This paper offers an alternative interpretation of the ongoing crisis in Europe, by explaining the following three related points. One, the issue is bigger than the euro, involving a broader aspect of European integration. Two, the question is bigger than Europe; it is about how to improve governance at national and supra-national levels. Three, in the end this is a Greek lesson in democracy, which teaches us the importance of asking people how much sovereignty they are ready to give up in order to have overall stability.
When democracy does not work well, voters vote for politicians who conduct expansionary monetary and fiscal policy to give them growth without painful reform. But without reform that allows funds to flow into investment that improves productivity, expansionary policies result in financial and real estate bubbles. Supra-national agreements can make reforms inevitable if not more palatable. But nations resist this in the name of sovereignty.
The EU's efforts at improving governance suggests the tidings of a fundamental change, not for what has been achieved already but for how difficult it has been to get even this far. The crisis is a lesson in democracy originating in Greece. Europe is revealing a fundamental problem in integration. Democratic nations will not participate in integration unless they retain at least some sovereignty, but integration will not work unless they cede some sovereignty. The problem is that the two sets of sovereignty sometimes overlap. This is a problem that all nations of the world will face in coming years, with increased interdependence. In this sense, Europe still leads the way.