“They are going to make us pay,” said Stavros, watching the TV above the turning, sweating gyro in the souvlaki shop.

It seemed weird to be ordering a souvlaki in Greece. Apparently, the dish dates from the time of Alexander the Great, but it is forever associated in my mind with the old red vinyl caffs in the city, of which only the Golden Tower remains, in Swanston St. Indeed, it’s so identified with Australia, that I forgot what the damn thing was called, pointing at the picture of it and gibbering like an idiot.

“Souv…laki,” said the kid at the counter. “With everything?”

“OK.”

Stavros fired a burst of Greek at him. He nodded.

“I told you wanted everything.”

“So did I…”

“No you said no. Ohi is no in Greek.”

“What’s yes?”

“Nea.”

“OK, I mean, nuh.”

“Your souvlaki’s ready.”

“One pork souvlaki,” said the guy.

“Wha-”

Stavros shook his head. “He got it wrong.”

Merkel was on the TV, doing a bit of ‘OK, no’ herself. After Greek PM Georges Papandreou had spent two days zorba-dancing through Paris and Brussels to put together a deal that would guarantee Greece against a default when a staggering series of payments comes due in April. On Tuesday he’d announced a series of measures designed to get the country’s financial house in order – including a 10% cut in public service salaries, raising the pension age, and slashing conditions.

That was one move. The next was to get the country backstopped by the EU so that he could go back to his people – principally the trade union leaders – with a done deal. Every European leader in the eurozone area was making positive noises about the deal, which would most likely involve France and Germany going guarantor for Greece. Everyone was for it.

Everyone except one. Merkel. She was hovering above the gyro now.

She was the one in the suit.

The big ‘OK, no,’ was delivered in the politest possible terms of course.

“We recognise our responsibility for the stability of the eurozone,” said Merkel. “Greece is not demanding any money from us.” Papandreou has said the same, though only because he is demanding money from them. After the EU summit where this was all taking place, Sarkozy and Merkel appeared together for a press conference, like a mistress and her gimp, to announce that they were on the same page.

Diplomatic sources were less sure. “They can’t agree on anything.”

There is no doubt that the EU won’t let Greece default. Such an occurrence would send the euro on a roller-coaster ride of speculation, destabilising the whole of Europe. More importantly, it would mean that an essentially bankrupt nation was still trading within the euro brand, creating a total separation between the currency and its economic base in various nations.

But of course a full-bore bailout presents its own problems, not least among them rewarding Greece for cooking its books for years, to hide a ballooning deficit contrary to all euro regulations, and thus allowing open slather to the half-dozen other basket case economies in the zone.

“We’re not happy about letting the Greeks live their lovely lives,” said one background source. Which is a bit rich. Compared to the average German life, even Greeks with the secure public service jobs that are so at issue, live modest lives compared to those in Western Europe.

Indeed part of the frustration with Greece, is that for all the alleged uber-spending, large amounts of it have never reached ground zero. Around the souvlaki joint, the buildings are crumbling slab concrete, patches on patches. Only the chain hotels, smooth and new, set down like alien ships, stand out from the greyish neighbourhood.

But whatever happens, some sort of deal will come. The French-German double act looks like classic good-cop bad-cop, Sarkozy playing the giggling, squirming good guy, Merkel the taskmaster. What will come out of this routine is a crucial shift in the nature of the EU, and of sovereignty in general. In exchange for being saved from bankruptcy, Greece will essentially have to hand over its economic management to the EU.

Greece was the ‘weak link’, Papandreou was telling the Davos conference in January. He nicked the term from the Communists, who meant that it was the most exposed and contradictory part of European capitalism. Papandreou’s pitch was that it endangered the whole European project – the idea that whole areas of law, financial management and social policy could be translated out of national politics and into a new entity – a European union, looser than the United States, but with grubby national politics over-ridden, or consigned to regional minutiae.

The euro has been one of the most startling stages in that process, since former arch-enemies the Germans and French were brought together in the Coal and Steel Community in the early 1950s. What seemed utterly startling even a few years ago – that one could use the same currency from Galway to the Cyprus, across a dozen languages – now appears the rule rather than the exception. What feels weird is changing currency, especially in dinky little countries like Switzerland. I mean, what the-?

The prosaic nature of the European project hides its truly radical nature. Designed in part by a Hegelian philosopher, Alexandre Kojeve, famous most recently for being the inspiration for Fukuyama’s ‘End of History’ argument, the EU was consciously intended as a project that would develop in small and remorseless stages, until it was ready to make a big leap to a post-national federation. That leap – the EU Constitution – failed after being rejected by several national referenda, which simply meant that 95% of it was simply reintroduced by piecemeal legislation.

The failure of the constitutional push was bad enough – the collapse of a eurozone economy or its withdrawal to a separate currency, would be a disaster, the end of the idea of historical inevitability. Nor is there any real chance of a return to the drachma by Greece at the moment – Papandreou, a smooth US-raised economist, the third member of his family to be PM of Greece, has spent years dragging his party away from its nationalist, populist position in the 80s.

But keeping Greece on that path is reliant on coming home with a deal from Europe that makes the pain worthwhile. Should the deal involve a German-imposed austerity programme, feeling will be raw. And even if there is a deal, the widespread public support for it may not last.

“Our lives aren’t so lovely,” Stavros says, at a plastic table near the bus stop at Little Tirana, where the Albanians – darker people, at least half a foot shorter – arrive at all hours for cheap building jobs, or just to sell a few household items on the street, a dozen tupperware containers, or six pairs of wellington boots. The town is quiet, because the taxi drivers are on strike, offended at a government directive that they provide receipts.

“The taxi strike is ridiculous!” says through mouthfuls of unidentifiable sausage. A member of the radical left group Synapsismos – the name means a linked shield, not a brain freeze – he is, like many of the non-Communist Party left, in a quandary, a commitment to Europe and the idea of it, now complicated by the fact that Europe is applying the electrodes. But the taxi strike is the limit.

They’re talking about it being an imposition of neoliberalism!” Stavros explodes. “They’re just being told to give receipts!” The move is part of the government’s attempt to draw parts of the huge black economy into the light, where it can be taxed – but the fun thing about Greece is that even striking taxi drivers talk like Lenin.

“The KKE says Greece is the new centre of southern european anticapitalist resistance.”

“They’re mad, only….”

“What?”

“It might be true. No-one really knows. This is a test of what’s possible.”

“The riots in 2008…”

“Well that was something else. It was –” He looks for a word in my dictionary ‘inchoate’, there was a lot going on. Kids are getting a terrible deal from the new economy. They’re sure as hell going to pay.

We ate in silence for a little longer. I counted the small shops I could see along the street. Nine of them in walking distance, small alcoves with a rack of cigareettes and chocolate, and a half-empty drinks fridge. But it makes a living. Four blocks away is Europe, Starbucks and Aldi, Marks and Spencers. Either Greece will simply take the same modernisation route as the rest of western europe, last cab off the rank (a highly abstract concept in Athens, the cab rank) – or because it is the last cab off the rank, something else will happen, the contradictions will be maximised.

“Stavros, this isn’t pork.”

“It was a one euro souvlaki, of course it’s not pork.”

I looked at the remains of the souvlaki, like an autopsy on the table, tried to remember the first time I had eaten one. I think it was after a Strange Young Insects gig at the Crystal Ballroom. Can that be right?

“What is it then?”

Stavros sighs and rolls a cigarette on the plastic surface. “Who knows? Who knows?”

OK, no.