The month just gone was tough for the Irish economy with bank results, worries over bond auctions, increased capital required for failed banks, sovereign downgrade and negative coverage in international papers such as the New York Times and the Financial Times.

One of the few positive pieces on Ireland was released this week by Bank of America-Merrill Lynch (BOA-ML). The piece looked at the Irish economy taking into account the problems in the banking system along with the actions taken so far by the Government in stabilising the finances.

The increased capital requirements for Anglo Irish Bank have been one of the main reasons for Ireland to come into the financial market spotlight in recent weeks. The research piece by BOA-ML estimates that the total cost to the state to recapitalise the bank is €25bn, meaning an end to the process is in sight.

This view is at odds with the €35bn estimated by Standard & Poor (S&P). Overall the total cost of the banking bailout in BOA-ML's opinion is close to the Irish Central Bank's estimate of 24% of GDP, or €34.4bn. That said, this figure doesn't include any costs related to Nama or indeed the cost of the bank guarantee.

The piece makes the point that the cost of banking bailouts can seem "quite daunting", but governments do recoup many of the costs associated with such crises over time and "an early stage snapshot picture is likely to be an overstatement of the final cost."

BOA-ML makes the point that in the case of Ireland the majority of the €34bn will be paid in cash terms over a 10-year period, not in one go. This is achieved through promissory notes issued by the Government to Anglo Irish Bank, EBS and Irish Nationwide that will only result in cash transfers to these banks over a 10-year period. Outstanding promissory notes are currently €23.2bn, 68% of the estimated cost of recapitalising the banks.

BOA-ML also examined the funding requirement for Irish banks in September; in particular BOI and AIB have the ability to borrow money from the ECB if required. Both banks have between €41-49bn of assets that can be used to borrow money from the ECB. Both banks will also be receiving more NAMA bonds in coming weeks that will add to these assets. The other banks face a similar situation with significant amount of assets that can be used to allow borrowings from the ECB with the conclusion that the funding issue for the Irish banks in September is manageable, but I do believe elevated funding costs will remain in coming years until reliance on wholesale funding moves down to new norms demanded.

The report is positive on the actions taken by the Government on the banking sector and the same holds for the austerity measures taken already. BOA-ML believes the public debt-to-GDP will stabilise by 2015 based on the measures taken and planned. They highlight that a budget deficit of 20% of GDP in 2010 is due to accounting for the banking bailout up-front, when the vast majority will be paid for over a 10-year period through the promissory notes. When the Government finances are looked at on an underlying basis, the correction is mainly focused on the spending side with spending cuts accounting for 74% of the budget deficit reduction and capital spending cuts and increased taxes accounting for the remainder.

Some commentators have made the point that austerity measures such as those taken by Ireland only deflate the economy further, but BAO-ML believes austerity measures can support growth. The example in the Irish case used is the reduction in public sector pay of between 5-15%. The decrease in public sector pay and employment results in declines in labour costs in the private sector, increasing competitiveness. This in turn helps foster business investment, increasing growth and lowers budget deficits.

The report overall looks at Ireland in a more positive light than international markets and rating agencies have recently. This is not to say the problems facing the economy are not large and difficult with further painful adjustments required.

The banking issue remains to the forefront of investors' minds when they consider Ireland and this report shows that with six pages taken up about the banks and half that on the budgetary outlook for the Irish sovereign.

A decision on Anglo Irish Bank's future along with the future shape of the domestic Irish banking system needs to be made in the near future with the decision from the European Commission the likely catalyst. The Government must focus on bringing clarity to the cost of the bailout in coming weeks and prevent speculation to continue on how high the bailout will be.

On the fiscal position, with growth slowing in our major trading partners realism must be brought to bear on the budget in December. Floating ideas for new taxes or for cuts in certain areas to be then withdrawn for political considerations must be stopped. The target of €3bn must be the minimum with greater cuts to be targeted despite the painful impact of these cuts will be for individuals.

The tough action taken by the Government in recent budgets has been received well by investors and significant goodwill does exist for Ireland as can be seen by the report by BOA-ML. To maintain this goodwill, the Government must remain focused on stabilising the banking system and implement a tough budget in December, no matter how difficult it will be politically.