While in Malta and elsewhere concerns about irregular migration have topped the political agenda, leaders of the eurozone, especially those of the main member states, have been making brave statements about another problem area. French President Hollande stated that the worst of the euro crisis is over. Ditto, top representatives of the German government and EU Commissioners, as well as European Central Bank head Mario Draghi.

Similar statements made in the past were soon invalidated by events. Repetition could now strain credibility but the risk of reinforcing crisis would have been too great if again they proved to be wrong. So these more recent declarations were believed. As Draghi showed last summer when he promised all-out support for the euro, impression management is a key factor in containing crises.

For the past weeks and months, financial markets have been relatively stable, even if nervy. There has been political uncertainty in Italy. Wide-ranging scandals have hit the political establishments of France and Spain (not to mention Luxembourg). Squabbling arose over the timing of austerity measures under the bail-out programmes applied to Greece, Portugal and Ireland. There was an awkward dispute between the IMF and the Commission regarding who was most to blame for the way the eurozone crisis was handled in its early stages, back in 2009. Meanwhile, the position into which Cyprus has been placed (or has placed itself) remained economically incoherent and anomalous.

Still, interest costs on most government debt remained affordable.

Given this quiet scenario, it seems churlish to mention the ‘buts’. Yet it is important not to take everything at face value. As of midsummer 2013, it is still reasonable to talk about the persistence of crisis conditions surrounding the euro, making the problem one of the longest lasting of its sort in modern times.

Moreover, economic recession has endured in most of Europe, where not so long ago, very encouraging growth rates were taken as a matter of course. The very high rates of unemployment, especially among the young, are extremely worrisome. Beyond the encouraging assessments provided by interested players about the progress that has been made, at least three interconnected factors require attention.

These relate to the cumbersome methods by which the eurozone muddles through to resolve issues. They arise from the consequences of the financial austerity being imposed on deficit countries within the zone, which among other things is serving to stymie economic convergence between the zone’s member states. And they reflect the growing realisation that strengthening the zone’s response structures does not have – and will not carry – political legitimacy among the peoples involved.

Complex decision-making

In the first place, the complexity that governs the euro’s management processes seems entrenched. Although with globalisation, crisis situations can develop very fast worldwide, the eurozone must react through a succession of incremental steps which are politically driven, and which at times amount to running on the spot.

The political nature of most decision-making means it is imperative to take into account the electoral timelines of member states, especially the bigger ones. Yet by the time a particular dateline has been reached, another one is likely to loom on the horizon. For instance, much has been made of the German federal elections and how decisions have had to be placed in the context of Chancellor Merkel’s strategy to win them. For which read that anything in euro decision-making that might hamper her strategy needed to be postponed.

However, once the German federal elections are over, similar considerations will be advanced about the European Parliament elections due in May 2014. European federalists and Europhiles of all sorts seem to be dreading their approach.

Up to now, eurozone leaders have been quite tolerant of postponements. However, a natural consequence of postponement is to give space for opponents of certain measures to marshal their forces and create a climate against proposed changes.

Postponements

This has happened with at least two crucial policies that a few months back seemed to have the wind in their sails: namely the launch among a restricted group of eurozone members of a financial transaction tax (FTT), on dealings in financial instruments (bonds, derivatives, shares etc.), and the establishment of a common European regime to supervise banks and deal with banking emergencies.

The former would have helped to improve government finances in the member states applying the FTT, while reining in speculative financial movements that tend to trigger unsustainable bubbles (or so the justification for the financial transaction tax went).

Meanwhile, a common regime for banking supervision and control would help to minimise crashes caused by abusive bank operations. It would run a uniform method by which to deal with banking crises and, most importantly, remove the rescue of failing banks from the remit of national states. Thus, the latter’s budgetary balance would not be endangered by their having to intervene.

In the medium to long term, it does not help the image and functioning of the eurozone if, when difficulties arise, it needs time to respond. As designed, the eurozone remains subject to give and take between national entities. Even if Germany is acknowledged as the real engine of decision-making, the rules set to achieve outcomes have to reflect the realities of other member states in the system. Moreover, Germany itself is divided internally about what role it should assume.

Central budgeting controls

To compensate for the structural deficiencies of the system by which the euro is managed, ever-increasing central control over national budgeting has been introduced. The “German model” of zero deficit budgeting, accompanied by consistent measures to cut the national debt in the long term, is being imposed on the euro system. Sanctions will apply to those who fail to follow the set budgetary criteria. It is anybody’s guess how this will work out in practice when the big euro four (Germany, France, Italy and Spain) find themselves seriously out of step with budgetary rules.

By putting fiscal rectitude above all other considerations, national financial systems will be required to bolster the weaknesses of the zone’s decision-making at the centre. However, this will limit the flexibility of states to counteract recessionary developments though their own public spending. By being obliged to restrain their spending in order to maintain balanced budgets, even at times of recession, states could indeed be reinforcing recession.

The widespread “austerity” programmes that have been launched under this philosophy are rightly credited with having prolonged economic stagnation and worse within the eurozone. There has been minimal relaxation in this stringency, despite the political damage it has caused to governing parties. Calls have been made to counterbalance “austerity” with “social” programmes meant to stimulate youth employment, technical training and regional growth initiatives. It remains to be seen whether these programmes will be successful economically and politically.

Nowhere are the persisting dilemmas as apparent as in France. Here, the ruling Socialist Party controls practically all the relevant levers of political power, but is undergoing stresses that are inhibiting it from either developing policies that push hard for “reform” via austerity, or that plump for outright expansion.

Even so, the biggest contradiction underlining the austerity and fiscal consolidation approaches that are being followed to keep the eurozone together, still needs to be resolved. Or more correctly, it still needs to be faced.

Much has been said about economic convergence as the fundamental goal of the eurozone if it is going to attain full stability. But in reality, the divide between the north and the south is growing, rather than closing. Nothing that is being said or done gives much hope that this breach will be repaired in the immediate or medium term. That should be a cause for concern.

Can federalism be legitimate?

Which brings us to the third great dilemma that seems no closer to a solution as of midsummer 2013. Technically, it is clear that the eurozone’s problems will only fade away if more federalism is injected into Europe’s decision-making structures. That, however, is a political process for which the appetite is waning in most EU member states. No wonder that fears are growing that the next European Parliament will be dominated by national representatives who take a dim view of federalism, to put it mildly.

One of the most surprising twists in the euro saga came earlier this year, from Holland of all places. This country has always been considered as one of the bastions in favour of deeper pan-European construction – at least until the Dutch voted against the European constitution that was being proposed some 10 years ago. But now, the Dutch government has said stated in a well-publicised memorandum that what is needed to counter crises, is not more Europe but less.

The “technical” solutions that have been mooted to improve the governance of the eurozone require a federalising strategy. If this is going to be legitimate and enduring, it needs steadfast political support across the board. There is no evidence that this exists, except among elites that have been losing ground since the euro crisis failed to evaporate.

Beyond the point about the absence of political legitimacy in the federalizing project, another dilemma looms that is only being partially addressed – and then in piecemeal fashion. A federalised eurozone is likely to create new fissures in the single market in which all EU member states participate as part of their joint project. Indeed, those outside the eurozone could feel that moves to strengthen central euro management amount to creating new barriers limiting their access to the single European market. The UK has been at the forefront in pushing this argument, although their approach has also been defined by tactical considerations related to internal British politics.

However, it remains very much a possibility that further institutional deepening of eurozone structures towards federalism would conflict with the single market. Such an outcome would be more fundamental in scope than the twin or multiple speed models that are frequently mentioned as viable options by which to launch new pan-European projects that cannot achieve consensus. Strains would then likely develop not only inside the eurozone itself, but also between it and the rest of the EU.

So, institutionally and economically, at least three roadblocks must be cleared before the euro crisis can be declared to be well and truly over. Yet despite the current calm, it is difficult to argue that much progress has been made to bring about more effective decision making; to resolve the dilemmas created by austerity programmes plus economic divergence and, perhaps most importantly, to promote political legitimacy.

The agenda to make the euro a self-sustaining institution could well stretch over the coming six summers and more. As a concern over policy, it might outlast the deep problems also being posed in Europe by irregular migration.