Crisis coerces EU members into ever closer union

By extending Brussels' supervision over states' budgets and expanding the central bank’s charter, the EU has made an historical step towards a centralised budgetary policy.

By pledging a gargantuan amount of financial support last weekend, the European Union prevented financial markets from digging an even deeper hole for the euro.

The European currency wasn't the only thing at stake, though. Recent weeks' events came close to setting off a new financial crisis. Little has really changed since those fateful days in October of 2008. The financial system remains so densely and globally intertwined that a crisis in a small and relatively insignificant country like Greece can easily set off another economic powder keg.

The over 700 billion euros in credit and guarantees that were trotted out last weekend will be supported by far-reaching monetary measures. The European Central Bank (ECB) will, again, provide the banking sector with unlimited liquidity. It has also announced it will, if necessary, buy up treasury bonds to shore up prices and ensure that effective interest rates paid by governments remain low.

Judging by the reaction from financial markets on Monday morning, the bailout seemed to be successful. But last weekend will cast a longer shadow. The constitutional consequences can be very extensive indeed. By announcing its decision to begin purchasing eurozone treasury bonds, the ECB has effectively strayed from the domain of monetary policy into the budgetary arena.

EU countries have agreed financial sureties will be accompanied by an extension of centralised EU supervision over member states' budgets. The European Commission's decision to raise funds on capital markets to provide troubled countries with credit is the beginning of a centralised and relatively autonomous EU budgetary policy. Also, the Maastricht Treaty clause that precludes eurozone countries from supporting each other financially, has been violated – in spirit if not in letter.

It has been a longstanding rule governing European integration: the process needs an occasional jolt to help speed it along. Many already had doubts a common currency could exist without a joint, centralised, budgetary policy, back when the euro was introduced. The creation of a monetary union without a corresponding political one was considered equally risky.

If the euro is to have a future, euro countries need to start coordinating their economic and budgetary policies, effectively rescinding a significant part of their national sovereignty in these areas. Last weekend was a first step in that direction.

Whether this should be cause for contentment is a question that remains to be answered. European publics, particularly those in Germany and the Netherlands, were largely sold on the euro by politicians' promises that their national sovereignty would remain intact. We are now seeing the fallout of the inexorable mechanism behind European integration: one measure inevitably begets the next. European unification has come to lead a life of its own. Those who oppose it would be wise to take action fast, because by the end of the current process, an extensive loss of sovereignty will have become reality.