Trying to encapsulate their disgust at the bankers and Fianna Fáil politicians who lined their pockets while ruining their country, literate Irish citizens quoted WB Yeats's most pointed question. In September 1913, he contrasted the merchants who "fumble in a greasy till" – and how precise a description that is of the gropings of the modern Dublin elite – with Wolf Tone, John O'Leary and all those who sacrificed all they had for Irish independence.

"Was it for this…" asked Yeats, "that all that blood was shed,



For this Edward Fitzgerald died,

And Robert Emmet and Wolfe Tone,

All that delirium of the brave?

Romantic Ireland's dead and gone,

It's with O'Leary in the grave.



To the question: "Was it for this?" the Irish must now add: "Who do you think you are?" The terms Ireland's new rulers in the EU have imposed on their subjects are inexcusable. It is hard to tell which is worse: the stringency of the EU's demands or the immorality that lies behind its choice of targets. The debts of Ireland's private banks are now the Irish public's burden. Rather than force senior bond holders in German, French and British banks to accept the consequences of their reckless lending, taxpayers will take the loss and bail them out. Under the terms of the EU's "rescue package", public debt will reach 130% of GDP and Ireland will repay interest at 5.85%. After a couple of years, they must start repaying the principal.

Joan Burton, financial spokeswoman for the Irish Labour party, which has the distinction of being the only party to have behaved honourably as bubble turned to recession, explained to me how Ireland was in no condition to start handing over 10% of its national income. It has already had two years of austerity, seen unemployment rise from 4% to 14%, raised taxes and levies and forced public sector workers to take pay cuts. Now it must go through it all again.

Austerity risks pushing Ireland into a debt-deflation spiral. The more it cuts to pay its debt, the faster growth declines and the less able Ireland is to meet its debt repayments.

Except Ms Burton did not call them "repayments". She called them "reparations". With that, she summoned the ghost of Keynes to stand alongside the ghost of Yeats and imply that the EU is treating Ireland as the allies treated Germany in the Treaty of Versailles. Germany was forced to pay reparations for its "war guilt" then: Ireland must pay reparations for its economic guilt now.

And not just Ireland. As the debt crisis rolls through Europe, Portuguese, Spanish and – who knows? – Italian taxpayers may have to pay reparations too. We are enduring similar impositions. David Cameron and Nick Clegg tell the young and the poor that they should pay for the folly of the old and the wealthy through benefit cuts and increased student debt. In Britain as in Ireland, it is those who are least to blame who are suffering the most.

That has been the way of the world ever since the fall of Lehman Brothers. The keepers of economic orthodoxy insist that we must allow the privatisation of bank profits and the nationalisation of bank losses because the consequences of making bankers or bond holders responsible for their mistakes are too dreadful to contemplate.

I find the failure of conservative economists to admit that their free-market ideology collapsed with the bailouts an intellectual scandal. But dissecting how they furtively acquiesce to the propping up of lame-duck banks while pretending that nothing has changed is a task for another day. The more pressing issue is the likely response of European publics to the debts the crisis has dumped on them.

Keynes awoke to find himself famous after he warned that the reparations the allies imposed on a defeated Germany in 1919 would produce an economic and political catastrophe. The Germans would not accept unendurable terms indefinitely he said and ended his Economic Consequences of the Peace with the prophetic line: "If we aim deliberately at the impoverishment of central Europe, vengeance, I dare predict, will not limp."

Germany's vengeance took the form of fascism, but I don't think western European societies are about to embrace xenophobic nationalism – the 20th century inoculated us against that sickness. Europeans are on average far richer and older than their ancestors were in the 1930s or 1970s and have far larger stakes in the status quo. They are not probable recruits for radicals of the far right or left.

Nor are we seeing them take violence to the streets, although if the crisis in the eurozone continues then all bets may be off. To date, however, the riots in Greece started robustly and then fizzled out. In Dublin, tens of thousands marched in protest without serious trouble – to the visible frustration of foreign journalists. The Irish are waiting to express their feeling towards Fianna Fáil in the polling booths. It is almost worth moving to Ireland and registering to vote, so you can share the immense satisfaction that will come when they throw the scoundrels out.

They are behaving reasonably as good democrats should because people will tolerate austerity if they see it as a temporary measure. But the restrictions of the eurozone and the obligations to pay bank debt are anything but temporary. The Irish now face austerity without end, and their measured response to the crisis should not deceive you.

Democratic politicians cannot maintain the status quo and expect to survive. Fearing impending defeat, Angela Merkel proposed that bond holders should be liable for their failures after 2013. The markets went wild at the very notion that banks could be held to account, but she has not given up on the idea. The Irish Labour party will be in government soon. Its leaders have already denounced the EU's insistence that the Irish take on private debt. If the terms are as disastrous as they claim, they must surely revoke them when they are in power.

Margaret Thatcher had the annoying ability to produce quotes that even her opponents had to admire. "The trouble with socialism," she said, as she began the west's experiment with reckless banking, "is that you eventually run out of other people's money." We have learned the hard way that it is the trouble with financial capitalism too.