From the standpoint of economic logic, the solution to the euro crisis is evident: the eurozone is not an optimal currency area, therefore it has to become one-to develop into a federation (or political union). And for federalists, the crisis is a once-in-a-generation chance to reach a breakthrough towards the creation of the long-awaited "United States of Europe". But what looks evident from an economic or a federalist perspective has very little support from citizens.
There is no political movement pushing for the transfer of key elements of sovereignty to the EU or eurozone level. The introduction of the euro did not bring Europeans closer together, it did not create a common political space in parallel to the economic space. Narratives about the euro crisis remain strikingly national, and they are worringly diverging. Euroscepticism is on the rise. It looks rather as if the limits of integration have been reached.
The only major player in the eurozone that is pushing for a closer union, besides the Brussels institutions, is Germany. But Chancellor Angela Merkel's decision to go down that road is built on weak support at home. Germans support Merkel's EU policy not because they want to turn the EU into a federal state, but because Merkel presents herself as the relentless fighter against foreign pressure to make Germans pay more for crisis countries. And the way "fiscal union" and "political union" are understood in Berlin is built on sand: they are perceived as an instrument to give Germany more power and control over other eurozone states. But of course in a real federation, Germany would not play a bigger role than Bavaria in Germany. This is certainly not what Germans want-neither voters nor political elites. Political observers therefore are suspicious of Merkel's newly-found love for federalism; they see it either as poorly thought through or as a mere short-term tactic directed towards the financial markets sending them the message that the eurozone is on the way to becoming an optimal currency area.
If it's true that the limits of integration have been reached, that there is no political support for moving the eurozone towards a closer union, then the only option remains to improve EU governance without building new institutions. Creating new central institutions that are weak and cannot fulfill their job because they are not backed by political will in the member states can only backfire. Instead, the eurozone member states should try to become better in what they did relatively successfully in the past: managing a common currency by pooling sovereignty. There is ample room to improve inside the current framework.
And they must focus on improving the structural conditions for growth, to get out of the downward spiral. Liberalizing markets, cutting back state bureaucracies, creating opportunities for entrepreneurship, pushing through free trade agreements, opening up for new technologies-this is what needs to be done to bring Europe back on the path to growth. Not only in the South, but also in surplus countries such as Germany. It will be the ability of European politicians to make the case for a liberal Europe and to push back against the heavy lobbying of strong and well-organized interest groups that will ultimately decide the fate of Europe. But this is of course much harder work than to simply meet at a summit and talk about utopia.
