Is the EU about to become the long sought "United States of Europe"?

[David Guyatt]

The answer clearly is "yes", imo.

Through the "tension of opposites" a third "way" is born.

http://www.guardian.co.uk/commentisfree/...ntegration

EU on the brink of integration

Leaders of the EU meeting to plan economic integration must be ready to consider a radically different strategy

John Palmer
guardian.co.uk, Friday 4 February 2011 18.00 GMT
Article history


Protests against Angela Merkel's plans took place outside the EU meeting Photograph: Michaela Rehle/Reuters

European Union leaders are meeting tonight in yet another attempt to silence the doubters and the sceptics who have spent much of the past six months predicting the collapse of the single currency and possibly even the beginning of the end of the union itself. But this summit is not gathering amid the traditional chorus of derision from the bond market vigilantes and euro doomsayers. Quite suddenly the prevailing wisdom is that, far from disintegrating, the euro area may be on the brink of much closer integration.

The meeting is really a dress rehearsal for the decisive summit being held in Brussels next month. Angela Merkel, Nicolas Sarkozy and the other EU chiefs will sound out the parameters of a breakthrough deal which could take the euro area at the heart of the EU towards a de facto economic government. The deal will offer massive financial support for countries under the currency market cosh in return for governments accepting that national economic policy in future will first have to secure the broad approval of the rest of the euro area. There is no denying the immense fun Eurosceptics have had tracking the bond markets' onslaught on the euro, first in Greece, then Ireland and more recently with Portugal, Spain and others in their sights. Some even predicted the possible break-up of the 17-member euro area. Merkel dropped heavy hints that failure to get a grip at the highest level of euro area governments could put the entire "European project" at risk.

But in recent weeks both the EU institutions and the key EU governments have made it clear that they "will do whatever is necessary" to protect the euro. They are now poised to sanction further economic and political integration for the euro area in the weeks ahead.

The measures now being debated include:

Far greater euro area oversight of the economic strategies of individual governments.

A further increase in the financial aid available to help countries in difficulty.

Reductions in the interest charged in financial aid to Greece, Ireland and potentially other euro area states.

Tougher sanctions against those who deliberately undermine euro disciplines.

Pressure on the stronger economies to expand domestic demand faster to offset austerity among the peripheral euro area economies.

Possible restructuring of future bailout agreements to ensure bigger sacrifices by bank shareholders and bond holders rather than taxpayers.

Tougher EU regulation of the entire financial services industry.

The conservative majority of EU governments did not come to these conclusions lightly. The French and German governments initially sought to limit EU support for the stricken Greeks and Irish to high interest rate assistance to deal with the immediate liquidity crisis generated by the collapse of the banks.

But they began to change their tune when they counted the cost to their own banks and to their export-oriented economies of permitting a euro area liquidity crisis to turn into a full-blown euro area sovereign state solvency crisis. Merkel now seems ready to defy her own rightwing anti-bailout hardliners and accept that Germany will stand substantially behind future financial assistance to weaker euro area economies.

The more steps the EU takes to integrate its economic decision-making, the more likely the global financial markets can be faced down. But much, much more remains to be done. A euro area economic government will need a radically different long-term strategy one which prioritises socially and environmentally sustainable growth and mobilises the EU's collective power to raise capital to finance economic and human infrastructure.

David Cameron has made it clear that Britain will remain outside any new euro-governance agreement. But it will be profoundly affected by steps to European economic union. The UK's semi-detached peripheral position within the European Union will deepen as other non-euro states follow Estonia's recent example in signing up for the euro.

The real test of British marginalisation within the EU will come if the global currency tsunami begins to threaten sterling. The British government would then be grateful for all the European friends it can find. Perhaps that is why Cameron has promised not to unduly impede decisions to deepen euro area integration.