TO LISTEN to some commentators, the debate over how to handle the recession has become something akin to economic Scrabble: shall we end up with a U, V, W or the dreaded L? It may seem incredibly simplistic, but it’s a useful way to consider the near future and the options facing us.

While most economists suggest we are approaching the worst of the recessionary impact in the next few months, the question is whether we will dwell at the bottom for a while before recovering (thereby creating a U-style graph of economic performance), whether we will bounce as quickly back to recovery (V), or whether, if we make any policy errors on the way back up, we could record a short recovery followed by a return to the downward trend (W).

Worst of all, we could find ourselves in the same position as Japan in the 1990s, and drag along the bottom for several years (L). For the 500,000 people likely to be out of work by the end of the year, choosing the right path to recovery is monumentally important. The issue is that while a global recovery may repair some of the damage, many of our problems are national, rather than international.

For a start, we need to improve our competitiveness and bring public expenditure into line. While wage cuts are under way, it’s worth noting that other nations are also cutting costs, so any improvements need to be judged not only against recent high costs here, but against costs in rival states. According to the ESRI, on a per capita GNP basis, next year should see us on a par with 2001. However, there will not be the same opportunities for employment – nor the same distribution of income.

Even then, such a scenario depends on us making the right choices and accepting the bitter medicine of reduced public spending. One positive step is the creation of the Innovation Taskforce. Its aim is to advise the Government on how it can foster innovation and entrepreneurship, a credible effort at helping to create the much-heralded “smart economy”. It needs to be more than just a high-minded talking shop.

Much like the initial remit for the Expenditure Review Committee – better known as “An Bord Snip Nua” – there must not be any sacred cows protected from review, revamp, or a cull. Choosing the wrong – or easiest – path out of recession could spell years of economic gloom for Ireland.