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David Prosser: Democracy is a fine ideal that is unlikely to do the eurozone too many favours

  • @davidprosserind

Outlook One can quite understand the frustration of Greece's eurozone partners. George Papandreou appears to have warned precisely none of them of his intention to put the deal agreed last week to a referendum. And his unexpected move clearly does undermine their efforts to avert a full-blown crisis for the euro. Moreover, it will be far from straightforward for the Greek Prime Minister to win the day.

The example of Iceland does not bode well – there, the Government failed 18 months ago to persuade its population to back a deal to compensate savers in Britain and elsewhere who lost out when Icelandic banks collapsed, despite arguing that accepting some short-term pain was crucial to the country's longer term economic recovery from the financial crisis.

Still, Mr Papandreou is embarking on a course that everyone else in the eurozone is also going to have to navigate if the single currency's future is to be secured. For resolving the problems of Greece is only the first step in putting the euro on a firmer footing. Just as big a challenge will be achieving the political reform necessary to ensure that the eurozone does not find itself in the same pickle again. And that is going to require more strong-arming of voters into accepting some unpalatable truths.

Chief of these is that the eurozone will not function unless its members accept much greater fiscal co-ordination, as well as the monetary union to which they signed up at the outset. Just to be clear about what that means, citizens of the eurozone will have to accept the idea that unelected officials – at the European Commission or its central bank – have the right to veto taxation and spending decisions made by their national governments.

The eurozone's members have already agreed as much between themselves. For they know this fiscal unification is the only way to ensure they will never again have to bail out a member that has breached agreed limits on borrowing. But in much of the eurozone such change cannot be imposed without electoral approval. Many countries will have to ask their people to approve this latest ceding of power.

Will voters agree? Not unless the eurozone's political leaders acquire powers of communication and persuasion that have eluded them so far. Even in Germany, the de facto leader of the eurozone, public opinion has turned against the single currency project, forcing Chancellor Angela Merkel to tread far more cautiously than she would have liked in resolving the crisis.

For those who believe in the euro, these are difficult dilemmas. The Greeks are entitled to their say on a deal that may change their lives, even if they do not give the answers Europe's leaders would like. So too are the electorates of other eurozone members on proposals for a further handover of power.

In the end, the greatest threat to the euro may come not from the financial markets, their increasing reluctance to lend to many member states notwithstanding, but from the voters of those countries. They may not be prepared to accept the medicine required to cure the single currency's ills.