UBS, the largest bank in Europe by assets, has warned there is a risk Ireland could suffer from major "social unrest" due to the severity of the economic downturn and the depth of government spending reductions. A note by the bank's investment research team caused consternation in Dublin financial circles last week with the bleakness of its assessment.

A later note by the bank was far more upbeat with Irish brokers describing this piece of research as a "backtrack". UBS claimed in its original note that budget tax hikes and spending cuts would hit the economy at a time when real wages would "need to adjust" by 30 - 40% to make Ireland competitive.

"Without the benefit of a flexible exchange rate... that adjustment will have to occur through sharp falls in nominal wages. Although we do not envisage major social unrest, the risk remains," the bank concluded.

However, its gloomy warnings were at odds with other commentary. Dutch bank ING said the government was making progress toward "end game" and there was no chance of Ireland defaulting on its debts.