European Commission President Jose Manuel Barroso signalled as much in an impassioned speech to the European Parliament this week in Strasbourg. "What we need now is a new, unifying impulse – a new federalist moment," he told MEPs. "Let’s not be afraid of the word – a federalist moment is indispensable.” Federalist parliamentarians rejoiced. The people may have rejected the idea of a European superstate, but now the markets are stepping in and demanding one. Could it be that the fulfilment of the 'European dream' could be triggered not by Europeans themselves, but by the markets they've created?
The federalist rejoicing may be premature. All that is clear right now is that the EU cannot continue operating the way it has. Europe is at a crossroads, and it is being pulled in two different directions. On one hand, the public has grown weary of the European project and the mood of the day is calling for more local control. There is an increasingly vocal minority in Europe who want to see the EU project walked back for the institutions Brussels has built up to be dismantled. On the other hand, the economic circumstances and the euro crisis are pushing Europe toward greater federalisation in order to avert a catastrophe. The markets are calling for more integration, and European leaders agree with them.
How we got here
Two years ago, it would have seemed inconceivable that in 2011 we'd be talking about moving more powers from national to EU level and amending the EU treaties to do so. Europe had just resolved a painful and embarrassing six year saga of trying to pass the European Constitution and Lisbon Treaty. In the end they were able to pass the changes that were needed, but not before three public referendum rejections created a damaging impression of illegitimacy. The eventual passage of a watered-down, less federalist was eventually pushed through, because the changes were necessary to accommodate the 12 new member states taken on since the last treaty. But it was an exhausting and ugly process.
Once that debacle was behind them, European leaders didn't even want to hear the word 'treaty'. But then the European debt crisis began. A fatal flaw with the design of Europe's single currency was exposed – a monetary union without a financial union proved unable to cope with bad fiscal management by individual countries. All 27 member states each had their own finance minister, and each had taken widely divergent financial decisions, all under the security of a high-valued currency backed by the union's economic powerhouse, Germany. Leaders are now realising that some kind of unified financial policy should have been developed along with the unified monetary policy – not just a European Central Bank but also a European central finance ministry. But hindsight is 2020.
Such a single finance ministry for the eurozone could have been created back when the euro was devised in 1992, at a time when there was great enthusiasm for the European project. But the hasty creation of such an unelected, unaccountable body would not go down very well with the continent's euro-weary population today. At the same time, the creation of such an institution may be the only way to save Europe from economic collapse. If the public will not accept such a change, what is plan B?
Abandon the European project?
Europe has two paths it can follow – and staying on its current path is not an option.
The first option is to give up on the EU. European leaders can allow the eurozone to break apart and brace themselves for the economic shock to follow, which would likely cause the collapse of European economies and even result in a global depression. Such an event would likely be the death knell of the EU itself. Having given up on the euro, there would be less reason to try to maintain the pan-European institutions in their current form, especially when much of the public is clamouring for more powers to be brought back to national capitals. Powers could be repatriated until the EU was nothing more than a free trade zone like NAFTA in North America. Borders would be re-established, separate currencies recreated, and the concept of 'EU citizenship' would disappear.
The bet would be that the short-term pain of abandoning the European project would have to be dealt with in order for Europe to go back to being a collection of completely independent nation states. This outcome is the long-held goal of Eurosceptics in the UK's Conservative Party, and that party heads the current coalition government. Yet David Cameron and his cabinet have made a U-turn on their Europe policy as this crisis has unfolded, urging their continental partners to push ahead with economic union and bring powers of finances and budgets to the EU.
But if the Euro crisis presents an opportunity to dissolve the common currency the Tories always said was doomed to failure, unwind the European project which the Tories deride and return powers to member states as the Tories have demanded, why aren't the Tories advocating a break-up of the Eurozone? They know that the economic pain caused by such a break-up would be catastrophic for the UK economy. It is easy for them to suggest that Eurozone states surrender their financial sovereignty to the EU, because Britain is not part of the Eurozone and would therefore be unaffected. Ordinarily they would oppose new powers going to the EU in all cases, even those that don't affect the UK. But the enormity of the current circumstances have made them take positions today that are antithetical to their overall Europe policy.
Or, is the answer more Europe?
The key buzzword over the past two months when speaking of the solution to the euro crisis has become "more Europe". Angela Merkel and Nicolas Sarkozy have both used these words, and David Cameron has expressed essentially the same sentiment by backing closer economic union. But even if the leaders agree that more Europe is needed, there are two big open questions. Will the citizenry accept more Europe? And if the 'more Europe' created is more intergovernmental, could it actually sideline the EU to irrelevance?
Much of what has been worked out so far has been between governments rather than at EU level. The European Financial Stability Mechanism, the permanent bailout mechanism for the struggling Eurozone countries, has been worked out between member states and has nothing to do with the EU. The ‘stability pact’ agreed in February was worked out between Germany and France, with the other eurozone states simply signing off on it. Now the stability pact is morphing into some kind of new institution of economic governance, and it is clear that it will be Germany and France calling the shots there as well.
This trend is clearly starting to alarm Brussels, hence Barroso’s impassioned speech for federalism this week. He is likely feeling sidelined, as is the parliament he was addressing. It’s still very unclear what this new institution will look like. But if its creation doesn’t involve the European Commission or the European Parliament, it could make the EU an almost irrelevant body.
New intergovernmental agreements between the 17 states of the eurozone could create a new ‘core’ EU group that does not involve the other 10 EU states. This is the ‘two-speed Europe’ scenario many have warned about, where a core group of countries federalise faster than a peripheral group. But the creation of a separate Eurozone intergovernmental institution that is separate from the EU itself could evolve to the the point where it ends up being more important than the EU itself.
So even the economic integration that the markets are now demanding does come to pass, it doesn’t necessarily mean that EU is now on a federalist course. This new economic governance could take any number of different forms, and it could go in any different number of directions.
Amidst all the confusion and angst, one thing is clear: the future of Europe is very uncertain. But with talk now returning to the idea of "more Europe", federalists are just happy to be back in the game.