Adrian Hamilton: EU must put voters before the markets

If the world wants real political leadership from Europe – and they all do, from the markets to the US President and Chinese leaders – then they ought to understand the politics of the place. It's no good lauding the virtues of democracy in Libya and then turning round and demanding Germany, Finland, Slovakia and everyone else steams ahead with plans inimical to their own voters.

It may be the art of statesmanship to lead your populace rather than follow lamely their prejudices, but it is self-defeating to ask elected leaders simply to ride roughshod over the clear will of their own electorate. Yet that is what the markets, and President Obama and his Secretary of State and Treasury Secretary and, for that matter, David Cameron, are demanding. What they want, what the financial markets always want, is some clear action on debt which allows the funds and the institutions to play their bets within set rules. For all their espousal of the virtues of free markets, there is nothing that the players of finance hate more than total uncertainty.

Fair enough. It's what anyone with a pension, or fears for their job or who needs to borrow wants. The problem is that the solution they demand – for governments to step in with a guarantee against default – is at the expense of taxpayers none too keen on spending their hard-won savings to bail out the profligate.

The more Europe's leaders try to force a huge increase in the size of the bail-out, the more perverse the whole operation has seemed to the public. It's no good talking, as the Commission President, José Manuel Barroso, did yesterday, of the solution being an ever more integrated Europe with common economic governance. Of course the Commission would like more power. But the voters don't, even less than before. The euro crisis has turned the north against the south and the periphery against the centre. There is no faith in the EU as an institution and certainly not in the idea of greater integration.

It need not be the end of the story so far as the eurozone or the Union is concerned. But any solution is going to have to start with public opinion, not ignore it. That should mean an early default by Greece. It has spent too much and can't meet its obligations. Those with money (mainly the Germans) would now rather bail out their own banks than Greeks who won't pay their taxes. Nor can the Greeks themselves ever hope to lift their heads up again under this yoke of austerity.

Whether Greece can be kept within the euro or helped to exit is a secondary problem. Angela Merkel and Nicolas Sarkozy are wrong to say it's a great matter of principle and consequence. The current situation, in which talks still go on about a second tranche of aid while everyone knows that it is just biding time until a default can be managed, only serves to make things worse.

In the same way, raising the prospect of a tripling or quadrupling of the European Financial Stability Fund to €2 trillion or €3 trillion, when the first tranche hasn't even been approved by all parliaments, is just asking for trouble from member countries.

It may be necessary to increase the Fund and for the European Central Bank to extend its bond purchases to keep the show on the road. But what the EU, without as well as inside the eurozone, needs to do if it is to sell a rescue package to the public is to come up with an agreed strategy, and the funds, for growth. That the voters would buy, but then it is something they've barely started to consider.