The British debate on the European Union takes further integration in the euro area for granted. As the mantra goes, the sovereign debt crisis has shown that the euro set-up was ill-planned from the outset and that a federal ‘leap forward’ is necessary.

Yet talk about integration in the eurozone is misleading. Recent reforms of EU economic governance have above all given a new impetus to coordination. Instead of pooling further sovereignty and resources, national governments have essentially beefed up their commitments to fiscal discipline and macroeconomic soundness, and bowed to greater mutual pressure. The conditionality attached to the new resources made available by the European Stability Mechanism and the European Central Bank is meant to deter member states from using them. Rightly, some commentators talk about ‘federalism by exception’ or ‘catastrophic governance’, which does not preclude a return to normal.

Strikingly, national leaders have paid little interest to the ‘blueprint’ and the ‘roadmap’ for a ‘genuine economic and monetary union’ presented by presidents Barroso and Van Rompuy respectively at the end of 2012. None of them has an interest in opening a discussion on debt mutualisation, or a eurozone budget, which would automatically trigger a treaty change. Of course, events might take a dramatic turn again, but one should not mix up one-off measures (such as a debt write-off or a Marshall plan for the periphery) with institutional reforms locking in euro area countries in exclusive arrangements.

This reading has significant consequences for the euro area and for the UK. First, euro area leaders should spend much greater energy on the institutions and scope of policy coordination, and much less on grand integration designs in the euro area. The type of adjustment policies implied by EU fiscal and macroeconomic guidelines can be improved. As the recent decision to give a few countries more time to reach their fiscal consolidation targets, there is ample room for a discussion on how economic and social imbalances should be combatted. Improvements could include extending the supervision of ‘macroeconomic imbalances’ to social indicators, and fostering a common understanding on wage developments. This would allow in particular the pro-European centre-left, and all those who prefer an EU/EMU based on greater social cohesion, to raise their profile.

Second, institutional innovation needs to take place to make coordination work better. ‘Contractual arrangements’ between member states and the EU, if effectively introduced as recent European summits suggested, could provide national governments with incentives to undertake long-term oriented reforms. Also, there should not be any reluctance to use more ‘enhanced cooperation’ or ad hoc cooperation on a smaller scale, provided other member states’ interests are not discriminated against.

Finally, avoidance of federal-type integration impacts significantly on the UK debate. It is far from certain that eurozone countries will push hard for a treaty change before 2017. If it ever happens, it is unlikely to see ‘euro-ins’ and ‘pre-in’ countries adopting formal and separate institutions. Germany, in particular, supported by the Netherlands and Poland, will endeavour to keep EMU institutions as inclusive as possible. Hence there is no reason for UK politicians to panic.

Perhaps it is time to realise that ‘ever closer union’ does not necessarily mean integration – even in the euro area.

—————————————————————————————

Renaud Thillaye is senior researcher at Policy Network. This article is taken from Coordination in place of integration

—————————————————————————————

Photo: Austin Keyes