For years Ireland was sold as the exemplar of modern capitalism. Slash your corporate tax rates and watch your economy boom. More countries should be paying attention to what the Irish government had achieved, we were all told.

Even at the time there were some sceptics who pointed out it was awfully easy to slash corporate taxes when you benefited from massive RU subsidies, but that was ignored in the rush to praise the ‘Celtic Tiger’.

In fact, the real European impact for Ireland came not from the EU’s cash but from its interest rates when Ireland joined the Euro, which drove a property bubble that was always bound to collapse. But few anticipated just how savage the collapse would be or how it would smash Ireland’s banks.

Ireland’s current problems have been exacerbated by the failure of its government to use the boom to prepare for leaner times, leaving the Irish budget poorly prepared for the onslaught of the GFC. The British, currently about to experience a round of austerity not seen since the early 1980s, are demonstrating some of the same lessons: governments must manage booms every bit as diligently as they manage busts, and that includes taking tough spending decisions even when the budget is strong.

For all the talk of reform, managing the boom is going to be a key challenge for the Gillard government. We may not face the threat of ending up like Ireland, but it serves as a salutary lesson of what happens when governments get lazy and assume the good times will last forever.