Will the Austrians, Slovaks or Dutch break the euro?

Editor's note: Hans-Joachim Voth is ICREA Research Professor of Economics at Barcelona's Universitat Pompeu Fabra. Educated in Germany, the UK and Italy, he received his doctorate from Nuffield College, Oxford, in 1996. A former consultant with McKinsey & Company, he has taught at MIT, Stanford, and NYU-Stern. His website is here.

(CNN) -- French banks were the center of the European financial storm this week, after Societe Generale and Credit Agricole were downgraded by ratings agency Moody's Investors Service. Eyes were also on the unfolding drama of Italy's surging funding costs, amid warnings the country is one which is too big to fail. At the same time, members of the Free Democrats -- the smaller party in Angela Merkel's governing coalition -- are openly flirting with a more Eurosceptic line.

But there is an aspect of Europe's debt crisis not receiving sufficient attention -- the dangers of a major political rupture, driven by the smaller, stability-oriented European countries. Politicians in the continent's big countries have been riding roughshod not just over the preferences of their own electorates -- the citizens and governments in Finland, Slovakia, the Netherlands, and Austria are increasingly questioning the rationale for writing ever larger cheques in exchange for empty-sounding promises of future fiscal rectitude from Southern member countries.

New bailout packages follows a familiar script: Austerity targets are missed (again); financial markets wobble; the EU initially vacillates. Then, German and French leaders meet. Either to much fanfare, or behind the scenes, German Chancellor Angela Merkel and French president Nicolas Sarkozy launch the next escalation of European rescue efforts. Of course, the bill has to be footed by all European member states, not just France and Germany. Franco-German "leadership" is creating growing unease in smaller countries. These political tensions are less visible than headline-grabbing stress in financial markets, but they are every bit as dangerous for the current European rescue efforts.

Smaller European countries are barely consulted when it comes to rescue packages. Especially in the highly competitive, fiscally responsible Northern states like Austria, Finland, and the Netherlands, feelings are running high. Finland already has the "True Finns" party. It ran on an anti-bailout platform at elections earlier this year, receiving 19% of the vote -- which makes it the largest opposition party. Even in opposition, it is already influencing policy. When the Finnish government recently insisted on collateral in exchange for further aid to Greece, plans for the second Greek bailout were thrown into turmoil. Austria and the Netherlands quickly insisted that they wanted equal treatment. Of course, a rescue in exchange for collateral is not much of a rescue at all.

This week, a poll showed that 92% of Austrians want Greece to leave the eurozone. Immediately afterwards, the three opposition parties -- the Greens, and the right-wing FPO and BZO -- engineered a delay in the ratification of an increased EU rescue fund, the European Financial Stability Facility (EFSF). They refused to schedule a vote at the Austrian parliament's finance committee anytime soon, where the measure needs a two-thirds majority. The measure may still pass later, or in an emergency session, but the issue was enough to cause jitters on Wall Street. French bank shares plummeted on the news. In Slovakia, the junior partner in the governing coalition, the Freedom and Solidarity Party, wants to postpone the EFSF decision until December. It is receiving support from polls showing that fully one third of Slovaks are opposed to the new rescue fund.

These and similar tensions will continue to mount. Some EU politicians such as EU Commission President José Manuel Barroso are openly talking of turning the current crisis into Europe's "federal moment" -- an opportunity to introduce euro bonds, EU-wide taxes and an EU finance ministry. All these measures would lead to permanent fiscal transfers, mainly from Northern to Southern Europe. In a technical sense, this could solve the euro crisis -- Southern finances would look much better than today. And yet, it will not work, for political reasons. On a per capita basis, the electorates of smaller, rich Northern European countries would have to shoulder the same burden as Germans. Current decision-making leaves little time for consultation, which further marginalizes the smaller players.

The EU could try to reduce its notorious democratic deficit, by giving greater influence to the European Parliament. This would involve delegating more powers to Brussels, with more decisions based on a principle of "one man, one vote." Such a shift would permanently reduce the influence of the less populous states, whose votes would count for little in a more integrated Europe dominated by Germany, France, Italy, and Spain.

The EU has faced challenges in the past when big new measures, such as the EFSF, need to be ratified by all member states. Referenda sometimes yield the "wrong" answer -- Ireland voted against the Lisbon Treaty in 2008. The EU has dealt with these setbacks in its typical, anti-democratic mode, by scheduling new votes until the voters eventually give the "right" answer. Similar difficulties may well lie in wait for the EFSF. If and when a smaller member state stops the latest rescue package, there will be little or no room for manoeuvre. As this week's events make clear, markets will melt down much faster than new ways can be found to ignore increasingly Eurosceptic populations and parliamentary representatives in smaller member states.