As the euro struggles to keep its value amid the debt crises in countries like Greece, Italy, and Spain, the single currency's problems are turning into a massive identity crisis for the EU.
For years, economists have warned that giving states a united currency without a united fiscal policy is as risky as giving any group of people a common credit card to use.
Unless everybody agrees on when and how to use their shared card, it's almost certain that some will misuse it and leave the others to pay their debts.
In essence, that is just what has happened with the euro and its 17 member states. So it's no surprise that the leaders of the more frugal eurozone states, like Germany and France, today are furious with their spendthrift partners and want to place controls upon their behavior.
But what kind of controls?
Usually, the calls for controls take the form of urging fiscally weaker states to carry out economic reforms if they want to keep receiving bailouts from the European Financial Stability Facility (EFSF).
"The pact for stability and growth is indispensable in the eurozone. It's the quid pro quo," European Central Bank President Jean-Claude Trichet said on September 5.
United States Of Europe
"We do not have a political federation, or a monetary federation. [So] we need to have a very narrow watch over the framework in which the budgetary politics function."
But increasingly, such appeals for fiscal responsibility are being coupled with demands for exactly what Trichet says is missing today. That is, some kind of closer economic and political integration that would push the EU in the direction of a superstate able to impose policies on its members.
Speaking to a conference of economists in Paris, Trichet specifically called for a federal European government with a federal finance ministry with the power "to impose decisions on countries" whose own policies threaten the rest of the eurozone.
Perhaps not coincidently, his words echoed similar recommendations this week in Brussels by a gathering of former European leaders, including Germany's former chancellor, Gerhard Schroeder. The group said it had "become clear that a monetary union without some form of fiscal federalism and coordinated economic policy will not work."
No Appetite For Integration
So far, these calls are just that -- calls. They go well beyond the actual policy recommendations of any current European head of government. The leaders of France and Germany, for example, have called for closer economic integration in the eurozone but spoken only in terms that would respect individual states' sovereignty.
During their most recent bilateral summit, on August 16 in Paris, German Chancellor Angela Merkel and French President Nicolas Sarkozy called for mandatory deficit limits to be enshrined in national constitutions. They also announced plans for biannual summits of EU heads of state to coordinate economic policies.
German Chancellor Angela Merkel (left) and French President Nicolas Sarkozy see no need for a closer union.
But at the same time, they signaled that is as far as they are willing to go for now. They notably refused to support the idea of the eurozone acting as a state even to the modest degree of issuing joint bonds, dubbed Eurobonds.
As Sarkozy told reporters, "Eurobonds can be imagined one day, but at the end of the European integration process, not at the beginning."
Eurobonds would be bonds backed by all EU member states so that crisis-hit states could use them to borrow money at favorable interest rates on the commercial market. Currently, weak governments like Greece must pay huge interest to borrow money while fiscally strong states like Germany pay much less.
'Eurobonds' A Nonstarter
But many European publics -- and powerful state institutions like Deutsche Bank -- oppose Eurobonds because they don't want to tie their economic fortunes any closer together than they already are.
"Creating Eurobonds means basically you are giving, potentially, access to your taxpayers to other countries. In terms of sovereignty, that is major because this tax base is really the treasury of a sovereign country. So you don't want to do it unless you have extremely strong guarantees that your partners will behave," says economist Jean Pisani-Ferry, director of Bruegel, a Brussels-based think tank.
"If your partners start issuing debt, and they are unable to pay the debt, then they turn to your taxpayers and say, OK, it's your turn to pay.' That's not something acceptable. So, the most fiscally conservative countries are afraid it would just be a free lunch for the profligate countries."
The Bruegel think tank recommends that eurozone members be allowed to use the joint bonds to satisfy up to 60 percent of a government's borrowing needs. But given the level of mutual distrust among eurozone members today, there is little sign that Eurobonds will move beyond the talking stage anytime soon.
Similarly, when political leaders talk about the need for some form of common governance for the eurozone the talk is decidedly cautious. When Sarkozy termed his and Merkel's announced biannual summits of EU heads of states as a "government" last month, he left plenty of room for wondering what kind of executive powers, if any, such a "government" might have.
A Lesser Evil?
Still, it would be wrong to conclude that hesitant steps now exclude more decisive steps later. Despite all the EU states' concerns over sovereignty, the current financial crisis has shown all the state how inexorably money problems in one can jump over national boundaries into another.
To shore up the euro, the eurozone states already have had to back their bulwark EFSF with 440 billion euros ($620 billion). But that amount -- huge as it is -- would not be adequate to rescue large countries such as Spain and Italy if they run into worse trouble.
As they met in Paris last month, both Sarkozy and Merkel chose not to raise the amount in the EFSF further. Whether they will stick to that decision if the euro crisis worsens remains to be seen. But if they do, that would leave the eurozone just two remaining options.
Both seem unpalatable in the current atmosphere, so for the eurozone it would be a case of choosing the one that's least unpleasant: to move further down the road to economic and political integration, or to call the euro a failed experiment and go back to national currencies.