Greece case highlights slump in euro loyalty

(BRUSSELS) - The Greek premier's bombshell referendum move highlights a slump in EU loyalty as domestic issues take precedence at a time the bloc stands at a crossroads of more integration, sclerosis, or worse.

"Prime Minster George Papandreou cannot be criticised for going to the people," said Jean-Dominique Giuilani of the Schuman Foundation think-tank.

"But the manner in which he has done so is contrary not only to the spirit of Europe but to the principles of loyal cooperation."

Coming days after the European Union finally concluded a 230-billion-euro deal to rescue Greece, the move not only threatens the future of the single currency but underlines the bloc's weak decision-making process -- requiring unanimous agreement from its varied member states.

"Papandreou has now nailed not only his own political future to the mast but quite possibly any remaining credibility that the eurozone and EU areas still has in the eyes of the rest of the world," said Howard Wheeldon, senior strategist at BGC Partners.

After riding high through the economic growth years of the 1990s and 2000s, both the 27-nation bloc and its 17 members sharing the 1999-born euro, have hit a hard place where national interests are increasingly overwhelming the need for union.

Strains have emerged between nations "in" the euro and "outs" such as Britain, Poland or Sweden, fearful of being left in the back-seat of policy-making.

And a gulf has appeared within the euro-area between wealthy northern nations unwilling to continue paying for debt sinners in the south.

"The euro crisis has led national parliaments in Germany, the Netherlands, Finland and elsewhere to question their hitherto unchallenged support for European integration," Hugo Brady of the London-based Centre for European Reform said recently.

The crisis too has claimed victims, toppling debt-straddled governments in Portugal and Ireland and triggering a cabinet crisis in Greece. But while the winners of elections in Lisbon and Dublin agreed to the terms set to bail them out, this may not be the case in Athens should a "no" vote carry the day.

As euro-sceptic and nationalist parties gain ground across Europe, months of gruelling efforts to save the euro all but unravelled in the face of domestic demands in Finland and Slovakia.

Finland held up Greece rescue efforts for weeks over the summer, demanding collateral from Athens in return for loans, to ensure support from the eurosceptic rightist "True Finns" who shot to almost 20 percent of the vote in April.

In Slovakia, the parliament last month blocked EU plans to beef up its rescue fund -- the European Financial Stability Facility (EFSF) -- as lawmakers grumbled over handing over yet more monies to Greece.

The EU finally won that gambit, but at the cost of the fall of Slovakia's government.

Any lasting solution to the euro's troubles -- and to the future of the EU as a whole -- will require a major shift from the "muddling through" of the two years since the Greek debt crisis emerged, analysts say.

"The strengthening of European economic governance is a necessity," said Janis Emmanouilidis of the European Policy Centre.

The bloc needs "an economic and political union with a state-like quality able not only to solve the euro crisis but also to achieve the strategic objective of a global Europe."

Brady said the EU stood at a turning-point, facing either "euro-gotterdammerung" (or a Wagner-style euro-apocalypse), euro-sclerosis or euro-federalism.

At their summit last week, EU leaders agreed to look at possible change to the EU's treaty rule-book to tighten governance by the end of the year.

Dubbing the debt crisis "the greatest challenge our Union has known in all its history", European Commission Jose Manuel Barroso in a key speech some weeks ago called for a change to the EU's cumbersome decision-making process.

"It may be necessary to consider further changes to the Treaty," he said. "I am also thinking particularly of the constraint of unanimity.

"The pace of our joint endeavour cannot be dictated by the slowest. And today we have a Union where it is the slowest member that dictates the speed of all the other member states."