EVER WISHED, in a dull moment, that you could have lived through some of the big moments of European history? Well, be careful what you wish for. We’re living through one of them now and it’s not much fun.

Historical moments aren’t sudden changes. They’re the points at which something that has been long in the making finally emerges, when something murky crystallises into clarity. That happened last week, and Ireland was a significant part of it.

What happened was that two of the big shaping forces of western Europe, forces that have been working broadly in tandem for 300 years, clearly fell apart. One force is capitalism; the other democracy. From the Enlightenment onwards, it has been an accepted truth that democracy and capitalism were at the very least compatible with each other. The things that were needed in order for capitalism to develop – the breaking of aristocratic power, the free movement of labour, an open market in ideas, functioning parliaments, independent legal systems, states that could command popular consent and thus underpin stability, taxation to fund mass education and infrastructure – were also conditions for political democracy. They may not have been sufficient conditions, but they were necessary ones.

This is not to say that there have not been huge tensions in the relationship between capitalism and democracy, or that there have not been periods when the holders of capital preferred authoritarian or fascist regimes. Nor is it to deny that the large-scale inequalities inherent in most forms of capitalism have tended to limit the practice of democracy, through private control of media, the funding of political parties and the ability of the very rich to threaten and intimidate elected governments. The point is simply that the two forces were generally compatible. The trump card of capitalism against communism was clear and simple: we hold free elections and you don’t.

What became so dramatically clear last week was that this compatibility has ended. The leading form of capitalism – the finance capitalism that has expanded so monstrously over the last 30 years – is no longer compatible with democracy in Europe.

And by democracy in this context I mean just the limited, basic form: universal suffrage and sovereign governments. This is a pretty big deal.

Consider the three things that happened in Greece and Ireland last week. Firstly, it was made explicit that the most reckless, irresponsible and ultimately impermissible thing a government could do was to seek the consent of its own people to decisions that would shape their lives. And, indeed, even if it had gone ahead, the Greek referendum would have been largely meaningless. As one Greek MP put it, the question would have been: do you want to take your own life or to be killed? Secondly, there was open and shameless intervention by European leaders (Angela Merkel and Nicolas Sarkozy) in the internal affairs of another state. Sarkozy hailed the “courageous and responsible” stance of the main Greek opposition party – in effect a call for the replacement of the elected Greek government.

The third part of this moment of clarity was what happened in Ireland: the payment of a billion dollars to unsecured Anglo Irish Bank bondholders. Apart from its obvious obscenity, the most striking aspect of this was that, for the first time, we had a government performing an action it openly declared to be wrong. Michael Noonan wasn’t handing over these vast sums of cash from a bankrupt nation to vulture capitalist gamblers because he thought it was a good idea. He was doing it because there was a gun to his head. The threat came from the European Central Bank and it was as crude as it was brutal: give the spivs your taxpayers’ money or we’ll bring down your banking system.

Again, as in Greece, even the basic forms of democracy were incompatible with this process. There could not be a Greek referendum because there is no acceptable question that can be answered by a democratic vote. And there could not be a debate in the Irish parliament about the extortion of a billion dollars because there is nothing to be debated. Referendums and parliamentary votes are rituals of public consent. But the question of consent is now not just irrelevant. It is reckless, outrageous, downright scandalous.

And this isn’t just a simple matter of the Merkozy monster lording it over us little PIGS. For at this historic moment, even the German chancellor is little more than a cipher. She’s caught in the democratic crisis too. Remember this time last year when Angela Merkel started to make noises about bondholders sharing the pain of rescuing the banking system? She had to back down very quickly and make it clear that she didn’t mean present bondholders – heaven forbid. Even the German chancellor isn’t allowed to say certain things.

Europe, and the rest of the western world, is thus at a parting of the ways. We can have the form of rapacious finance capitalism that has become the dominant force in our economies and societies.

Or we can have democracy. But we can’t have both.