As Ireland faces up to its economic failings after a $111 billion European Union bailout was finalized this week, it must gather strength from its literary and artistic tradition to pull itself back from the brink, academics have argued.

The Irish government was forced to accept the EU bailout in an attempt to keep its sinking economy afloat. It also proposed a four-year austerity plan that would see the loss of as many as 25,000 public sector jobs, the implementation of pay cuts for new staff and a hike in a key tax. The measures mark a nadir for the nation once dubbed the "Celtic Tiger" because of its rapid economic growth in the decade before the global recession hit.

At a debate in Dublin last week, humanities researchers argued that it was time for the country to return to first principles to recover its stability. "Ireland’s economic recovery will require an economy based on reality, not on fantasy," said Adam Roberts, president of the British Academy. "Among Ireland’s great assets are its great literary traditions and artistic traditions, and its thriving universities. It needs to focus on them and not [obsess] that the only vital element in economic recovery is manufacturing."

Roberts said that academics would have to ensure that the damage done to universities by the Irish economic crisis was limited. "We all know that there has been a very serious problem for Irish universities," he said, citing the crisis over salary reductions.

The debate, "How the Humanities Can Help Us Rebuild Ireland," marked the 10th anniversary of the founding of the Irish Research Council for the Humanities and Social Sciences.

Jane Ohlmeyer, Erasmus Smith professor of modern history at Trinity College Dublin, said the milestone was a "really big deal" for the country’s researchers. "Ireland historically invests in education, especially during times of trouble. This is not just about education, it’s the knowledge economy," Ohlmeyer said. "Even though we’re in meltdown financially, the funding for research will not be slashed because the government recognizes the fundamental importance of knowledge as a key to economic and social growth."

She argued that the growth of the digital humanities represented a new opportunity to bolster the Irish economy. "When it comes to this area, Ireland has made a very significant investment in the infrastructure. We’re doing a lot of the work in … partnership with industry, including IBM and Google. What’s interesting to me is research is going on in companies such as IBM that see the humanities – which are our central reach – as the next technical frontier."

Mary Canning, acting chair of the Higher Education Authority – Ireland’s funding council – agreed that the nation’s rich cultural history would stand it in good stead for the future. "Internationally, we are known for our writers, dramatists, musicians, educators and social campaigners, as well as for our heritage and our history," she said. "In these difficult times, we have not lost our ability to think, to create, to innovate and it is up to every one of us in this room to develop our ideas to help solve current economic and social problems."

Canning called for Irish economic policy to focus on developing the contribution made by the humanities in areas such as the creative arts, digital-content creation and tourism, and to promote the republic as a "global center of creativity."

"We’ve got to get our artists talking with our scientists and our engineers working with our historians and archaeologists to a much greater extent than ever before," she said.

The outspoken support for the arts and humanities as a driver of economic growth comes at a time when the British government is focusing on preserving funding for science, technology, engineering and mathematics as the most "strategically important" subjects.