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Democracy versus the Eurozone

BRUSSELS – The European Union is a voluntary quasi-federation of sovereign and democratic states in which elections matter and each country seeks to determine its own destiny, regardless of the wishes of its partners. But it should now be apparent to everyone that the eurozone was designed with a very different institutional arrangement in mind. Indeed, that design gap has turned out to be a major source of the monetary union’s current crisis.

Last October, Greece’s then-prime minister, George Papandreou, proposed a popular referendum on the second rescue package that had just been agreed at the EU’s summit in Brussels. He was quickly told off by German Chancellor Angela Merkel and former French President Nicolas Sarkozy, and Greeks never voted on it.

But, less than a year later, the referendum is de facto taking place anyway. In a union of democracies, it is impossible to force sovereign countries to adhere to rules if their citizens do not accept them anymore.

This has profound implications: all of those grandiose plans to create a political union to support the euro with a common fiscal policy cannot work as long as EU member countries remain both democratic and sovereign. Governments may sign treaties and make solemn commitments to subordinate their fiscal policy to EU rules (or to be more precise, to the wishes of Germany and the European Central Bank). But, in the end, the “people” remain the real sovereign, and they can choose to ignore their governments’ promises and reject any adjustment program from “Brussels.”