Over the last year, mood around the European Union’s prospects oscillated between mourning and triumphalism. Only last summer, in the aftermath of the Brexit vote in the UK, commentators feared a nationalist wave sweeping over the community. The defeat of the right-wing populists in France and Netherlands lead to the reversal of the union’s fortune. Anguish over the community’s overreach faded. The United States of Europe is back on the agenda.

In a casting for the project’s founding father, French president Emmanuel Macron emerges as one of the favourites. Shortly after his victory at the polls, the Fifth Republic’s leader laid down his vision of the single currency reform. The most notable proposals include calls for a eurozone budget overseen by a eurozone finance minister. A more detailed plan will be unveiled by Macron on September 26.

The view that the single currency bloc is faced with “make it or break it moment” is shared among experts. “The status quo is probably not sustainable”, Kenneth Rogoff, a professor at Harvard University wrote in Project Syndicate. “Eventually, there must be either significantly greater fiscal integration or a chaotic break-up”. Economic historian Niall Ferguson expressed similar sentiment in his article in the Sunday Times. “It makes little sense”, he noted, “to be half federal: to have a Supreme Court and Central Bank (albeit for most, not all members), but to leave fiscal policy and defence policy almost entirely to the member states”.

One would hesitate to argue with an economic case for budget federalism. Fiscal transfers would certainly help offset the southern eurozone states’ inability to cushion negative shocks via currency depreciation. It is the politics of creating a fully-fledged federal treasury that raises questions. 

The most obvious problem is persuading Germans to back up the French plan. The country’s parliamentarians remain wary of a transfer union. Jens Weidmann, the Bundesbank president, too expressed his opposition to pooling the eurozone governments’ resources together. It is not clear why election of Macron should have changed German’s longstanding attitudes overnight.

There is, furthermore, no popular demand for deeper integration. It is true that Europeans are, by and large, comfortable with allotting regulatory authority to institutions like the European Central Bank and the European Court of Justice. Yet that doesn’t mean they want to expand the remit of supranational institutions, particularly when it comes to fiscal matters.

According to a survey by the Pew Research Center, 43% of Germans, 39% of Italians and 39% of French would like to see more powers returned to the national governments from the EU. Only 26% of Germans, 21% of Italians and 34% of French support transferring more responsibility to Brussels. Majorities in France, Germany, Italy and Belgium oppose any increase in the EU budget (according to Eurobarometer’s data). Meanwhile, Macron’s original proposals might require ratification by all 28 (soon to be 27) states, including, in some cases, via national referenda.

In short, technocratic plausibility of a eurozone treasury doesn’t make the politics of it any easier. The notion of fiscal union is reminiscent to a joke about the economist, the physicist and the chemist stranded on a desert island. When a can of soup washes ashore, the three are pondering on how to open it. “Imagine we have a can opener”, says the economist.

Instead of dreaming up ideal solutions, the eurozone must do better with what it already has. That, in turn, means that the task of smoothing macroeconomic imbalances still lies with national governments.

A degree of progress has already been achieved in this regard. As the Financial Times’s Martin Sanbu pointed out, Germany’s trade deficit with the rest of the eurozone (apart from France) has fallen dramatically since 2011. Macron’s labour market reform is another auspicious development. If other southern states follow suit – proceeding with ‘internal devaluation’ via reducing their labour costs - the gap between the north and the south will further narrow.

That process - though painful in the short-term - has to be done independently of eurozone integration. If anything, Macron’s ‘bargain’ with Germany – promising labour market reforms and fiscal stringency at home in exchange for deeper integration in the eurozone - could become a drag on his domestic agenda. How exactly does he think pooling resources at the supranational level would help ordinary ordinary French? The Fifth Republic is not as vulnerable as some other economies in the currency union. Should a period of destabilisation occur, therefore, it will not be the most obvious candidate for the financial assistance.

That is not to say that any attempt to improve the single currency architecture is wanton. The eurozone should finally move with upgrading the European Stability Mechanism (ESM) to the European Monetary Fund (EMF). 

This transformation could entail several changes. As noted in a report by the European Parliament, the ESM needs to expand its analytical capacity to detect and prevent future crises in time. This might involve transferring responsbility for supervising fiscal rules from the Commission to the EMF or a new independent agency. Further, as the Bruegel think-tank pointed out, current decision-making system that exists in the ESM is too cumbersome. Most decisions, including on financial assistance, require unanimity. Switching to to a majority voting would, according to Bruegel, allow the EMF to deal with crucial tasks swifter.

“The federal idea has not gone away but at the moment it has no chance of being realised”, Wolfgang Schäuble, German finance minister, said in his interview with the FT. “We have to improve…our intergovernmental methods. Second-best is always better than nothing”.

This incremental approach - the Fabian federalism, if you like - is exactly what eurozone needs. European integration is often compared to riding a bicycle: you should keep moving forward or fall down. But spin the pedals like a madman, and you end up on the pavement too. The fate of the European Constitution, one of the boldest projects the EU has undertaken, is a testament to what happens when politicians act hastily. To succeed, the euro-area reforms be made in a tentative fashion.

Over the last year, mood around the European Union’s prospects oscillated between mourning and triumphalism. Only last summer, in the aftermath of the Brexit vote in the UK, commentators feared a nationalist wave sweeping over the community. The defeat of the right-wing populists in France and Netherlands lead to the reversal of the union’s fortune. Anguish over the community’s overreach faded. The United States of Europe is back on the agenda.

In a casting for the project’s founding father, French president Emmanuel Macron emerges as one of the favourites. Shortly after his victory at the polls, the Fifth Republic’s leader laid down his vision of the single currency reform. The most notable proposals include calls for a eurozone budget overseen by a eurozone finance minister. A more detailed plan will be unveiled by Macron on September 26.

The view that the single currency bloc is faced with “make it or break it moment” is shared among experts. “The status quo is probably not sustainable”, Kenneth Rogoff, a professor at Harvard University wrote in Project Syndicate. “Eventually, there must be either significantly greater fiscal integration or a chaotic break-up”. Economic historian Niall Ferguson expressed similar sentiment in his article in the Sunday Times. “It makes little sense”, he noted, “to be half federal: to have a Supreme Court and Central Bank (albeit for most, not all members), but to leave fiscal policy and defence policy almost entirely to the member states”.

One would hesitate to argue with an economic case for budget federalism. Fiscal transfers would certainly help offset the southern eurozone states’ inability to cushion negative shocks via currency depreciation. It is the politics of creating a fully-fledged federal treasury that raises questions. 

The most obvious problem is persuading Germans to back up the French plan. The country’s parliamentarians remain wary of a transfer union. Jens Weidmann, the Bundesbank president, too expressed his opposition to pooling the eurozone governments’ resources together. It is not clear why election of Macron should have changed German’s longstanding attitudes overnight.

There is, furthermore, no popular demand for deeper integration. It is true that Europeans are, by and large, comfortable with allotting regulatory authority to institutions like the European Central Bank and the European Court of Justice. Yet that doesn’t mean they want to expand the remit of supranational institutions, particularly when it comes to fiscal matters.

According to a survey by the Pew Research Center, 43% of Germans, 39% of Italians and 39% of French would like to see more powers returned to the national governments from the EU. Only 26% of Germans, 21% of Italians and 34% of French support transferring more responsibility to Brussels. Majorities in France, Germany, Italy and Belgium oppose any increase in the EU budget (according to Eurobarometer’s data). Meanwhile, Macron’s original proposals might require ratification by all 28 (soon to be 27) states, including, in some cases, via national referenda.

In short, technocratic plausibility of a eurozone treasury doesn’t make the politics of it any easier. The notion of fiscal union is reminiscent to a joke about the economist, the physicist and the chemist stranded on a desert island. When a can of soup washes ashore, the three are pondering on how to open it. “Imagine we have a can opener”, says the economist.

Instead of dreaming up ideal solutions, the eurozone must do better with what it already has. That, in turn, means that the task of smoothing macroeconomic imbalances still lies with national governments.

A degree of progress has already been achieved in this regard. As the Financial Times’s Martin Sanbu pointed out, Germany’s trade deficit with the rest of the eurozone (apart from France) has fallen dramatically since 2011. Macron’s labour market reform is another auspicious development. If other southern states follow suit – proceeding with ‘internal devaluation’ via reducing their labour costs - the gap between the north and the south will further narrow.

That process - though painful in the short-term - has to be done independently of eurozone integration. If anything, Macron’s ‘bargain’ with Germany – promising labour market reforms and fiscal stringency at home in exchange for deeper integration in the eurozone - could become a drag on his domestic agenda. How exactly does he think pooling resources at the supranational level would help ordinary ordinary French? The Fifth Republic is not as vulnerable as some other economies in the currency union. Should a period of destabilisation occur, therefore, it will not be the most obvious candidate for the financial assistance.

That is not to say that any attempt to improve the euro-area architecture must be wanton. There is a room for strengthening the single currency on an intergovernmental level. Single currency bloc should finally move with upgrading European Stability Mechanism into European Monetary Fund, increasing its lending capacity (something that southern states might wish) and maintaining more rigid control over budget rules (as Germany wants).

“The federal idea has not gone away but at the moment it has no chance of being realised”, Wolfgang Schäuble, German finance minister, said in his interview with the FT. “We have to improve…our intergovernmental methods. Second-best is always better than nothing”.

This incremental approach - the Fabian federalism, if you like - is exactly what eurozone needs. European integration is often compared to riding a bicycle: you should keep moving forward or fall down. But spin the pedals like a madman, and you end up on the pavement too. The fate of the European Constitution, one of the boldest projects the EU has undertaken, is a testament to what happens when politicians act hastily. To succeed, the euro-area reforms be made in a tentative fashion.