In the 30 years from 1973 to 2003, Ireland got €17 billion from the EU in structural funds.

In the 30 weeks since Anglo’s new board came up with a new plan, we have lost €22 billion in the bank.

Do I need to remind you that Ireland’s banking insiders described Anglo as having been ‘‘well stress-tested’’ at the top of the boom?

I heard from that old friend again last week for the first time in ages. Yes, the ‘‘banks tress test’’ is back. You might remember it from bust banks, such as Anglo, AIB and Bank of Ireland.

The famous stress test was used to assuage fears about the Irish banking sector in 2007. But the mighty stress test proved to be useless. The Irish banks are now bust, with a hole in their collective balance sheets in the region of €200 billion.

You’d have thought the stress test wouldn’t be mentioned again for a long, long time. But no, EU leaders (this time) were back at the stress-testing malarkey this weekend.

The reason is that the interbank market in Europe is seizing up again. No bank trusts another bank because of exposure to debtor countries like the Greeks, the Spaniards and us.

According to a BIS report last week, French and German banks had exposures of $958 billion (€776 billion) to Greece, Spain, Ireland and Portugal, including $174 billion (€141 billion) of government debt.

This is the sort of debt that could destroy the German and French banking system.

The markets realise this, and it is this threat that has the politicians and central bankers back chattering on about stress tests.

The EU’s politicians have announced they are going to stress test 25 of Europe’s banks but, without any of these banks being declared bankrupt after the stress test, the test is merely another symbolic – and credibility-draining – gesture.

Are they prepared to say which banks are bust and which are not? The tests will have to identify those banks that need an immediate injection of equity. If they don’t do this, the markets will conclude that the banks are all in a mess, and sell them all accordingly.

Any further sell-off of European bank shares tightens the credit crunch further, and the interbank market gets less liquid. This is the economic backdrop to this weekend’s meeting of our EU leaders in Brussels. Amazingly, the leaders are yet again driving an agenda to cut budget deficits right back. With no signs of internal demand and a banking crisis, where do these guys think Europe’s growth will come from?

The Baltic Dry Index, one of the most reliable indicators of global trade, has weakened for the past 15 days as demand for freight and raw materials has dropped in Europe and America. Without growth, the EU’s recovery will falter. If this happens, the peripheral EU countries – Ireland included – will not be able to pay the huge bank debts built up in the credit splurge, and we will default.

This default will initially be a cumulative process in the private sector but will eventually pass to the sovereign government. After all, the sovereign is only the aggregation of us – the private citizens – so, once we wobble, the state does too.

This fundamental economic truth seems to evade our politicians. They don’t seem to realise that the more blank cheques they write to shore up the European banking system, the more they are burdening us with future taxes. This tax burden causes the economies to contract more. Writing cheques to bail out Europe’s banks won’t help anyone, apart from the creditors of the banks – who should suffer anyway. This is how capitalism works.

The lender is as culpable in a crisis. Was that not the capitalism you learned too?

If the government increases spending to invest in productive assets, like education or infrastructure, it means that, on one side of the balance sheet is debt, but on the other side is an asset, the productive investment which increases the long run growth of the country. This is beneficial spending, because it increases productivity and thus offers a return on investment.

If, on the other hand, governments are spending money to shore up the balance sheets of the banks because the banks have made bad investments in Greece, Spain or Ireland, this is a waste of public money. In this case, the debt is on one side of the balance sheet while, on the other side, instead of productive asset, we have collapsed property loans.

Thus it is easy to see now how the ECB is operating a proper ‘‘cash for trash’’ scheme. Worse still, the ECB is fuelling a new Ponzi scheme to keep the banks afloat. Here’s the deal: the ECB is making credit available to the banks at historically low rates of interest.

The banks are then using that money to buy higher yielding government bonds to try and rebuild their balance sheets. So the ECB is sponsoring what is called in finance a European-wide ‘‘carry trade’’, which is when you can borrow cheaply and lend out more expensively.

This is the strategy to keep the banks alive. So if this is the central banks’ strategy, why are governments cutting back now? Surely the thing to do now is issue more debt, avail of cheap credit and rebuild the banks’ balance sheets – and a few bridges, literally.

It is now time for big infrastructural projects, with the state doing what America did in the 1930s and spending money to turn the economy around. This is what the ECB is tacitly inviting politicians to do with this new form of quantitative easing.

The best policy for now would be for the stress test to reveal a few bankrupt banks and for these banks to be closed down immediately, with consequences for the exposed creditors. Once that has happened, the markets would be assuaged and they would come back in to support fewer, stronger European banks.

All the while, the better banks could be allowed to rebuild their balance sheets using higher yielding government securities.

The quid pro quo would be that government capital expenditure would rise, not fall. In fact, capital expenditure should be accelerated, not decelerated.

Once growth resumes and the banks are in better shape, the state can cut back.

But in the EU the left hand doesn’t know what the right hand is doing. The ECB is implicitly saying ‘Go for it’, and the politicians are saying ‘No, halt everything’. This proves that crises produce the oddest of turnabouts.

Traditionally, central banks tell the politicians not to spend, that money is tight and that we have to keep credit manageable. Today, however, politicians are acting like tight-arsed central bankers, and the central bankers like free-spending politicians.

All the while, bad banks are kept open, when closing them down would be the first stage of the recovery.

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