David Prosser: The eurozone's political dilemmas

Outlook Now we have a breathing space in the eurozone debt crisis – notwithstanding market falls yesterday as investors got over their post bail-out euphoria – the European Union faces some serious head-scratching about its lessons. And the biggest lesson of all is one that will be unpalatable to many of the countries in the single currency zone: ever closer economic and political union is inevitable if the euro is really to survive.

Why are the Germans so cross about having to pay to bailout Greece? Because they think the Greeks have been architects of their own demise. To over simplify, hard-working, fiscally responsible Germany resents getting the bill for Greek civil servants who retire at age 50.

There is only one way to address this dilemma while sticking with the euro. Brussels is going to have to have a much greater say over how individual eurozone countries manage their economies. If the taxation and spending plans of the Greek and German governments had to comply with a set of identical and stringent rules, set by the EU, the sort of crisis we have just seen should not happen again. There would have to be some tough penalties for governments that flouted the rules, but one could, for example, suspend their voting rights on other EU matters.

This is the system that Herman van Rompuy, President of the European Council, hopes now to move towards. It would mean an economic government for the eurozone, with powers that started to mirror the responsibilities already given to the European Central Bank for monetary affairs in the eurozone.

Mr Van Rompuy is unlikely to have the debate entirely his own way. There will be many governments within the single currency zone that find the idea of giving up so much power to Brussels unacceptable. Politically, one can understand their concerns. Financially, however, this crisis has shown that the eurozone is not a viable entity in the long-run if some members are allowed to run up such huge debts that the currency of the whole bloc can be put at risk.

Tough talks ahead, in other words. And don't assume Britain will be unaffected, even if the chances of us joining the euro feel more remote than ever just now. We have already begun to feel the effects of regulation creep, with Brussels seeking to exert much greater controls over the hedge fund and private equity industries.

On economic integration, imagine a situation in, say, a year's time, when sterling comes under attack from markets disappointed by our progress on reducing the deficit (hardly a great leap of imagination). Were we then to call for help from our eurozone neighbours, one would expect them to demand similar surrenders of economic powers that they will have to make to each other in the weeks ahead.

Ironically, the endgame in this financial crisis may not, after all, be the collapse of the single European currency, but a much more closely aligned European Union with ever greater powers held by Brussels.