On Monday morning, on High Street in Kilkenny, I popped into a cafe to grab a coffee before leaving the Marble City following a wonderful weekend of economics, comedy and common sense at the Kilkenomics festival (www.kilkenomics.com).

Just as I was paying, the man who ran this lovely little cafe asked me nervously whether his life savings were safe in Irish banks. He told me he couldn’t sleep at night worried about the risk that his money wouldn’t be there in the morning.

He said he simply didn’t trust them — the banks or the Government — any more. Given what had happened over the past two years, he said, he couldn’t rule anything out. He said that so many unthinkable things had happened — Anglo, negative equity, ghost estates, bailouts, NAMA, FAS scandals, AIB bankers lying about the state of their books — he was prepared for anything now.

For me, this was one significant moment of this three-year-old financial crisis. Here was an ordinary person terrified, not about the value of the house or the robustness of their business, but about the security of their savings. For this reason alone, it would be criminal for this Government and the senior civil servants who pull the strings to prevaricate any further on the bailout offered by the European Central Bank.

Only massive financial aid from the ECB will rule out once and for all the prospect of a bank run in Ireland. Only a huge transfer of cash from the central bank — the economic equivalent of a blood transfusion — can stabilise the patient.

It is deeply frustrating to see a government playing politics with something so fundamental as people’s savings.

Bad enough to have been sold a pup in the boom about house prices and guff about how wealthy we all were, bad enough having tax rises to pay for Anglo, but to see trust eroded so significantly because of incompetence is dangerous.

So let’s look at the big picture. The ECB wants to offer us financial assistance to keep our banks open. Our banks need a huge injection of money. There are only two places this can come from because no one in their right mind will lend to them. The cash can only come from the Irish Government and the ECB. The Irish Government buy the new IOUs from the crippled banks and the national debt rises even more. This is more “cash for trash”. We might as well light a match under the money.

The other option is to admit that the game is up and restructure all the bank debts of the Irish banks. This would involve the creditors taking a significant loss. The creditors are the remaining senior bond holders and the ECB. The subordinated debt holders should be told where to go and stop annoying us. Subordinated capital always gets wiped out in a crisis.

In all cases where there is a resolution of a banking problem or any bankruptcy, new capital takes precedence over old capital. So the lad who puts his cash in now gets all the goodies and the lad who put his cash in before now gets burned. That’s standard practice in capitalism.

So the ECB as well as the Irish central bank have to realise that if we are to have an end to the crisis, they must take a loss. However, it is quite different in the case of the banks at this stage because the ECB will be both the winner and the loser here.

So why would the ECB bail us out at all? Surely, if it was rational it would just walk away from the financial mess that is Ireland? But it can’t. The ECB is actually part of the problem. It presided over the huge lending from German and French banks to Irish, Portuguese, Spanish and Greek banks. This happened on its watch and the whole Euro project is an experiment, so when you realise that the ECB officials have about as much idea as the cafe owner in Kilkenny as to where this experiment will end, you realise that they are in a bind too. And this is the only card we can play. The ECB doesn’t know how to get out of this mess. It is playing a game of bluff with the people of Europe as well.

But we know what it does have. It has money. And we know that we don’t have any money. But we have the best thing in negotiation, we have the element of uncertainty.

If the ECB doesn’t sort this out, it risks the possibility that contagion will sweep away its euro experiment. The interesting thing is that it doesn’t know how to assess this risk. The risk for the ECB may be low if the financial markets believe that Ireland is uniquely delinquent. In which case Ireland is not systemically important and an Irish crisis need not be a euro crisis.

If, however, the ECB believes that financial markets see the euro as systemically risky, then the problem for the ECB becomes much bigger and an immediate resolution of the Irish dilemma is in its interests. This opacity is our only get-out card. We need to play it.

Here are the numbers. As of yesterday, the ECB was sitting on assets of e1,878bn. These are government bonds and bank IOUs which the ECB takes as collateral for the cash it lends to the banks. Interestingly, the Irish central bank’s assets total €185bn.

So, the Irish central bank’s assets are about 10pc of the ECB’s. An unusual situation for a country that is only forecast to add 1.72pc of eurozone GDP in 2010.

If we look deeper, we see that the ECB has lent a total of €516bn to commercial banks within the entire eurozone. The Irish central bank has lent €165bn to banks based here. (Our GDP for 2010 is forecast to be €155bn.) So of all money lent to banks in the eurozone, 31pc is lent to banks based in Ireland.

What does all of this tell us?

That the Irish banking system is bust. But more importantly, the amount of money that is passing through the books of our central bank is completely unsustainable to a country of our size.

But from a negotiating position it tells us that the ECB is umbillically linked to us and can’t let us go. That is our only option now and massive financial aid from the ECB is the only way deposits will be safe. It will not be pretty or pleasant, but it’s what has to be done now.

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