Democracy: The European crisis

The Greek crisis did not go away during the summer

Summer has brought no relief. In the sultry, dying dog days of the season, the eurozone crisis remains unresolved, ready to erupt again. Summits have come and gone, but the weeks ahead will be tense.

Jacques Delors - one of the euro's architects - emerged from his summer to declare the single currency "on the edge of an abyss". The level of anxiety can also be judged by references to the last war.

When under threat, it is the last defence for many European officials. So French Foreign Minister Alain Juppe said: "The dissolution of the eurozone is not acceptable, because it would also be the dissolution of Europe. If that happens, then everything is possible. Young people seem to believe that peace is guaranteed for all time."

French President Nicolas Sarkozy has, in the past, used a similar argument, although quite why a break-up of the eurozone would lead to the end of the European project is never explained.

The notes of desperation relate to the fact that the current remedies are not working.

Take Greece. There is doubt whether the country can meet the conditions to qualify for the next tranche of loans. The economy appears to be shrinking faster than expected. There are suspicions, too, that once again the country is back-sliding over privatisations and tax evasion.

So we are back where we were. Without extra funding, Greece is heading for a default. The Greeks no doubt calculate their European paymasters will do anything to stop that happening.

Bailout aversion

But that is where public opinion starts to intrude. The bailouts are hugely unpopular with the creditor nations. Some 66% of Germans are opposed to them. The Finns want Greece to provide collateral before they provide any further guarantees. Even some in German Chancellor Angela Merkel's own party want Greek gold to be used as collateral.

Dutch Finance Minister Jan Kees de Jager reflected the popular mood when he said: "In the eyes of many people, Greece is a country that has made a mess of things 10 years long, conned left and right, cheated about everything and now needs a lot of loans."

And then there is Italy. It is much more dangerous to the eurozone project than Greece. There are simply not the funds to bail the country out if it runs into trouble.

All summer, it has been running a show called "dysfunctional government". Under pressure, it has announced an austerity package, but the key measures keep changing.

Commitments are made and then withdrawn. Some proposals only last two days. Black holes in the budget appeared with the government promising to fill them by clamping down on tax evasion. European officials rolled their eyes in disbelief.

And in the midst of this, Italian Prime Minister Silvio Berlusconi was being rude about his country and denying he was the target of a blackmail plot.

There are glimmers of hope. Ireland is doing better than expected. But, throughout the eurozone, growth has stalled. Young people in Spain are becoming increasingly restless as unemployment heads above 43%.

Debt transfer

So the question remains? How will the debt mountains that are at the heart of this crisis be brought down?

Europeans leaders and officials are running out of ideas as was witnessed at the Sarkozy-Merkel summit in August.

Many are openly saying the eurozone will only escape this crisis if it becomes a "transfer union"; that the debts of individual countries become the debts of the bloc as a whole. But such a giant step would require the zone to become both a fiscal and political union.

That would be a fundamental challenge to democracy. Such a change could not be nodded through.

German Finance Minister Wolfgang Schaeuble acknowledged that last week when he said a new EU treaty would be needed to transfer further economic and financial policy powers to Brussels.

And in the current climate, public opinion cannot be counted on. There is still strong support for the EU in Germany, but confidence in the union is slipping.

Europe has tried almost everything to put out the fires except for much closer economic integration. But that is deeply disturbing for many voters who never signed up for such a union.

The arguments, not surprisingly, are raging most strongly in Germany. After all, they are now exposed to over 200bn euros (£175bn) in guarantees.

This anxiety was reflected in comments made by German President Christian Wulff. He warned the ECB's purchase of Italian and Spanish bonds was striking at the "very core" of democracy.

"Decisions have to be made in parliament in a liberal democracy," he said. The director of the main eurozone bailout fund warned "hysteria" was sweeping Germany.

German ruling

But Germany is having to ask what kind of democracy it wants and what kind of Europe it wants. The most fundamental questions.

This week, the German constitutional court in Karlsruhe will give a ruling on whether the bailouts broke EU law and undermined German sovereignty.

It is a landmark decision with huge implications. The court may grant the German parliament a greater say in how the bailout fund is used in the future. But strengthening democratic oversight may limit the fund's flexibility.

Also this week, German MPs will begin debating the increased role of the eurozone's bail fund. They will vote on the issue at the end of September.

Many of Chancellor Merkel's own supporters are uneasy with these new commitments. If she has to depend on the opposition to win the vote, it could trigger an early election.

So the eurozone crisis is fast becoming a test for democracy in Europe. The dilemma is that the EU project has got way ahead of where most people are.

They still find their identity in their nation-states rather than in Europe's institutions. It may be that the people in places like Germany will be willing to trade key sovereignty over economic matters for the survival of the euro.

But they may not. And if we reach that stage, Europe's big argument will be about the meaning of democracy.