The solution of the problem lies at the hands of the core countries of the European Union. Banks of those countries have to be recapitalized.

They previously tortured the Greeks. Now they are doing the same to Ireland. Given the huge incapability of Europe with respect to economic policy, I will no longer accuse Turkey's government of incapacity, which in fact is correct. Nothing here is so bad, but it might have been worse. European presidents and prime ministers, predominantly Angela Merkel, miss no opportunity to make things worse. But why is that so? It is not a good idea trying to govern a country and even a continent relying solely upon public opinion surveys. It will shorten your horizon and downscale your targets. I guess this is what happens: the melting European Union project. And politicians, mainly Merkel, have no idea what to do.

The Irish government is currently trying to pass the newly signed stability agreement in its parliament. But wait and see, if the agreement is adopted as it is, the same parliament will definitely dismiss the agreement in a couple of years. Why? The public debt stock of Ireland is 130 percent as a ratio to the GDP. The interest to be paid on the facility provided by the European Union reaches as high as 6 percent. What this implies is that Ireland will implement one austerity measures after another. Wages and pensions will be cut and the growth rate will decrease whereas the ratio of public debt to the GDP will not ease to do the high interest rate to be paid. Just as was the case in Greece. In a couple of years the annual amount Ireland has to pay in exchange for the funds received will reach almost 10 percent of the country's national income, as Barry Eichengreen recently emphasized in Handelsblatt. He went further, saying that the amount that has to be paid is an indemnity, referring to the war indemnity Germany was forced to pay in the aftermath of World War I. To be honest, this can be called nothing but an indemnity; an indemnity imposed for demolishing the European Union dream.

Nowadays other efforts are being made to convince other countries to accept such measures of torture. Why? Because the European banking system has a problem: The banks are sick and their current state cannot be sustained. It is necessary to take measures. On the other hand, the banks are also a transportation web that connects the European economy. A problem in one part of the web affects all of the other parts. What needs to be done is to design a state-driven mechanism to recapitalize the German, British and French banks. This way it will be possible to restructure the government debt securities (GDSs) of Greece, Ireland, Spain, Portugal and Italy. In fact, it is the German banks that shoulder Ireland's risk. If Ireland declares that it will fail to repay a certain part of its debt, German banks will be affected adversely. So, Germans, rather than torturing Ireland, have to think through how they can recapitalize their banks. What they are doing instead is playing games since there is no leader stepping in to tell the truth to the public "coldheartedly."

So this is the reality: The solution of the problem lies in the hands of the core countries of the European Union. The banks of those countries must be recapitalized. But admitting this reality is the same as admitting that the European Union project does not work. Why? The European Union project is built upon the principles that any rule that applies in Berlin also applies in Dublin and Athens. But the balance sheets of banks do not seem to represent this principle in action. GDSs bought from Athens and Dublin assuming that they were the same as those sold in Berlin were understood to be not.

The European Union project as a theoretical fiction seems pale before the colors of real life. Lenin said so years ago, right?

This commentary was published in Radikal daily on 10.12.2010