Who knows what Wall Street liabilities are lurking in Ireland and Spain or the chain reaction they might set off if weak countries were forced to default.

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For weeks, American markets have been hammered by the debt crisis in Ireland, a nation of 4.6 million people. A bailout calmed things down last week, but barely. Why should we care, especially in the Seattle area? Economically, what’s the Emerald Isle to the Emerald City?

One quick answer is the nearly $1.9 billion in exports from Washington state to Ireland in 2009, making the nation our sixth-biggest export destination. Microsoft, which opened its Irish operation in 1985, employs 1,200 full-time employees and an additional 400 contractors there. Boeing also has an Irish unit.

But the real fear — which weighs heavily on Asia-facing Puget Sound, too — is contagion. Ireland’s so-called sovereign debt crisis has rekindled fears about similar troubles in other weak European Union nations, especially Portugal and Spain. Much of Europe is already seeing a U.S.-style weak recovery, and a larger reprise of the Greek debt crisis of earlier this year could tip the continent into a double-dip.

As we learned in the U.S. financial meltdown, nasty surprises can be hidden in seemingly “contained” events. Who knows what Wall Street liabilities are lurking in Ireland and Spain or the chain reaction they might set off if weak countries were forced to default.

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Worse, the crisis is raising new questions about the euro, that strange hybrid of a single currency on a continent with many different political and fiscal policies.

The Great Recession has exposed a rift between strong and weak EU nations, debtors and creditors, that has only grown.

An eventual breakup of the eurozone isn’t inconceivable. It wouldn’t take much to get speculators betting big against the euro. And the economic dislocation wouldn’t stop at water’s edge. For example, half of truck-maker Paccar’s revenues and profits are generated outside the United States, including from several countries in Europe.

So even a European double-dip, much less the “unthinkable” end of the euro, would likely force another downturn in America.

Which is not to say winners wouldn’t eventually emerge. Germany and other strong economies of Europe, freed of bailout obligations to their weaker partners, would make for enticing export markets. Boeing could fantasize that a eurozone fracture hobbles Airbus.

Still, the years of contraction and uncertainty would reverberate painfully worldwide.

All these fears rumble from tiny Ireland. Until 2007, it was the Celtic Tiger, a vibrant economic center that punched well above its weight in the world (rather like Seattle).

Ireland’s emergence in the 1990s from decades of stagnation came, thanks to some of the best economic-development policies anywhere, an educated work force and relatively low business tax rates.

I asked my friend, Bill Harris, about the abrupt Irish downfall. Harris, an American, was recruited to be director general of Science Foundation Ireland, an effort to move the Irish economy beyond high-tech manufacturing into leading-edge research. In 2006, he was hired to establish Science Foundation Arizona, in a state trying to move beyond its dependence on real estate.

Ireland got drunk on real estate and construction, according to Harris. It’s an outcome worthy of the most mordant Irish wit and irony, even reminiscent of a certain Seattle thrift led by an executive with a fine old Irish name.

Indeed, it’s misleading to label Ireland’s crisis as one of sovereign debt. The nation wasn’t building an unsustainable welfare state and failing to collect taxes, as happened in Greece. Instead, it underwent a U.S.-style real-estate and banking bubble. (The same has happened in Spain.)

According to an estimate in Financial Times, at the height of the boom approximately three-fourths of the loans made by Irish banks were connected to construction, property and land speculation. It amounted to more than twice the size of the economy and was extremely profitable for the bankers.

When the bubble popped, the government bailed out the banks, in effect socializing their losses and ending up with a deficit that’s 32 percent of GDP. (By comparison, the U.S. federal deficit is 10 percent.) Painful austerity for average citizens has followed.

Harris added, “Ireland is a model that can be understood. It is fully transparent. It implanted mark to market at the banks” to ensure an accurate valuation of assets. “If such transparency was done in the U.K. or Spain, economic collapse” might result.

Even without that, Europe’s stresses, which have been intensified by the Irish mess, will hold back world growth. When looking at the economy, surprising swans aren’t just black — they can be green, too.

You may reach Jon Talton at jtalton@seattletimes.com