The present policy of Ireland’s mainstream politicians will lead to economic bankruptcy, to be followed by political bankruptcy.

Ireland’s banks are fundamentally insolvent without continual infusions of Irish taxpayers’ money. However the Irish Government, supported by the main opposition party Fine Gael, has decided to keep them alive indefinitely.

That way the banks can continue to pay their creditors and bondholders who lent them vast sums that fuelled the country’s 2001-2007 borrowing binge, and keep hope alive amongst their shareholders that the value of their shares will recover sometime in the future.

As a consequence Irish businesses and households are at present being starved of credit, causing painful belt-tightening and job losses, in order to keep the Bank of Ireland, Allied Irish Banks and the other Irish banks alive as “zombie banks” at taxpayers’ expense.

Bank nationalisation is not the answer. That would transfer ownership of the banks’ bad assets to Irish taxpayers, and impose on them the job of repaying the Banks’ debts.

What the country really needs is one or more “good” state banks to be set up from scratch in order to take over the essential function of credit provision to society on the lines proposed by Financial Times economist Willem Buiter and Nobel Economics Prizewinner Joseph Stiglitz, as well as by financier George Soros (see Buiter’s important articles on this topic at ft.com/maverecon and four of them copied below for your information).

Ireland had state-maintained banks in the past: the Industrial Credit Corporation and Agricultural Credit Corporation.

The best way of freeing credit to normal Irish business and households without expecting taxpayers to protect bank bondholders and shareholders from the results of their feckless past lending and improvidence, is to establish such “good” state banks, which could be privatised later if desired.

These would be free of the dud and artificially inflated assets which clog up lending by the existing private banks. The new “good” banks could be capitalised by public money as well as the currently State-guaranteed deposits in the existing private banks. The depositors in the latter would of course move to the new “good” bank/banks.

The laws of the free market should then be let take their course, so that the insolvent Irish banks and their criminally improvident managements would move into bankruptcy or be restructured by means of special Government legislation.

Letting the insolvent bank of Ireland, Allied Irish Banks and the rest of them go bankrupt will bring down radically the price of Irish land, houses and commercial property, which is currently being artificially inflated by the banks’ exaggerated loan-book valuations.

These unrealistic values in turn are underpinned by Irish Finance Minister Lenihan’s largesse, for which the country’s taxpayers will be expected to pay more and ever more for years ahead – indefinitely rewarding the banks’ incompetence and recklessness.

The “good” state banks can take over the buildings and much of the staff of the existing banks to administer the new clean banks, and the state can withdraw its guarantee of the liabilities of all existing banks, which it was folly to have agreed to last September in the first place.

This foolish act by a handful of politicians put Irish taxpayers into hock indefinitely for the benefit of the banks that were the main instrument of the country’s banking crisis, the builders and developers to whom the banks lent money, and the Irish politicians themselves, who set the administrative-political framework for the borrowing binge.

These are the same politicians whose uncritical europhilia brought Ireland into the eurozone, even though Ireland is unique among the 16 eurozone countries in doing two-thirds of its trade outside te eurozone and the country’s exports are now sagging in face of the fall in sterling and the likely fall in the dollar as the Obama administration deluges the American economy with money.

Ireland is now caught in the vice of the eurozone, unable to regain economic competitiveness by devaluing its currency in the way the UK and Sweden can – countries that are full EU members but are not in the eurozone. Instead Ireland must “devalue” its citizens’ wages and salaries, profits, pensions and social welfare payments for years to come as the country’s politicians point the Irish people towards valleys of pain ahead.

It is a fact that abolishing the national currency and joining the eurozone was the basic cause of Ireland’s credit explosion from 2001-2007.

Floating the Irish púnt between 1993 and 2000 and the highly competitive exchange rate that gave rise to was what gave birth to the “Celtic Tiger” economy of the 1990s.

When did the Irish growth rate double to 7 per cent from the 3-4 per cent average it had been from the 1960s to the early 1990s? In 1993, the year of the devaluation of the Irish púnt – which Mr Bertie Ahern, Finance Minister at the time, strove manfully to resist. When was the only period in the history of the Irish State that it followed an independent exchange rate policy, effectively floating the currency and giving priority to the real economy rather than to maintaining the exchange rate?

From 1993 to 2001, when the country’s annual economic growth rate averaged nearly 8 per cent.

Ireland already had an economic boom and house prices were rising rapidly when it joined the eurozone and cut interest rates by half. This was the opposite to what the real economy needed. No wonder house prices rocketed as the economy shifted gears from exporting abroad to housebuilding at home and credit hugely expanded.

“The eurozone will give us permanently low interest rates,” said leading economist John FitzGerald, son of former Irish Premier Garret FitzGerald.

Having effectively bankrupted the Irish economy, the same politicians are now preparing to bankrupt it politically.

Through the Treaty of Lisbon they are seeking to turn the Irish State into a region within a European Federation and turn its people into real citizens of an EU political Union. If the Irish people are bullied and bamboozled into reversing their rejection of this Treaty last year in the referendum re-run which their Government plans for next October, the Irish and other peoples of the EU would find themselves subordinated from 1 January 2010 to European laws, in making which Germany’s voting weight in the EU Council of Ministers would more than double from its present 8 per cent to 17 per cent, that of France, Italy and Britain would grow from 8 per cent to 12 per cent each, while Ireland’s vote would be halved from 2 per cent to 0.8 per cent.

These laws would in turn be exclusively proposed by a non-elected EU Commission on which Ireland and the other EU Member States would lose their right to decide who their national Commissioner would be. This post-Lisbon EU would be able to decide the rights of 500 million EU citizens, including the Irish, and would be given the power to impose any tax to finance the EU without the need for further Treaties or referendums.

Is this generation of Irish people fated to follow the failed politicians that currently rule them over a political cliff as well as an economic one, like the proverbial lemmings?