In the state of denial that Ireland's political ruling class now inhabit , Angela Merkel is somehow responsible for the financial maelstrom that last week threatened to force us to turn to the EU for help to stabilise our economy.

To the government, the German chancellor's insistence that, after 2013, taxpayers should not be on the hook for every cent of losses racked up by institutional risk-takers, is an "unhelpful" and "poorly timed" intervention that was somehow to blame for spooking the markets.

Taxpayers will think very differently. Unwillingly on the hook for €50bn (minimum) which has been poured into the banking black hole, Merkel's words carry the clear ring of truth.

"Let me put it simply," she said. "In this regard there may be a contradiction between the interests of the financial world and the interests of the political world. We cannot keep constantly explaining to our voters and our citizens why the taxpayer should bear the cost of certain risks and not those people who have earned a lot of money from taking those risks."

That the most powerful politician in Europe is choosing to articulate this view at the two most recent summits of EU and world leaders feels like a light-switch of sanity has been turned on.

Merkel is referring to sovereign debt (which in our case used to be bank debt until we nationalised it). Why, she asks perfectly reasonably, should taxpayers in Germany and other prudent eurozone nations constantly be asked to take on debts, freely entered into by large institutions, to bolster up the reckless spending of countries such as Greece, and yes, Ireland?

Our problems may be linked to a money play on the euro as much as our own financial misbehaviour. But the fact that we are the pawn at the centre of that play is 100% our own fault, caused by the reckless lending that inflated our construction and property bubble.

The German chancellor's fundamental message is one that this country would have done better to have followed from the earliest days of this crisis. Even today, as the government denies reports from Reuters news agency that we are in negotiations with our EU partners to avail of the European Financial Stabilisation Fund, it would have been preferable if we had shown solidarity with her viewpoint rather than dismissing it as unhelpful.

She is making a stand for what sovereignty really means: the political, social and moral spheres of any nation or group of nations cannot bow to financial institutions, however powerful, to the point of self-annihilation. All spheres must share the burden of losses made when risks turn sour, including the financial institutions that made billions in the good times. If the eurozone acts together, Merkel argues, there will be some chance that countries can control the markets, rather than markets controlling countries.

Two years ago, we did precisely the opposite and kissed the ring of the then high kings of Ireland, the money men. Since then, Brian Lenihan has allowed our lying, cheating, amoral banks to run rings around him. The markets see this and regard his inability to challenge and control the banks as a weakness, not a strength. The madness of nationalising their debt and their losses has proved suicidal. Almost every statement he has made about the banking crisis along the way – about its costs and the consequences of various decisions – has been wrong.

Market sentiment is based on credible policies and the truth. The trouble is, nobody knows what the truth is any more. And as for credible policies, it has taken two years just to get to the starting point of resolving the banking crisis – hardly a confidence booster.

Even now, nobody believes the final figure for the bank bailout has been reached. With two of the country's largest building companies, Michael McNamara and Pierse Construction, going bust in the past fortnight and consequent bad debts running into billions, how can it be the end?

The same goes for the budget deficit. For two years now, there has been talk of structural reform of public spending and taxation. In that time, these problems were tackled with too much of an eye on vested interests and too little observance of even hazy targets. The Croke Park agreement is a monument to this policy of appeasement.

Now, under pressure from the European Commission, we are drafting a sector-by-sector four-year plan that sets real targets and expects them to be met, and another doubly tough austerity budget is on the way because the paralysis of the past two years has dragged our growth even lower.

Commissioner Olli Rehn's visit here may well turn out to be the first step in preparing for an EU bailout. It has certainly cemented the belief that those who caused the problem – the FF-led coalitions of the past 13 years – simply cannot fix it. His visit was historic because it emphasised to the world that, bailout or no bailout, Europe is now in charge of our recovery.