As Greece inches closer and closer to running out of money completely, and insolvent Spanish banks threaten to bring down the whole eurozone, leaders in Europe finally seem to be getting the message: austerity is suicide.

Calls for a badly needed plan to boost economic growth are getting louder. The wreckage in Greece, Portugal and Ireland – plus the worsening slump across the continent – make it unmistakably clear that the German-led fixation on belt tightening has accomplished nothing but self-strangulation.

'Slash your way to health' ain't working

The imminent collapse of the Spanish banks – the result of a burst property bubble plus slack bank regulation – is forcing the issue. Greece and Ireland were bailed out, in return for accepting harsh government cuts. But Spain is too big for that to work. That fact is forcing European decision makers to rethink their “slash your way to health” prescriptions.

A consensus is forming around the idea of creating a “banking union”, with unified rules and supervision: the idea is to spread risk across the entire eurozone, easing the pressure on individual countries. Meanwhile there's more talk of further “fiscal consolidation”: handing over decisions on national budgets and spending to Brussels.

What does this mean for democracy?

There are still big hurdles. Sharing debt and risk between countries means Brussels taking over powers that at the moment rest with national governments. That’s politically sensitive in many countries, and it's a problem for democracy: the EU "technocracy" is unelected, and widely distrusted by citizens.

What's most important now is that any new federal European structures are responsive and accountable to popular democratic control. European citizens shouldn't, and won't, accept the unelected technocratic hell that’s been imposed on some of their smaller neighbours.

Read more: The Guardian interviews Nobel prize-winning economist Paul Krugman about his new book, End this Depression Now!