Ireland's creditworthiness is now lower than that of Slovenia and the same as hopelessly indebted countries such as Italy and risky petro states like Saudi Arabia. Ireland's time at the top of the international league of successful and creditworthy economic entities was very short, almost fleeting.

The country was awarded its AAA rating in October 2001 when Standard & Poor's upgraded a then burgeoning tiger economy, but this island only lasted eight years in the top bracket, after building an economy on debt, cheap European money and a bloated public sector.

Last week's decision to downgrade Ireland once again by Fitch was ludicrously pushed to the sidelines by most of the media, but represented a dramatic step. Ireland is now rated AA- by Fitch and the country's debt sits just six notches above junk bond status.

Because the yield on Irish benchmark debt sits at 4.7% as opposed to 6% earlier this year, there is a sense emerging that while there is a significant public finance crisis in the country, there is no chance the country could be hit with an Iceland-style financial collapse. Making this assumption would be a mistake.

The financial picture, despite soothing government noises, is getting worse, not better. Tax receipts are €3.2bn behind even the targets set by the government in April.

The big gamble the government is taking is to back-load the budget adjustments and hope that by the time those adjustments have to be made an economic recovery will be stirring in the US and tax revenues here will be pleasantly higher than originally forecast.

But last Friday's unemployment figures from the US were nightmarish and underlined once again just how hard it will be for the US, and other western economies, to get back to what could be loosely called "normal'' levels of growth.

There is plenty of talk about bottoming out, but there is still plenty of countervailing evidence which suggests a recovery is either non-existent or anaemic. The inexorable rise in gold is one of those, as are heady valuations in the US, where the S&P 500 is trading on an unsustainable 22 times reported earnings. While Friday's terrifying US payroll figures (showing unemployment at 10.2%) mean there is less chance of interest rate hikes for at least six months (and maybe longer), there is a real chance that in time the cost to governments of raising debt to plug the gaps in their budgets will become more expensive, even prohibitive for some.

Ireland's budget deficit is heading towards red alert territory of 13% of GDP by December and all the steps taken in April's budget, despite the good intentions behind them, have failed to halt the slide towards a fiscal abyss.

The IMF recently spelled out a simple reality. The more a government lets its budget slide, the more that government pays a price in the bond market. For example, in the organisation's staff position paper last week, it estimated that a 1% increase in a country's deficit pushed up bond yields by about 20 basis points over the medium term.

This effect is multiplied when you are small country. Quite simply, senior bond managers in large European banks do not have to buy Irish government debt. They do so to avail of the decent spread over German bunds, but unlike German debt their mandates do not require them to purchase the debt paper of smaller peripheral European economies such as Ireland.

All of this means that December's budget could, in a worse case scenario, be the last chance for the government to get things right.

Bond managers won't be concerned about protest marches or even industrial action here- they expect to see discernable signs of pain when governments are making cuts, but they will be spooked if the government shows it no longer has credibility in controlling the scale and explosion in the deficit. As arguments continue on overtime and premium payments in the public sector, the country's foreign lenders are watching and may soon decide it's time to move on.