We are living in truly historic times. The massive rally that followed the euro bailout has petered out, the value of the euro has fallen back. One implication of this is that markets are not convinced that the huge EU/IMF/ECB bailout will be enough.

People are asking the meaning of signing such a huge cheque. Are there strings attached? In order to make such guarantees valid, mustn’t there be much closer integration in Europe? While the EU elite might want this, the people of Europe don't. France, Holland and Ireland have all rejected more integration when asked (okay, we voted again). But the signal from the street is that the French want to remain French and sovereign, the Dutch do too and doubtless the Germans, Danes and Greeks feel the same.

Europe's financial structure reminiscent of World War One

So the people pull one way, the political and banking elite the other. As a result of this unstable system of IOUs that ties countries' financial infrastructure together, we can see an cleavage between citizens’ interests and those of the elite. This disconnect between state and citizen leads to the spectacle whereby a department of finance, supposed to work in the average citizen's interest, makes decisions that validate existing banking contracts and that have nothing to do with the average citizen – but he/she foots the bill.

Let’s look back a bit. When examined from a historical angle, the whole financial structure of Europe is now eerily reminiscent of the system of alliances that existed before World War One. How was it that when a Serb nationalist in Bosnia murdered the heir to the Austrian throne, that a local quarrel between Serbia and the Austrian Empire, ended with young men from Dublin dying in Belgian trenches? Similarly, how did it happen that when the Greek government failed to control its spending, a loan application in the town of Waterford is withdrawn?

Contagion links everyone

Remember the alliances in 1914 were constructed to prevent war. In the end they delivered the opposite. Now think of today's financial alliances. The existence of the euro means that all euro countries are tied together – and not just politically. The underlying adhesive that binds these alliances together are huge loans between eurozone banks. For example, our banks owe German banks alone €129bn – that's close to the size of our GNP. When Greece wobbles, a fault line emerges and German banks begin to worry if the Greeks will ever pay back the loans.

With this in doubt, the Irish loans also look in doubt simply because bankers are nervous. Now with worries about existing loans no one will lend further to Irish banks and a business loan application scheduled in Waterford gets cancelled. Unemployment goes up in Waterford but it also goes up all over the country, undermining our economy further. So the contagion that we hear so much about links everyone to everything all the time. It’s the financial equivalent of Germany coming into the war to defend Austria, with Russia going in to support the Serbs, and then France and Britain coming in for Russia. Suddenly, instead of a Greek and peripheral European crisis, we get a continent-wide panic which prompts a dramatic response. When World War One broke out, everyone was giddy with patriotism but most truly expected a few skirmishes and then reason would prevail with the whole thing over by Christmas. That didn't prove to be the case.

Create two-speed Europe and start again

Now think of the huge bailout. Initially, markets were euphoric. Only 24 hours later, they weren’t so sure. If the markets shrugged off a €120bn bailout for Greece last week, it's not too surprising they now shrug off a €750bn bailout for the whole of Europe. The "ever increasing bailout" leaves us in a huge bind because if it isn’t perceived to be enough, what next? Each bailout has to be much bigger than the last and all this undermines the credibility of the bailouts because so many countries have run out of money, which is the nub of the problem in the first place.

As in WWI, the initial euphoria wanes and the population realises that they’re in for a long slog. Do we have the appetite for more austerity to save a system of bank alliances? I'm not too sure the average Greek, Spaniard or Irishman has the stomach for what lies ahead. The obvious alternative to borrowing to solve a problem that was caused by too much borrowing in the first place is to orchestrate an organised default, realise that we can't compete with Germany in the single currency, create a two-speed Europe and start again. But something so obvious could never fly, could it?