Last month we wrote about the dangers of the well intended and plausibly-argued necessity for government intervention into the banking sector. The salient danger we cited was "[o]verreaction and overregulation. If governments get carried away in their zeal to reign in 'run-away market forces' or if they think they can establish the primacy of politics over economics again, then they will prolong the crisis, not get us out of it."

The latest developments in government (mis-) handling of this crisis have, depressingly, already turned this concern into reality. Riding the wave of anti-market populism, even the nominally market-friendly elements in the German government (Chancellor Angela Merkel being among the first to trade the "freedom" she once campaigned for into smothering government meddling) have laden Germany's bank bail-out bill with counterproductive, wholly unnecessary restrictions. Caps on managers' income (not just bonuses - and in any case illegal meddling where they would break existing contracts) and a freezing of dividends are just the most publicly notable ones.

What turns bad policy into horrible policy, however, is the political pressure now brought on institutions who don't need the government handout‘n'takeover package to join. When Deutsche Bank director Josef Ackerman stated that he would be ashamed to have to take the government's (intrusive) help, he was not commended for keeping his bank out of trouble, nor was he lauded for pointing to the disabling non-sequitur of the bailout bill: it is unattractive to all banks but those who are about to croak. Instead, he was clobbered into pretending that the toad the government wants to shove down banks' throats is candy-coated. Instead of acknowledging that the bailout bill is so loaded with regulatory baggage as to render it ineffective (because banks who take it are rightfully branded as being close to defaulting), politicians insist that every bank take the offer (even where not necessary) to create the illusion that the bill is good ‘for the people' and that signing up for the government takeover is just business as usual.

This is triply galling. It conspires to take away choice from the banks and shareholders as to whether they want to be co-owned by the state, and it masks government incompetence in contributing to the crisis and mishandling the fix. Worst of all, it undermines the very point the "generous" bail-out package had in the first place: To restore trust in the lending capabilities of banks. The process has, if anything, undermined trust. The proofs of the pudding are the stock market prices. So far there are no plans to force banks into government ownership - but according to a report of the newspaper Die Welt, "subtle pressure" is to be exerted on banks to join. They are expected to ‘take one for Germany.'

Germany is hardly the only - much less worst - offender. Take France - where self-proclaimed pro-market Nikolas Sarkozy had all his interventionist and stateist instincts tickled and is busily working to create state funds to buy up French firms and protect them from the evil of financial injections from abroad. To de-facto nationalize companies for fear of international takeovers is very Venezuelan indeed, and the worst kind of protectionism imaginable. This begs the question whether Mr. Sarkozy has ever read about the last great financial crisis and the narrow-minded protectionist policies that turned it into a full blown depression. France, of all countries, should have learned that lesson the hard way. Banks that take French version of the bailout plan (no salary cap - and the six most important banks have already signed up), are now "obligated" to offer loans to households, small businesses, and communities. Whether by carrot or stick, hasn't pressuring banks to make loans without market discipline proven a bad idea already?

The United States is hardly exempt from what looks to be transatlantic idiocy. Using the financial crisis as an excuse to prop up the auto industry, Washington contemplates force-feeding GM, Chrysler and Ford to the tune of $35 billion in loans and cash infusions, abandoning all pretense of embracing free markets. Meanwhile schemes for forcibly rewriting mortgages abound, the only question is, whose plan wins. The European Commission and its constituent governments - Germany ahead of the pack - also yelp for state protection of the auto industry. The excuse, if one were even necessary, is that the EU is merely ‘reacting' against unfair advantages gained by companies in the US.

This has all the makings of a rat-race toward protectionism, with a quick nose-thumb to the principles of a common and free market signaling the shift in the wind. If this is the global change ‘we' have been waiting for, batten the hatches, because these winds are dangerous, and could spell tragedy for all.

Jens F. Laurson is editor in chief of the International Affairs Forum. George A. Pieler is a senior fellow with the Institute for Policy Innovation.

Related materials from the Atlantic Community:

• Jens F. Laurson & George A. Pieler: Too Much Political Meddling Will Only Prolong the Financial Crisis
• Nouriel Roubini: US Markets Will Continue to Struggle
• Dominique Moisi: What Is France's Place In The World?