Ireland's recovery is still green It has impressed the austerity hair shirt brigade by implementing a massive €24bn (£19.4bn) of austerity measures, cuts to state expenditure that are equivalent to almost 15pc of GDP. That record has impressed markets and Ireland has seen significant drops in borrowing costs. That trend is in stark contrast to Spain or Italy, let alone the Greece. So good is Ireland's image that the country is preparing a return to international bond markets this summer by issuing short-term debt, with more than a year of the EU-IMF bail-out still to run. Moreover, by ratifying the fiscal pact Ireland will be able to access the eurozone's new bail-out fund, the European Stability Mechanism (ESM), when it fully returns to the markets in 2014. In that year, the Irish government must borrow €18bn, half of which is to service bank debt. But it's not all a rosy picture. Ireland still faces serious economic challenges and there are pitfalls ahead. Despite pouring €64bn of Irish public money into its banks since 2008, at huge political cost, the collapsing value of property and an escalating home loan crisis is raising new questions over whether yet more capital is needed to cover bank losses. Ireland has made its austerity targets but has not escaped the debt spiral with borrowing levels hurtling towards 120pc of GDP. There has been growth but amid a recession in the eurozone its economy slipped back into a downturn in the first half of 2012. The country still faces unemployment of 14.3pc and extra pressure on the domestic budget from weaker economic activity than anticipated, compounded by high exposure to risks from eurozone contagion. A European Commission report last week lavished praise on the euro's model pupil but also warned of trouble ahead. "Key challenges and risks in the period ahead relate to the adverse external environment and in particular the risk of unfavourable developments in the euro area; increasing related challenges to bank deleveraging and funding; the complexity of the reorganisation of the financial sector," it concluded. Beside the adverse external environment, major short and medium-term risks relate to obstacles to bank deleveraging and funding to the complexity of the reorganisation of the financial sector; and to the fact that economic activity may prove weaker than anticipated, putting pressure on the budget. Short-hand for the EC's message? Good work, but don't think you're there yet.