Not for the first time, the eurozone is set to make a huge mistake. Actually, make that two: one political, the other economic. At its summit today European leaders will discuss proposals to force heavily indebted countries to gain EU agreement for their national budgets. More than that, it is understood that Germany is pushing for the eurozone equivalent of a modern-day viceroy to be installed in Athens to oversee any big spending by the Greek government. That last proposal was leaked to the Financial Times rather than announced by an official in Berlin, but it looks credible. It was certainly taken seriously in Greece, where the finance minister, Evangelos Venizelos, was moved to argue that "European integration is based on the institutional parity of member states and the respect of their national identity and dignity".
Even a watered-down version of this proposal – eurozone supervision of budget decisions made by elected governments of crisis-hit countries, which looks likely if not this week then soon – would represent a dramatic erosion of democracy and autonomy, to say nothing of national dignity. After the installation of technocratic regimes in both Greece and Italy, and the constant hovering of European and IMF debt inspectors in Athens, Lisbon and Dublin, the eurozone's democratic credentials have already taken a big hit. Yet when members of the German cabinet argue, as finance minister Philipp Roesler was quoted as saying yesterday, that "if the Greeks aren't able to succeed themselves with this, then there must be stronger leadership and monitoring from abroad", the implicit suggestion is that Greece needs parental supervision from the adults in northern Europe. However such language is intended in Berlin, it surely sounds highly insulting in Athens.
For over a year, economists have advised Angela Merkel and her counterparts to institute some form of fiscal union. But what they're offering instead is fiscal imperialism. The clear implication of the fiscal compact proposals to be discussed is that every country within the eurozone must turn itself into a version of Germany, with tough budgetary controls even amid severe recession. Yet austerity for all is not working. Greece is now in its fourth straight year of a shrinking economy. According to the IMF last week, Spain and Italy's spending cuts mean that they will be in recession until the end of 2013. Portugal looks as if it is about to go the way of Greece and default on its debts. The credit-rating agencies, whose very spectre was enough to scare European governments into furious cutting, have made it clear they are as worried about growth as they are about the need to reduce debt burdens. Austerity isn't even working for Germany, where growth faltered at the end of last year. Even the strongest economies within the single currency will naturally suffer if their neighbouring export markets dry up.
Late in the day, policymakers have shown some awareness of the need for growth, which is why they are now talking about a €22bn pledge to create more jobs for the young. No one denies the problem is a serious one: figures last week showed that over 51% of all Spanish youngsters under 24 are out of work. What is in doubt is the depth of official commitment. At Davos last week, the head of the European Central Bank, Mario Draghi, boasted that the ECB's provision of nearly half a trillion euros in loans to banks had prevented a major credit crunch. Quite right, but more telling was his take on whether those public funds had been passed on by the banks to businesses or households: "We don't have any evidence of this yet."
Reviewing all the above, critics of the eurozone can allege that its leading policymakers are undermining democracy in southern Europe, crushing growth across the continent and are more interested in bailing out bankers than the real economy. And rather than fix the crisis, they seem merely to have paused it. Sadly, eurozone officials don't have a good rebuttal to any of these charges.