"We simply cannot afford our present level of public services. For as long as public expenditure and, in consequence, taxation and borrowings remain at their present levels, productive capacity in the economy will be stifled''

Ray MacSharry, Minister for Finance, 31 March 1987

"This year alone we will spend €20bn more than we will bring in taxes and other revenues. That gap will be filled by borrowing money on the international markets, thus adding to our overall level of debt. Quite simply continued borrowing at that level is not sustainable''

Brian Lenihan, Minister for Finance, 16 July 2009

Every Irish Minister for Finance thinks the budgetary circumstances they are forced to preside over are the worst the country has ever encountered. Budgetary deficits often seem chronic, solutions are either too painful or politically unpalatable. Ernest Blythe introduced infamous austerity measures in the 1920s, including a cut in the old-age pension, even though he was only dealing with a budget deficit of £8m.

While Brian Lenihan has to deal with a coordinated global recession (which never took place in the 1980s), some of his predecessors didn't have it easy either. When John Bruton was Minister for Finance in 1981, inflation was hitting an eye-watering 20%. Some of his successors in the 1980s, including Alan Dukes and Ray MacSharry, had to manage an economy where every year about 0.5% of the entire population left the country via boat or plane.

With Ireland's budgetary deficit estimated to hit at least 10.75% this year, there is no doubt Lenihan is dealing with a significant budgetary crisis, on a par with the challenges faced by his 1980s' predecessors. While the sheer level of public debt accumulated by 1987 was astounding (118% of national income), things are moving scarily towards those kinds of level as we progress through 2009.

According to figures from the National Treasury Management Agency (NTMA), Ireland's public debt as a percentage of national income could hit 103% next year once the state assumes the property-related debts of the Irish banks via Nama. It could hit 107% by 2011, according to "illustrative" examples circulated by the NTMA a few months ago. Clearly, assets in Nama will return some value, but that could be many years away.

With overall public-debt levels starting to look eerily similar to the 1980s, at least on the surface, the connection is increasingly being made between the Ireland of 2009 and the Ireland of 1987.

But are Lenihan's fiscal challenges more insoluble, more deep-seated and more chronic than those that faced governments led by Garret FitzGerald and Charles Haughey in the 1980s? The answer is: it depends which indicator you consider the most important.

The rawest number of all is gross national product (GNP), which is the total value of goods and services produced in any country in a calendar year. If this is your measure, the current economic reversal is literally catastrophic. Despite high unemployment, violence in northern Ireland and a huge stock of public debt, GNP at constant prices in the 1980s never fell hugely based on the year-on-year figures.

The country started the decade with a GNP of £46.8bn and left the decade with a GNP figure of £51.8bn, an increase of 10.6% in national income. Of course, there were drops in national income along the way, but the falls were moderate – for example GNP slipped between 1982 to 1983 by 1.9%.

Now consider the contrast. Davy Stockbrokers, for example, estimates that GNP will shrink by 16% from the latter half of 2007 to the first quarter of 2010, a sharper contraction than even that experienced by Finland in the early 1990s.

For those who regard GNP as too blunt a measure, there are other statistics which make the picture look slightly more encouraging. One way, albeit selective, to assess economic activity within the economy is to look at tax receipts.

According to official Department of Finance projections, total tax receipts this year will come to €35.2bn – that is just a few hundred million below the total tax receipts collected by the Revenue Commissioners in 2004, according to its annual statement. So the revenue line for Ireland Inc is only going back to 2004 levels, but unfortunately the cost segment of the profit-and-loss account is far higher now at €46.3bn, plus €10.7bn of capital spend (source – Budgetary Projections 2009 to 2013).

Lenihan's chief problem and the unique feature of his period in office is the sheer speed of the economic decline he has been forced to deal with. As recently as the end of 2007, the Department of Finance was still forecasting a deficit of just 1.1% of GDP. As we now know, this has deteriorated to 10.75% in about a year-and-a-half.

Not only has the deterioration been rapid and unprecedented, it is actually worse than what was happening in the 1980s, at least if your guide is budgetary deficits. Just before the MacSharry reforms of 1987, the deficit (or general government balance) was hovering at 9% of GDP, actually lower than today's figure.

Judging the severity of today's crisis against that of the 1980s must ultimately involve comparisons of the unemployment rate. At its peak in 1987, the unemployment rate was hitting 17%, almost a fifth of the working population. At present, the seasonally adjusted rate is 12%, with the ESRI and others forecasting it will reach 16% by 2010, with considerable risk it will overshoot this level.

Two factors prompt the reflection that the 16% figure may be an underestimate. One is that it will be difficult for the jobless to move to other labour markets, which are far more depressed than they were in the 1980s. Secondly, the relative generosity of social-welfare payments here are likely to encourage a lot of claimants to remain in Ireland rather than go elsewhere or back to their country of origin.

Only time will tell whether the net outflows of people in the 1980s (about 23,000 per annum by 1987) will be matched by trends in 2009 or 2010. Alan McQuaid, an economist with Bloxham Stockbrokers, estimates 50,000 will leave Ireland this year, but he concedes the figure may ultimately be much lower due to the factors just mentioned.

Car sales, another traditional gauge of economic health and consumer confidence, are already heading towards 1980s' levels. This year, new-car registrations are forecast to come in at about 57,000, approximately the same figure as 1987. This is a truly horrifying figure considering the population in 1987 was far lower than now.

The other difference between now and the 1980s' recessions is that the government is currently having to deal with a banking crisis and a property crisis, neither of which were present in the Haughey or FitzGerald eras.

For example, in 1987 a new house cost IR£48,151, a drop of 0.2% on the previous year. New-home prices throughout the 1980s floated within a relatively narrow range of between £40,000 and £60,000. The gap between house prices and incomes was much lower during the '80s than it is now and as a result household debt was far lower.

Whatever statistics one uses, the resemblance between one financial crisis and another is self-evident.

However, three observations are worth making. Ireland was not in the euro in the 1980s and didn't have the European Central Bank standing behind it. The euro is the second most powerful reserve currency in the world and has far less chance of being speculated against than did the Irish pound.

The second current benefit for Lenihan is low interest rates. The rates were punitive in the 1980s and this acted as a brake on economic recovery. While European interest rates won't stay low forever, European central bankers are not planning to "exit" from their currently loose monetary policies for the foreseeable future.

Finally, levels of education are far higher now than they were then and this should help to attract investment and drive economic recovery.

But while certain business and economic opinion would like to play down the scale of the current crisis, there is little doubt that Lenihan is in as deep as MacSharry, if not deeper.

For example, Ray MacSharry was able to reduce borrowing from 13% of GNP at the end of 1986 to 2.4% of GNP just three years later. The fact that Lenihan is trying to slash current levels over five years, rather than three, is probably the clearest indication that this crisis is as big, arguably bigger, than that of the 1980s.

Reasons to believe it's the '80s again

* The government's annual budget deficit is over 10%

* Unemployment could reach the same levels as the peaks of the 1980s

* The national debt (as a % of GDP) is set to almost double from 2009 to 2011, if you include Nama

* Emigration levels, or population outflows, are soaring

* The government is having to slash social spending and raise Vat and income tax

* Sales of items like cars are back to 1980s' levels

* Youth unemployment is worryingly high with younger people excluded from the labour market

Reasons to believe it's different

* The national debt could be lowered if Nama sells assets at a profit

* The government will simply have to bring the deficit down because of European rules

* Education levels are much higher – one-third of the workforce has third-level education

* Ireland is in the euro and can avail of ECB liquidity.

* The stock of public debt is lower than many other European
countries

* Growth will eventually resume at 2.5% or 3% per year

* Inflation and interest rates are much lower than the 1980s

1987 V 2009: How they compare

Unemployment: 1987: 17%; 2009: 11.9%

Emigration: 1987: 23,000 per annum; 2009: Estimates differ, could be as high as 30,000.

Budget deficit as a % of GDP: 1987: 9% general government balance; 2009: 10.75% general government balance

Government Debt: 1987: 118% of national income; 2009: 88% of national income (including Nama)

Interest Re-payments: 1987: Took up 33% of tax revenues; 2009: Taking up 11% of tax revenues.

Economic Contraction: 1987: GNP rose this year by 1.6%; 2009: GNP will drop by 8%.

Sources: 1987: Figures from The Irish Economy in Perspective, Department of Finance

2009: Macro economic projections from April Budget.