor's.

And there is a fresh threat, fueled by austerity: deflation. If euro-zone prices continue falling amid weak growth, countries struggling to reduce their debt will instead see it rise inexorably. The ECB acknowledged this danger with a shock interest-rate cut on Nov. 7 to counter that trend.

In this context, Ireland's achievements appear fragile. The country is once again in a position to tap into what Kenny describes as "the enormous opportunities arising in the global economy" but also faces profound global and regional challenges. Ireland, in getting to its feet, reminds us that much of Europe is still staggering.