Martin Hannan: They're in a hole so keep digging!

Little did I know how soon my words would come true. Welcome to Edinburgh's own juicy scandal, which I suppose we'll have to call Caltongategate.

The news that the European Commission has said that Edinburgh City Council broke all sorts of rules in a 5 million land deal that was crucial to the Caltongate project comes as no surprise, especially after developers Mountgrange went into administration last year.

From the minute that the council got into bed with Mountgrange under the former ruling Labour group, more than a few people predicted it would all end in tears.

The local residents who opposed what any sensible person – never mind Unesco – could see was a grossly intrusive development in a World Heritage Site were called Luddites or worse by developers and councillors determined to force through this gigantic carbuncle. Now it seems the opponents were right all along, and that the whole deal was highly suspect.

Let's call a spade a shovel – Caltongate as planned was about making money. It was too big, too ugly and just totally out of character with the surroundings. But then when you consider the monstrosity that the council inflicted on the Old Town with its own new headquarters, you cannot but conclude that the authority is filled with Philistines.

Now thanks to local man David Black, who raised the subject of the land deal with the EC, we might find out the truth about Caltongate, Mountgrange and the council members and officials who talked each other into a vortex of what seems to be at least questionable conduct.

Make no mistake about the seriousness of the situation – the council will no doubt pooh-pooh any such talk, but the fact is that the EC has now formally told the UK government that it considers that the city has acted illegally in selling the 5m plot of land off the Royal Mile to Mountgrange.

Westminster will now contact Holyrood and demand answers. The council will have to account for all of its actions, and I suspect it will be found massively wanting. The result could be an EC fine for the UK government which it will surely insist on Edinburgh paying, especially if the Tories form the next government. And when I say Edinburgh will pay, that means you and me, the council taxpayer, stumping up for the "mistakes" of councillors and officials.

The EC could even order the council to buy the land back from the administrators and sell it openly under the rules as it should have done in the first place.

There should be a full inquiry into the whole mess, at which a whole host of questions must be raised, and the answers made public. Let's start with these – what has the council done with the 5m received from Mountgrange? Was there undue influence brought to bear on councillors before planning permission was granted? That's a fair question given that Mountgrange stumped up 4,000 for a Labour Party reception.

What exactly did councillors do and say? What were they told by officials? That goes for councillors of all parties, including the SNP of which I'm a member, though I should point out that the SNP voted against the Mountgrange proposals, just as it opposed the trams.

I simply cannot believe that the council's lawyers did not advise it to do things differently. We should see all the advice councillors were given, and track down exactly who made decisions – most councillors are lobby fodder, so who told them how to vote? Many of the Labour councillors who were in charge at the time are no longer in post, but they should all be brought in and questioned, even those who are standing for election this year and next.

The council said last month it would appoint a new developer, but to my mind the whole Caltongate project is doomed. The administrators Deloitte are going to find it difficult to sell the site to any new developer with the prospect of an EC inquiry hanging around.

In any case, Caltongate was conceived prior to the recession and it must be very, very doubtful if the sums calculated back then still add up now. Meanwhile we will have another Hole In The Ground, in which Edinburgh seems to specialise.

This time, let's all stop and do something radical – let's use our common sense. Rather than councillors and developers getting all cosy and foisting a pile of dross upon us, why don't we citizens demand a proper review of the city's future? Why not create a development process that engages the public from the outset and not after a proposal is submitted for planning? This is what they do in other major European cities, yet such an enlightened concept requires vested interests to be confronted, and that idea might not be very welcome in the City Chambers.

Caltongategate has started something. "The digging has just begun," as a council mole told me. The scandal will run and run, but curiously, the end result might be a better future for Edinburgh.