It is very obviously game over  for Ireland. Within 24 hours I have no doubt that it will have been forced to accept European money to bail out its failing economy.

I am sorry for the people of Ireland. They will bear a wholly unnecessary burden as a result of the financial folly of their banks. And, since contagion seems almost inevitable in these situations because that is the way that markets work, Portugal and maybe Spain will now face the same fate. The Greeks are already there, of course.

But, if it is game over then now is the time to work out the next steps. That, though,requires recognition of the failure in the existing model. That model is based onthe presumption that the free flow of capital is essential for economic well-being. This, in turn, is based upon the presumptions of the efficient market hypothesis which says that it is impossible to consistently achieve returns ahead of those of the market as a whole because the information publicly available to the market is always used efficiently. This, in turn, is used to promote a whole range of additional presumptions and policy positions,including the one that markets are always more efficient than government.

These assumptions are very clearly fundamentally wrong. The banking model in Ireland was very obviously hopelessly inefficient with the information available to it. The capital that flowed into Ireland as a consequence, which was way beyond the capacity of that country to absorb in any economically efficient fashion, resulted in a bubble that burst, catastrophically. It is only the action of government that can now preserve the Irish state, the well-being of its people and the legacy financial institutions that will survive this crash.

It is now falling to Europe to bail out Ireland, and in turn Portugal and Spain, I expect. When one quarter of the member states of the Eurozone have suffered major financial failures isn't it time to ask whether the model is right? I see enormous advantages in the existence of the European Community, but the premise on which it was built, that capital must flow freely is inherently flawed. That assumption is now bringing nation states to their knees, but banks and bankers  are both surviving and prospering. Very clearly there is a fundamental flaw in this model.

So far attempts to regulate banks have, for all practical purposes, failed miserably. So to have all attempts to regulate offshore, which is a critical component in the regulation of banking and finance. Instead models of economic behaviour, such as that promoted by current UK ConDem government, which are also based on the efficient market hypothesis are dominating current trends in economic policy. The simple fact is that the assumptions that have brought Ireland to its knees are now being imposed, willingly and with enthusiasm on the UK electorate. Just as policies based on these assumptions have failed  Ireland, so will they fail the UK.

Unless we do now regulate banks, constrain the incentives for abuse that bankers have, impose higher taxes on this sector to limit its activities, create a Robin Hood Tax to mitigate risk in certain forms of financial transaction and at the same time stimulate alternative, real, economic activity that promotes the well-being of ordinary people in this country, then we too will be heading for a financial disaster. And, the same is true, of course, of the whole Eurozone. The difference is that whilst  Ireland will have the European Central Bank to bail it out we won’t. In theory we cannot go bankrupt as a state  with our own currency. I stand by that hypothesis. But there is no doubt at all that we could suffer serious stagflation, and this is the risk we now face.

Ireland is not an isolated incident. Ireland is the inevitable consequence of a failed economic model, which is, unfortunately, the one that the UK government currently endorses. Only the most radical shift in policy can save us from a similar fate. And with George Osborne in charge heaven help us.