The only practical alternative would have been to jettison the euro and resurrect its own currency, which it could have issued in unlimited quantities.
But the cure is almost as bad as the disease. To recapitalize banks, depositors with more than 100,000 euros ($130,000) - the amount protected by government guarantees - are being forced to take huge losses.
This is a first. Until now, depositors in weak banks had been protected.
If depositors elsewhere in Europe fear for their funds, the dreaded panic may merely be delayed. And with unemployment already at 14 percent, Cyprus' economy will get worse. Some forecasts predict it will shrink 20 percent by 2015.
The "alchemy" of central banks is that they can create as much money as they please. The question is whether this power can be mobilized to stabilize financial markets and revive the damaged European and American economies - or whether the frantic efforts to do so founder on high debt, too much "austerity" or uncertainties about economic growth and inflation.
Each central bank has "taken steps beyond any it would have considered possible a few years earlier," writes Irwin at the end of his gracefully written and exhaustively reported book.
The Federal Reserve has poured trillions of dollars into the U.S. economy through various "quantitative easing" programs. The Bank of England has made similar efforts.
The European Central Bank has buttressed Europe's financial markets by providing gobs of cheap credit to banks and by pledging, under specified conditions, to buy the bonds of beleaguered euro countries.
What unites these policies is an unstated play for time. The hope is that at some point economic demand from somewhere - countries' own consumers and businesses, China, Germany or who knows where? - will support self-sustaining recoveries.
Meanwhile, the longer weak economies and high unemployment persist, the more democratic countries see power shifting in undemocratic ways. It has moved to volatile financial markets and to central banks, with unelected leaders.
The ECB in particular, Irwin relates, has withheld aid until governments do its bidding.
This cannot be healthy, although elected officials often seem paralyzed because either they don't know what to do or lack a consensus to act.
So far, improvisation has avoided the worst. It may not forever.