DUBLIN, Ireland — For a long time the Irish were confident that at least things here were not as bad as in Iceland, a tiny nation that went bankrupt trying to play the financial markets.

But the oft-repeated jibe that the only difference between Iceland and Ireland is one letter and one year is perilously close to coming true.

“Investors have all but lost faith in Ireland’s capacity to repay all its debts,” said Irish Times economist Dan O’Brien, referring to the crisis caused by a collapse in property values and multi-billion-dollar bank defaults by developers.

The Irish Republic’s financial collapse is now so deep, according to Morgan Kelly, professor of economics at University College Dublin, that in recent weeks the country “quietly ceased to exist as an autonomous entity and became a ward of the European Central Bank.”

The difference between Iceland and Ireland, however, is that Ireland has cash reserves to keep the country going until mid-2011 and, as a member of the eurozone, its European partners have a strong interest in helping it. Portugal, Spain and Italy are particularly vulnerable to contagion from the Irish crisis, which has pushed up the cost of their borrowing on international bond markets.

The point has been reached nevertheless where the Irish government’s commitment to cover the losses of Irish banks exceeds the fiscal capacity of the state, argued Morgan in a major analysis of the national emergency in the Irish Times. He also forecast that the country is now facing a wave of mortgage defaults.

Ireland has suspended borrowing on the international markets until 2011 as the cost of borrowing rose to a record 9 percent. Many analysts now forecast that Ireland, followed by Portugal, will eventually have to seek a bailout from the European Financial Stability Facility, set up after Greece was bailed out in May by other member states and by the International Monetary Fund (IMF). The stability fund totals 750 billion euros ($1.03 trillion) of which the IMF has pledged 250 billion euros.

The Irish government has taken the attitude that to avoid suffering the fate of Greece, which is subject to harsh IMF strictures on its financial management, the Irish Government itself must take the initiative in slashing spending and raising taxes. It is preparing a December budget that is predicted to be the toughest in Irish history, with an immediate target of an extra 6 billion euros in cuts and taxes.

“We have the capacity to put the state on a sustainable and credible basis,” said Irish Finance Minister Brian Lenihan.

The price in social stability, however, could be high. The government is bracing itself for street protests planned by groups angered at perceived government ineptitude. Already on Nov. 3, students protesting a proposed increase in university fees clashed with police in Dublin and several were injured.

Adding to the coalition government’s woes, it has been forced to call a by-election for Nov. 25 to fill a long-vacant seat in the Donegal constituency after being scolded by Ireland's High Court for “unreasonable delay” in setting the date. If the main government party, Fianna Fail, loses, as is likely, the Taoiseach (Prime Minister) Brian Cowen will have to rely on a handful of independents to pass the highly unpopular budget.

If the government then falls, the opposition parties will find themselves subject to the old curse — getting what they wished for. Any administration in office after December will have to push through deeply unpopular austerity measures that will inevitably adversely affect all sectors of society.

Whatever happens, Ireland is facing a winter of discontent.