WHILE the euro zone limps along, growing in the third quarter by a disappointing 0.3% (an annualised rate of 1.2%), one small member of the 19-strong currency club is racing ahead. Less than two years since Ireland exited its humiliating bail-out, its economy is resurgent. Following growth of 5.2% in 2014, GDP rose by 7.0% in the first half of 2015 compared with the same period a year earlier.

Welcome as it may be, the vigour of the upswing highlights the troublesome volatility of the small and ultra-open Irish economy. It is bouncing back, after all, from a deep slump that followed an earlier spell of vaulting growth. The notion that the Irish economy might rebound so strongly would have been dismissed as fantasy only a couple of years ago. Irish banks went spectacularly bust during the financial crisis and required a bail-out of €64 billion ($89 billion), close to two-fifths of GDP. Their woes meant that the Irish state had itself to be bailed out by the EU and the IMF in late 2010. Between its pre-crisis peak in late 2007 and its nadir at the end of 2009, the economy contracted by 11.2% (see chart). A recovery in the following two years petered out and the economy lost ground in 2012 and the first half of 2013.

The severity of the crisis, which was linked to a collapse of the housing market, was such that despite the recent rapid growth, GDP per person remains below its peak in 2007 (although GDP surpassed the pre-crisis high a year ago). The scars of the recession and the banking bail-out on the public finances remain livid. Although public debt should fall below 100% of GDP this year (after peaking at 120% in 2012 and 2013), that is still far higher than in 2007, when it was a mere 24%. Even in the depths of the slump the Irish economy nonetheless retained some formidable strengths. It continues to appeal to American multinationals as a European production base, thanks to a well-educated labour force and a low corporate-tax rate of just 12.5%. Ireland is favoured by pharmaceutical giants such as Pfizer and has also become a magnet for tech and social-media firms. Apple continues to build up its activities in Cork; Dublin hosts the likes of Facebook and Google. The multinationals’ presence in Ireland helped when the rest of the economy was in the doldrums, as net trade—exports less imports—partially, and at times completely, offset the domestic downturn. The scale of their activities is such that Ireland’s overall exports were worth 114% of GDP last year; imports were also very high, at 95%. Ireland has benefited from the fact that it exports heavily to America and Britain, both of which have outperformed the torpid euro area. More recently Irish exports have been boosted by a weak euro, which for much of 2015 has traded between 15% and 20% lower against the dollar than a year earlier. That is because the European Central Bank has been loosening monetary policy even as the Federal Reserve prepares to tighten it—a divergence that looks likely to continue in the coming months. Ireland is even relatively insulated from the slowdown in emerging markets, since they account for just a tenth of its exports—the lowest level, along with Luxembourg, in the euro area. (In the four biggest euro-zone economies, they make up around 30% of exports.)

From 2010 until mid-2013 the Irish economy made only modest progress despite the boost from net exports, as consumers and firms were reluctant to spend. What has changed in the past two years is that domestic demand is now helping, too. Although building investment remains subdued, overall capital spending is growing strongly as businesses in particular spend more on new equipment. Consumer spending has finally started to revive too, growing by 2% in 2014 and by 3.3% in the first half of 2015 compared with the same period in 2014. As in the rest of the euro area, households have been able to spend more because lower energy prices have had much the same effect as a tax cut.

Despite the rebound in growth, this is not an action replay of the disastrous overheating of a decade ago. House prices have been rising sharply, especially in Dublin, but having fallen by half during the crisis they remain a third lower than their peak in 2007. There is not even a glimmer of a construction boom despite the acute shortage of property in hotspots such as Dublin: 11,000 houses were completed in Ireland last year, compared with around 90,000 in 2006. Credit is still falling rather than ballooning, as occurred in the previous boom. This is hardly surprising since the banks that have survived are still nursing wounds incurred last time.

Moreover, although the economy has been picking up speed it has still not reached full capacity. Unemployment has dropped a long way, from a peak of 15.2% at the start of 2012 to 8.9% in October, but there is still scope for further decline. Economists reckon it could fall to 6% without stoking inflation. The decline in debt suggests that households, too, have the capacity to spend a bit more.

Perhaps the biggest cause for concern is whether Irish politicians have really kicked the bad habits of the past. The coalition government headed by Enda Kenny, which was formed just three months after the bail-out, complied unflinchingly with its harsh terms. But Ireland exited the bail-out nearly two years ago. With an election due in early 2016, the government recently announced an early Christmas present of €1.5 billion of extra spending this year, or 0.7% of GDP. Corporate-tax receipts have been much higher than expected, making the splurge affordable. But the gain in revenue may be temporary, whereas the higher spending will persist. That is an unfortunate echo of Ireland’s chequered fiscal past.