"This prolonged crisis has exposed the critical flaw at the heart of the European Union, which is the lack of credible government. National politicians don't see this, while European politicians take refuge in the euphemism of 'governance' as a long-term goal. But the absence of real economic government causes dismay in the markets and allows the leaders of France and Germany, in particular, to avoid tackling their disagreements directly as they would have to were they in government together.
"The signs are that the European Council is again preparing to procrastinate on decisions on the mutualisation of debt. But it is simply crazy to say on the one hand that fiscal union has to wait until political union and yet, on the other hand, to do nothing to advance political union.
"Therefore what needs to be done is nothing less than the drafting of a European Fiscal Solidarity Treaty which will install a new European Financial Authority. This Authority will be the pilot phase of a federal economic government. It will have powers to issue redemption bonds and shorter term euro treasury bills. It will oblige its members to caucus within the European Stability Mechanism and, by way of the enhanced cooperation provisions of the Lisbon treaty, within the EU itself.
"This new intergovernmental treaty must be designed to be incorporated within the EU framework proper at a general revision of the Treaty of Lisbon in a constitutional Convention starting no later than spring 2015. The fiscal compact treaty already paves the way. Only the full integration inside the EU of these pilot measures of fiscal government will ensure full democratic accountability.
"Mr Van Rompuy and his colleagues are trying to get an agreement of 17 + member states at the European Council on 28-29 June. But the risk is that they sacrifice substance in order to enlarge the consensus. This is the opposite of what Europe needs.
"So a core group of states perhaps limited in the first instance to Germany, France, Belgium, Luxembourg and possibly Austria should be prepared to become the avant-garde of a full federal union. This is an emergency and the key now is to establish a government which works at the European level. Better too much too soon than too little too late."
Contact: Andrew Duff on 0032 228 47998