The countdown for a comprehensive solution to the euro crisis has still not begun. However, the signs are clear regarding where we are heading. The stakes are just too high for the most influential players in the euro system. They cannot afford to lose out. So, as far as they are concerned, what needs to be done to keep the eurozone afloat will eventually be done. That will include measures to strengthen central controls over national economic management in Europe.

Such arrangements will develop federal structures in which German codes of public management will be embedded. The distrust of global financial markets would thereby be calmed, leaving the euro project with no other option but to flesh out new central control structures to further integrate members of the zone, present and future, into a political union. Those who believe in this cause will be elated. In their view, a deep crisis would have been turned into an unexpected opportunity to accelerate the implementation of their ideals.

What must be considered as of now however is whether such a solution will not itself trigger new instabilities, this time of a totally political nature. Even if, for the present, they tend to be underestimated and ignored, they could turn out to be much more subversive, indeed explosive, than the troubles caused by the financial turbulence of the past two years.

The real tipping point

As the euro melodrama has proceeded, four main players emerged: the political and technocratic elites in Brussels and EU capitals dedicated to the project of European integration; the ruling elites at national level; citizen groups within each nation state hit by the austerity packages; and of course, decision makers within the global financial community. The latter have been most influential in triggering events, as country after country within the eurozone came under critical scrutiny by financial markets which had previously taken its standing for granted. Time after time, that scrutiny made European leaders look like fools as they announced measures to “solve” the euro crisis, which were quickly shown to be ineffective and puny by the markets.

Government after government was forced to launch ever-greater austerity programmes before biting the bullet and losing this or that parliamentary vote or election. It would then make way for somebody else who would be expected to carry out the same austerity programme or an even more stringent one.

Yet, though matters may appear differently at this stage, the real tipping point for crisis in the future could well be not financial but political in scope. For the ultimate solution to the eurozone crisis will have to be political. It will have to take a shape for which there is no clear voice and majority in Europe among the peoples concerned.

Central controls on the management of public finance in the 17 members of the eurozone will need to become increasingly stringent if the financial turmoil of the past two years is to fade out. Given how the eurozone is structured there is no other way. No matter what the real problem is in each individual economy, the only remaining instrument by which to correct it is through budgetary austerity at national level.

Were one to go further into a federal arrangement, all would have to agree on the need to accept that a monetary union must be on the US model, also include mechanisms by which transfers of funds happen from the centre to those regions of the union which are in economic and financial deficit. In effect, the real transfers would happen from the regions that run a commercial and financial surplus to those that are in deficit. Yet it is quite clear that in Europe such a transfer mechanism is less than acceptable to the countries that are running a surplus.

So in the subterranean tug of war that has been going on, the emerging compromise looks like one where the political and technocratic elites at the centre in Brussels will ensure, to the satisfaction of the global financial community, that each national system will remain in financial balance. This will be at the expense of the ruling elites in each national system as their political margins of manoeuvre will, in future, be greatly restricted. European integration will be accelerated through rules and procedures that will see eurozone countries increasingly adopting the German model of running economic and public financial affairs. If they do not like it, they will have to lump it. Otherwise the threat… some would call it the blackmail… will be that alternatively, the eurozone will have to be dismantled.

Medium term problems

There will be two medium term economic problems with this approach. First, in any integrated economic system, it is difficult to conceive how all regions within the system will, all at the same time, be operating at financial balance internally, while controlling inflation and managing a reasonable rate of economic growth.

Secondly, assuming that in fact there will be need for internal transfers of resources to take place to compensate for imbalances between subsystems or regions within an integrated eurozone, it will be difficult to sidestep how the US model solves this problem. “Federal” taxes raised across the eurozone, collected and managed centrally, would have to become available. Embryonic moves towards this position can already be detected in the proposal to introduce some kind of levy from Brussels on all eurozone banks. When it becomes imperative to widen this tax base, the hows and wherefores should be expected to raise tensions.

However, it is likely that the economic and financial difficulties that will surely arise over the medium term, as 17 European nation states are straitjacketed into a German inspired model, will form part of more crucial problems that will be political in nature. Indeed, while the problems of the eurozone are usually discussed from a financial and economic perspective, the real stakes are political. This can no longer be fudged because the euro project has been, right from the start, a political project.

It is the baby of a restricted elite of European decision makers whose dream has been that of creating a politically united Europe as soon as possible. The problem throughout was that the implications of what they wanted were not considered acceptable by the peoples of the countries concerned, even when they were favourable to closer ties between each other. So the strategy has been to develop mechanisms that one or two steps at a time brought European countries irreversibly nearer to “union”.

Members of this restricted elite are usually among the top earning brackets in Europe and have a vested interest in further integration of the continent. But it would be invidious to claim that their sole motivation has been self-gratification. Where they should be faulted is that in their quest, they have increasingly relied not on factual thinking but on dogma. Here are some of their tenets.

Beyond dogma

One: a Europe that is fully united economically and politically will have overcome the incubus of past centuries when Europe was shredded by wars between its nations. That argument may have made emotional and diplomatic sense between the fifties and the eighties of the past century, but has now become archaic.

Two: a Europe that is fully united economically and politically will in this age of globalisation be able to compete and achieve higher rates of growth. But how is it then that with greater integration, the growth rates of most European states and of the EU as a whole have declined while employment creation has stagnated, if not worse?

Three: with a Europe that is fully united economically and politically, any future US Secretary of State will, unlike Henry Kissinger, know whom to phone to get a unique perspective on where Europe stands. Why should that be so valuable? Arguably, had this thing happened in the past, the whole of Europe would have been quickly dragged into long distance wars like those in Indo China, Afghanistan and Iraq, not to mention Libya. It is doubtful whether that would have been a good thing.

Making these and similar points usually provokes the accusation that one is indulging in euro scepticism, which is another sign of the prevailing dogmatism in members of the pro-union elites. They ritually make the claim with all the devotion that used to fire the prelates of the Counter-Reformation in their pogroms against Protestant heretics.

However, beyond the dogma, where do we go?

The fear is that as euro consolidation takes hold in a technical sense, the democratic deficit that has been so often been decried in the European project will become a reality as never before. We seem to be moving towards a situation where political and economic vision will increasingly be defined in terms of reaching this or that percentage of this or that financial goal, determined to this or that decimal point. While technocrats of all hues will be enthralled, most people will find such goings on less than comprehensible.

At the same time, the same people will be expected to cope with higher taxes, less social benefits and services, plus skimpier and delayed pension systems. They will face prospects of peripheral employment, unemployment and probably high inflation. In a nightmare scenario, political activity will become discredited, the technocrats will leave because the going has become politically too hot for them, and much democratic space will have been surrendered to far right and far left extremists.

Eventually, the real question could become: has the quest for European unity lost its compass?

The European continent cannot be placed within the same parameters for unity as the American one. The latter was a melting pot that forged its identity in two centuries, during which lifestyles and rugged economic entrepreneurship spread over virgin territory. Nor can Europe be compared to the relatively uniform Chinese ethnic streams that colonized over long, stable centuries a continental mass.

By contrast, the European “identity” is based on the co-existence, not always harmonious, sometimes turbulent, of tribes and nations, which remained diverse while partly sharing a common heritage. Some would claim that this historic record constitutes the particular genius of Europe. Imposing uniform “German” management structures on such a system at a time of economic and financial stringency might serve to inflame new crises, even if European peoples will still agree that it makes sense to selectively pool and share resources. They will not want to scrub off the way of life they know – which is the political and cultural diversity that makes them European. Technocratic talk about the Community method or the need to keep budgets lean will simply not wash.

Even if the financial and economic problems that now plague the eurozone are resolved, the next crisis could be deeply political in scope. And its solution might turn out to be more difficult. For it would arise from an awareness that the road to European unity being mapped by the ruling elites is actually delivering a Europe that is not the Europe its peoples recognise, love and feel loyal to. There can hardly be a worse European crisis than that.