Psychopathy. "Characterised by a pervasive pattern of disregard for, or violation of, the rights of others. Can involve selfishness . . . a lack of empathy . . . or inability to perceive danger and protect one's self."

IN trying to understand the approach that Europe has taken to the economic crisis so far, we might learn a thing or two from psychology. Were Europe -- or at least the institutions involved in dealing with the crisis -- a person, one might be forgiven for concluding that they were, as a clinical psychologist I spoke to put it, "exhibiting psychotic tendencies". It turns out that psychotic tendencies are quite common amongst senior business and political leaders. I wonder then if institutions can in turn reflect these in how they behave?

The collapse of Lehman Brothers in September 2008 triggered a global panic. It seemed that the banks were not, after all, too big to fail. The banks began to look at what they had been buying and selling for the past few years.

They quickly discovered that they owned a lot of mortgages which should never have been given out and which were never going to be repaid. They had also insured each other in the case of not getting paid -- the now infamous credit-default swaps. They didn't know how much garbage they owned or who owed what to whom when some Americans stopped paying their mortgages. So everyone panicked and stopped lending made-up money to each other.

In response to this, three critical decisions were taken in Europe. First, no European bank would be allowed to fail (read 'deal with the consequences of their own actions'). Second, no senior bondholder would have to share the cost (of their own dodgy investment decisions). Third, no quantitative easing would occur (that is, the ECB would not invent a stack of euro and use these to get the dodgy assets out of the market).

There is an argument that the first two of these were reasonable in the short term, to avoid a collapse of the European banking system. In the longer term, however, like the three-and-a-half years since Lehman, these decisions are madness. Coupled with the continued veto on quantitative easing, they mean that the citizens of Europe have had their money taken off them to cover the losses of the banking sector and the most important tool has been left on a shelf to gather dust.

It is okay for banks to fail. In fact, the big problems occur if you don't let them fail. The Americans know this -- in the past three years, 322 banks have been allowed to fail in the US.

Here's what Mervyn King, the Governor of the Bank of England, said last year: "The objective of supervision is to recognise that banks will fail. Our role is not to stop them failing. Our job is to make sure that if they fail because of poor management, then they do not contaminate the rest of the financial or economic sector, but they are still allowed to fail."

Ah, Mervyn, where were we when we needed you?

It is also okay for senior bondholders not to be paid in full. They know this. In fact, many of the senior bondholders in Anglo sold their bonds off at 40 per cent discounts. Did the financial system collapse? Did contagion occur? Did anything the ECB is afraid of happen? Nope, not a single thing.

It is also okay to engage in quantitative easing. From what I can ascertain, this has been vetoed by Angela Merkel, reflecting a deep-seated pathological fear of inflation from Germany.

Well, both the UK and US have been at it, printing money and using it both to buy up the dodgy assets that cause the damaging uncertainty and to get much-needed cash out to businesses so that they can create jobs. Inflation in the UK is currently just over 4 per cent, and projected to fall sharply in 2012. In the US, it is 3 per cent and falling.

So are we seeing psychopathic tendencies in Europe's behaviour? A violation of the rights of others? Every cent of income tax we pay for years to come will be used to cover the debts of strangers, with no greater good served.

Selfishness? We are consistently seeing the supposed leaders of Europe act in their own narrow self-interests, to the detriments of their partners.

A lack of empathy? I can attest to this from my meeting with the troika and I doubt many nights' sleep are being lost over Ireland's woes.

An inability to perceive danger and protect one's self? The institutions and leaders of Europe have made the crisis worse, not better. Their approach is viewed with equal measures of derision and despair in the global capitals.

Finally, let's take a look at their approach to Ireland. I asked the troika representatives how they believed Ireland was going to recover, whilst paying off all of our own and other people's debts. "Exports," they replied.

Really?

The Irish are currently the most heavily indebted people on earth. We have a mortgage crisis which is just getting going. We already have a modern economy, so there are not huge gains to be made through 'structural reforms'. Our education system has seen the biggest collapse in standards anywhere in the developed world in a decade.

We have a budget deficit which must be brought under control and which will mean further big reductions in government spending and disposable income. Next year, our debt will reach roughly €200bn. Under the new Fiscal Compact, we will have to start paying that down at €5bn per year. Then there's the €8bn interest payments.

Last year, we raised about €35bn in tax. Let's make the hugely optimistic assumption that we manage to get that up to €45bn in a few years. After meeting our debt obligations of €13bn (the capital and interest payments), we would be left with €32bn to run the country.

That's about a 50 per cent cut on two years ago. At the same time, we need to create several hundred thousand new jobs. Finally, the IMF is predicting that Europe is going to re-enter recession, meaning they're not going to buy our stuff. Exports?

Whilst all of the above is pretty depressing, we can, and will, ultimately, get through this. What is in question is how much pain we will experience before we get to the other side. The first step is to help our friends in Europe understand that their behaviour is not helping and that they may not be perceiving the real dangers.

But perhaps calling this behaviour "psychopathic" goes too far. Perhaps there is another psychological condition that better fits it. What about this definition?

"A loss of contact with reality, usually including false beliefs about what is taking place, about who one is, and seeing or hearing things that aren't there."

Try that on, Europe. It's called psychosis.

Sunday Independent