As I write, the Europe’s sovereign debt crisis is a ticking bomb. Unprecedented events are happening at a mind-spinning pace. In the middle of last week the BRICS (Brazil, Russia, India, China and South Africa) offered to help bail out the struggling European countries. By the end of the week, the European central bank, the US Federal Reserve and other central banks announced that European banks would be showered with “unlimited” loans to help them.

The reason for all of these sudden extraordinary measures is the fear that an impending European financial crisis could make the events of 2008 look like minor leagues. It is a justified fear. If financial panic spreads and speculators go for blood, it will be almost impossible to stop the chaos.

It seems that the best plan of world governments is that they can write a blank cheque to banks and other financial institutions. The hope is that financial markets will be reassured by this safety net under banks, and they will relax about the possibility that countries like Greece might default on their debt.

Trying desperately to drown problems in a geyser of money is not what you might imagine is the hallmark of what neoliberal public policy. Unfortunately financial markets are so twitchy- and so powerful – that even the tight-fisted neo-Conservatives have no choice but to hose banks down with cash.

But why are European countries and their banks in this mess? As usual, it’s a complicated story. But suffice to say a sovereign debt crisis takes two: countries borrowed a lot of money, and the financial markets – including major banks – lent it to them.

Observers often get all high and mighty in blaming countries for borrowing too much. They can’t wait to impose austerity measures on the citizens of those countries. Banks, however, are certainly NOT being asked to accept austerity measures for their role in this- we can’t push money at them fast enough.

Let’s look at the “blame-the-debtors” argument more closely. Sure, I will concede that some countries have been managing their finances badly. But we might also acknowledge that those countries borrowed in part to manage a dilemma.

Neoliberal elites have been demanding reduced tax loads, which drains the public coffers of money. At the same time, governments had a hard time cutting expenses. A comparatively strong European working class limits the government’s ability to manage the budget squeeze by trashing social programs. Plus government spending helps lubricate other political difficulties: government contracts often reward business friends while buying support as they provide good jobs to potentially disaffected middle class workers.

Countries are caught in a budget squeeze between a militant working class, the necessity of appeasing the middle class, and a radicalized owning class bent on reducing state revenues. It’s not surprising that they manage the budget squeeze by borrowing.

Even in good times it is hard to handle the reduction of tax revenues while expenditures are politically tough to cut. But since the last financial crisis, it has not been the best of economic times for many.

In bad economic times, tax revenues are further reduced while the cost of social programs like unemployment insurance goes up and pressure mounts for the government to create jobs. Governments should increase their expenditures to soften economic downturns.

Perhaps a more interesting question is why did those banks and other financial market players lend to those countries? A loan is a deal between consenting parties, and banks are supposed to have the state-of-the-art abilities to assess the financial health of borrowers. Supposedly their capacities to assess risk were improved in the wake of the 2008 financial crisis.

Could it be that bankers made questionable loans, and they now blame the profligacy of the borrowers?

Particularly since the 2008 financial crisis, the world has had a big case of “moral hazard”. This is banking lingo for a situation which encourages banks to take too many risks. After the crisis of 2008, banks and other big financial institutions saw that governments would do anything and everything to stop their financial sectors from going belly-up. Whether or not the firms getting support had made wise businesses decisions, it was clear that no government was going to let financial sector giants go belly-up in the wake of the fall-out from the Lehman’s collapse.

This demonstrated willingness of government’s to help their financial sectors at all costs gives financial market players an incentive to do exactly the sorts of things that are likely to sew the seeds of another financial crisis. They are much more blasé about making dubious loans if they think that they will get showered with cash if another crisis hits. With these kinds of perverse incentives for banks to do the wrong thing, its not surprising that we now face a bigger and better financial catastrophe barely 3 years since the 2008 meltdown.

This is the crazy conundrum of neoliberal finance: governments can’t avoid bailing out their financial sectors, since unparalleled economic disaster looms if government’s let major financial institutions fail. But by the same token, bailing these financial behemoths out just encourages them to ramp up the activities that produce the next financial crisis. And the orgy of neoliberal financial deregulation over the last decades means that the regulatory safeguards are overwhelmed by all of these incentives to do the wrong thing.

This would seem to be the very high point of insanity. Bailing out the financial sector repeatedly, only to set the stage for the next disaster, is perhaps the worst use of the world’s resource I can imagine.

We cannot simply keep throwing money at this problem. In return for this current bailout, we must demand a rethinking of the ways in which private, for-profit financial sector is exposing all of us to economic jeopardy.

We could start with questioning whether it makes sense for banks to be so big that they have to be bailed out when they get into trouble. If banks were smaller, we could afford to punish them for their bad behaviour.

The business of banking does not have to bring the world to the brink of crisis. There are many progressive alternatives to regulate banks better, and to make sure that the financial sector actually serves the public interest. But none of these ideas will happen so long as repeated bank crises continue to hold all of us hostage.

Ellen Russell is a Research Associate with the CCPA.

This piece was originally published on rabble.ca.