With Ireland’s enforced £85 billion pound bailout failing to reassure its creditors, the future of the Euro – and the ability of the economic union of its 15 member states to sustain itself – is coming into question. Economists of the left and right – Will Hutton and Irwin Stelzer, for example – are beginning to wonder if a (strong) ‘Euro north’ and a (weak) ‘Euro south will emerge, with the latter group being allowed to devalue their currencies.

For those who are understandably confused about why the global economy still seems to be unravelling, in spite of frenetic multinational activity, and who wonder how it might possibly be relevant that ‘Irish bondholders might receive a haircut’, or what on earth sovereign debt contagion is, the problem is the same problem as we have been living with for nearly three years. The global economy is still infected with high levels of bad debt.

But while in 2008 these loans were mainly held by international financial institutions – hence the collapse of Lehman Brothers et al – now, they are now held by nation states. Governments backed (or should we say, tried to back) their banking institutions for the sake of depositors and the wider economy, effectively nationalising them. This meant two things: massive public debt (32% of GDP in Ireland), and a sovereign debt crisis. Creditors (those bondholders again) become increasingly worried about the risk of lending to governments, because states were now holding so much of the bad debt previously held the banks.

What’s worse was, because of the state of the real economy, more debt is turning from ‘good’ to ‘bad’ all the time. So while before states had generally been seen as a good bet for lending (what they all have in common are taxpayers), some – Ireland in the latest case – are now so over exposed that lending becomes a massive risk. Their debts are too big, and their economies too weak – cue the European Central Bank and the IMF with cash to keep things ticking over, but with tough conditions over tax and spending.

On this side of the Irish Sea, the coalition played its best hand with the Comprehensive Spending Review. Its harshness was, at least in part, an attempt to head off the kind of vicious circle into which Ireland has fallen, and a conscious attempt to assure the money markets that UK plc is a safe bet for lending. Of course, no one knows how any successes this policy might have could be cancelled out through negative effects in the wider economy (i.e., lower growth or increasing unemployment) – that could be a vicious circle of another kind.

But the route taken willingly by Britain in the CSR, and by Greece and Ireland under pressure from the IMF and European Central Bank, includes a social collateral. It leads, for instance, to students protesting – sometimes violently – on the streets of our major cities. It leads to strikes when harsh pay conditions are applied.

These things are the first signs of a more agonistic politics that will mark the next decade, as people vent anger at paying twice for the intellectual, moral and regulatory failure of the international banking system – first with their taxes, and then with the loss of public services and public sector jobs. They will protest against policies, but they will also protest at the way in which globalisation – one hallmark of which is the free flow of capital and debt around the world – has bonded us in a community not of our choosing, one where we must suffer the consequences of the actions of people on the other side of the world, yet over whom we can exercise no control.

Our commitments to solidarity are tested to their limits, and this is particularly the case in the European Union. To what extent will the tax payers of Germany or of Britain in the case of the Irish crisis, continue to accept the fact that they are in some way responsible for supporting ‘other’ economies, or dig out states – like Greece – which have been marked by profligacy. This poses the question, does the European Union really rest on any genuine sentiment of solidarity? Are we seeing the fissures in the European project widening? Or will this economic crisis strengthen the sense of reciprocity and gratitude between national communities?

My bet is on the former.

Paul Bickley is Senior Researcher at Theos.