The word is out that Ireland's recovery package is bound to fail.

Bond yields have risen again today.

And now the New York Times says:

Ireland has finally taken its medicine, accepting the financial rescue package European officials have been pushing for several weeks.

But even as Europe moved to avert this latest debt crisis, economists and policy experts are increasingly debating whether it would be better, and fairer, for the Continent’s weakest economies to default on payments to lenders.

Many experts now say that bailouts only delay the inevitable. Instead of further wounding their economies with drastic budget-slashing, the specialists assert, governments should immediately start talks with bondholders and force them to accept a loss on their investments.

This is, of course, the German plan, in effect.

And it’s right. There’s bad money in the system. It has to be eradicated. The question is who bears the cost.

I say it’s not the ordinary people of the failing states.

And it’s not their governments — whose bond yields need to be normalised by massive QE by the European central Bank who then needs to replace the bonds it buys with new Euro bonds — which won’t be at all inflationary in the current depressed environment.

But banks do need to take a hair cut. And yes that will mean widespread nationalisation of banks. Which is the only way to bring them into line anyway.

So default is an effective option. It’s time to embrace it. And the sooner the better.

But have those new boatrds available for those nationalised banks as soon as possible I say — because they’ll need to be tough.