This is war. Waterford Crystal’s collapse followed by Dell’s decision to close has signalled the opening salvoes in the war for Irish prosperity. With unemployment soaring, we are fighting on two fronts.

On the first front – the external front – we are fighting to retain companies that have been here for some time. If we win this, we can advance to securing new investment and investment of our own.

The second front – the home front – is an intense battle to ensure that our domestic economy is not overwhelmed by the debt deflation associated with the property and banking bust.

We all know who is to blame for this predicament – no need to go into this again here.

If we do not fight, adapt and box clever, Ireland faces a recession the likes of which we have never experienced. Like any country under attack, a state needs to galvanise all the resources at its disposal to fight back. We have to do everything right, make no mistakes and really aim to be audacious, constantly using the element of surprise when we have a chance.

There is little point saying that we were unprepared or that the army was allowed to grow fat and flabby during the boom years of peace and prosperity. We know that the warning signs were ignored – wilfully – by a general class that is incapable of leading us victoriously through the new war.

We realise that our early warning system failed and that those alerting us to the upcoming conflict were demoted. As a result of this complacency, there is a sizeable minority who are still in denial, believing that this is a skirmish that will all be over by Christmas.

These difficulties do not change the dynamics of the economic conflict. If we do nothing, plod along with the same structures and content ourselves that someone else is going to do the hard work, our already brittle defences will be overwhelmed.

At stake is the Irish standard of living. If we want to condemn ourselves to a decade of recession, with mass unemployment and emigration, we can do nothing and pay the price in both social unrest and the dashed prospects of a generation.

The only way we can win this war is by becoming, once more, an exporting country. We were one up to 2000/01. We ran a current account surplus with the rest of the world and something close to a balanced budget, our debts were falling and our output per head rising. In the bubble years from 2000 to 2008, all that changed. We became an importing country and paid for those imports by borrowing other people’s cash – people who were prepared to work harder than us, save more and have money left over to lend to us. They were being paid interest; we were going further into debt.

Meanwhile, poorer countries, keen for our business, were doing the right thing, so that when the war broke out, they were prepared to take some of our lost prizes (such as Dell) as booty.

At the moment, we are fighting the new war with yesterday’s armory and we are trying to insulate the population from the reality of the situation by borrowing. By operating a large fiscal and large current account deficit, the Irish state is in the postponement game. If we were to live within our means this year, our living standards would fall by between 7 and 10 per cent (based on either the current account or the budget deficit as a measure of us living beyond our means). We can’t keep at this game.

Quite apart from the fact that we can’t keep borrowing, the risk is that our backers could drop us. Alliances and friendships based on self-interest that were forged in peacetime become fractured in war because everyone wants to be on the winning side.

Think of our multinationals as allies in this context. The near-term objective is to make sure that Dell’s decision does not frighten others into doing the same. Imagine the conversations going on now at Intel and Microsoft. We know that multinationals tend to cluster. They hang out together. When one of them bolts, we run the risk that the rest may follow. So we have to reduce costs by being more productive, cheaper or both.

There are two ways we can do this. We can do what we are doing now, which is to reduce our wages, throw more people on the dole and suffer a long contraction. This is what the Germans did after the unification boom of 1990-1994 turned sour. Germany got too expensive and had to cut back employment.

The other model is what the British are doing now. Britain is letting sterling fall so that the problem becomes someone else’s. In simple terms, the price of the British recession is being felt more in Dundalk than Newry.

It seems like a pretty clever thing to do, doesn’t it? But we, of course, have ruled this out by our euro membership, which now leaves us in the ridiculous position whereby traders in Dundalk, all along the border and the Dublin/Belfast corridor are having to pay twice – once for the Irish recession and once more for the British recession.

But the resulting unemployment is not shared. On the contrary, the remaining Irish taxpayers pick up the tab for these people, while British taxpayers actually get Vat revenue from Irish workers seeking exchange rate-driven bargains. What do you think of that?

We are choosing the most difficult fighting option by our euro membership. Last week, Ireland paid significantly more than Germany for €6 billion that we borrowed. We paid 4.07 per cent, while the Germans are paying 3.3 per cent.

This means that, even with a monetary union, the markets do not trust us. So we are paying twice for the euro. Once on the exchange rate – which is making us dreadfully uncompetitive in the eyes of foreign investors and shoppers – and once more on the interest rate, because we are not even getting the benefit in terms of cheaper borrowing terms to pay the unemployment benefit of those who have been laid off because the currency is making us far too expensive. Bizarre.

By keeping with the current policy, the state is ensuring that Ireland turns itself into a large debt-repayment machine. We seem to have arrived at the conclusion that the best way to proceed for the next decade is, without question, to knuckle down and get on with the business of paying back debt, rather than the possibility of turning ourselves into exporters.

Is this the sort of strategy that wins wars? Is this the type of imaginative approach that thinks the unthinkable when a country is in a corner? What do they say about generals who fight today’s wars with yesterday’s tactics? They are defeated by new enemies. Let’s not make that elementary mistake in the battle ahead.

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