Jean Claude Trichet: starting to head for the exit doors on the special measures used to nurse the banks through their current calamities

As public sector unions take to the streets this week, barring a last-moment peace deal, the rest of the world is moving on from the financial crisis and talking about things inconceivable in an Irish context – the dangers of inflation, how to stimulate GDP growth and even raising interest rates to correct assets bubbles in their economies.

In Ireland we remain understandably fixated on the €4bn adjustment needed to fix the public finances and capitalising/ nationalising the banks. However there is no debate, policy making or planning being undertaken in relation to how the global environment is going to look in 2010 or more crucially for us in 2011.

Jean Claude Trichet and his ECB colleagues are starting to head for the exit doors on the special measures used to nurse the banks through their current calamities. But it appears that Irish banks' dependence on the ECB is lowering only very gradually, although Nama will help.

It needs to. Already the ECB has cancelled one-year unlimited cash loans, and curbs will soon be put on those loans taken out over three and six months.

The Irish banks do not appear to be in dialogue with the government about coming up with alternative funding sources in the light of the ECB's rapidly changing posture. Collateral rules for getting ECB funding are also becoming tighter, again making things more difficult for the Irish banks.

Meanwhile interest rates in the US could soon be set to go much higher because of sharply higher bond yields. One very alarming projection comes from Morgan Stanley which says that the yield on 10-year US bonds could be at a punishing 5.5% by the end of next year. That reflects concerns about inflation and interest rates. Those lending money to the US, the UK and indeed Ireland are also starting to wonder about the compensation they are getting for the level of economic risk they are taking on.

In Europe there are increasing signals that base rates are going to jump soon and that is going to expose Irish variable and tracker mortgage holders to much higher debt costs. Again there seem to be no stress-testing exercises being undertaken to assess what impact this could have on the economy here.

While everyone is grateful to the European authorities for the official, and unofficial, assistance given to Irish banks in the last 12 months, there appears to be great complacency around about this continuing.

It's worth remembering that Ireland will not be allowed do any repo arrangements with the European authorities if it has a credit rating below A-. Thankfully we are nowhere near that point just yet, but the endless assertions that the Europeans will prop up the Irish economy and the Irish banks forever needs to be vigorously challenged.