This much-needed discussion should begin to take place despite the seriously unfavourable political and economic environment. Europe’s political uncertainty is getting worse, and the reasons for worry have multiplied with Brexit. Spain is probably heading towards new elections as the minority socialist government is unstable, while the Greek economy is trapped in an unfortunate insufficient reforms–mediocre growth–lack of demand equilibrium. German Chancellor Angela Merkel is expected to step down in the coming years, and Italy’s political radicalisation and clash with the EU may further destabilise the ‘too big to fail’ Italian economy. And this is without mentioning French President Emmanuel Macron’s serious problems with the Gilets Jaunes. Dangerous waters are not, of course, restricted to the political arena. Over the past decade, EU member states have continuously underperformed economically despite some glimpses of recovery. This has created chronic problems such as high unemployment and rising inequality (OECD 2017, 6). Economic stagnation, in turn, has spurred discontent about Europe among citizens, propelling voters to political extremes, and leaving member-state societies hugely divided and polarised.

As a consequence, capital expenditures have slowed over the past several years, as there is little incentive to invest in a continent that is facing so much uncertainty. To make matters worse, structural divergences among member states, as well as institutional weaknesses, have further eroded voters’ belief in the European project. In a nutshell, the institutional structural weaknesses of Europe in general, and the euro area in particular, are not just limited to the fact that a satisfactory level of supranational coordination of national structural and fiscal policies has not been achieved. There are also other pervasive shortcomings that continue to deprive the common currency area of a market with a level playing field in which government interventions are uniform and bureaucratic, and administrative barriers and costs are kept under control.

This structural weakness of Europe relates directly to a failure to handle, in a practical way, the diversity of institutional maturities and capacities among member states. The importance of the relationship between institutions and economic performance is well documented, including in research by political economists Mancur Olson (1982), Douglas North (1990) and, more recently, Daron Acemoğlu and James Robinson (2015). The literature offers plenty of insight into how national political equilibria are formed by the political system of each country, and into who the national players are that benefit from such inherent structural weaknesses, which are reinforced due to the dominance of national decisions regarding structural and fiscal policy. Within the EU, these concerns are not only relevant when weaknesses imply the reduced ability of a country to govern itself well. Rather, the disparities in institutional quality among the member states mean that policy coordination cannot work beyond a certain point, and this concerns all dimensions of policy (fiscal, monetary and economic), as eloquently stressed by Mario Draghi (2014) in his University of Helsinki speech. In turn, this eventually exposes the limits of the current European structure, which has the mission, in principle, of resolving disputes between member states and supranational entities (Mitsopoulos and Pelagidis 2017, 69–88).

The inability of Europe to enforce EU law across all member states in a uniform and efficient way is closely linked with the inability to advance the deepening of the single market in recent decades at a pace that can ensure continuing growth and prosperity across the Union. Acknowledging this, and that the existence of an effective dispute-resolution mechanism is necessary to ensure that when tensions arise the permanence of the Union is not put at risk, is the first step towards understanding the root causes of the situation that the Union finds itself in.

Regarding fiscal policies in particular, it is acknowledged that all monetary unions need a common macroeconomic stabilisation function to deal with shocks that cannot be managed at the national level alone, as once again stressed by Mario Draghi in 2014. The Five Presidents’ Report (European Commission 2015, 14) sees such a capacity ‘as the culmination of a process of convergence’ and as paired with the ‘further pooling of decision making on national budgets’. For economic policies in particular, the report suggests that the capacity of the system of Competitiveness Authorities it proposes could be extended beyond tracking wage competitiveness. The proposed structure, given what exists and is proposed, exhausts the capacity of economic policy coordination that, based on both the principle of subsidiarity and the principle that national parliaments implement economic policies as enshrined in the Treaty on European Union, has been the working principle of the EU since its inception.

On the other hand, ‘convergence in institutions’, especially at the national level and with respect to the institutional and administrative capacity of member states to adhere to the ‘minimum high-level standards’ that are needed to ensure the single market’s success, has not been a direct target of determined EU-level scrutiny, even if it is mentioned in the Five Presidents’ Report. In particular, the quality of national institutions and the corresponding economic structures that are the focus of optimum currency area theory had been missing from this exercise, but have now been recognised as a key prerequisite for sustainable income convergence (European Central Bank 2016). It appears reasonable to argue that the transition from policy coordination to common decision-making in the economic and fiscal spheres must be based on an evolution of existing EU law and practices. But the current proposals definitely fall short of Mario Draghi’s (2014) call in Helsinki for ‘sovereignty over relevant economic policies, and in particular structural reforms, to be exercised jointly’.

In the meantime, forces from the political margins are gaining ground in the post-truth era, and many pundits think that the path to global integration has stalled. We see it differently. The schism in societies that is currently underway, even in prosperous Western democracies, is more of a victory for globalisation than a defeat. Globalisation has broken the nationalistic backbone of European societies, and we are only now experiencing the dramatic consequences. In other words, those who are working well with, or at least are willing to work with, globalisation are clearly decoupling from the archaic part of their national ethos. Resentment among globalisation’s losers, on the one hand, and contempt among the winners, on the other, dominate the current climate.

European integration, through both the single market and the common currency, has been at the forefront of this process, which is why the European dream is now so unpopular among EU citizens, especially the ‘left behinds’ (Fukuyama 2018). In other words, the EU project works well for the mobilised, but the free movement of goods, people and capital leaves behind those who cannot follow. Readers familiar with basic economics will notice that this process is almost inevitable. Free trade is not a zero-sum game, but leaves behind losers. Pro-European political forces would say that it is Europe’s responsibility to take care of the ‘forgotten’ by using a social safety net. But for this to be possible in an era of ‘race-to-the-bottom’ global capitalism, Europe needs major institutional changes.

Elevating ‘European democracy’ and ‘European competences’ amidst rising populism is essential to preserving Europe’s democratic foundation. Communicating such changes to citizens in ways that they can accept is vital in an era when the dichotomy between national and supranational competences seems to be widening. This is particularly critical at the moment as Europe faces elections in 2019 that have been dubbed ‘the next battle for Europe’ (Koerner 2018), in which the EU will struggle to restrain rising populism amid massive national political turbulence, particularly in France and Italy.

In this context, it is critical to consider reforms aimed at increasing the voice of European citizens (Mitsopoulos and Pelagidis 2017). It may also be time to enforce localism as a way of promoting democratic decentralisation while avoiding a further weakening of the European unification project.

While democracy is rooted in the European treaties, and in the national constitutions of the member states, there are no minimum qualitative standards for European and national democracies. Such standards, though, could be useful and desirable in two ways. First, they could make democracy more visible to citizens, and make them feel in control of the destiny of Europe and, by extension, their own destiny. Second, they are necessary to convince European citizens to accept the needed reforms that will deepen the single market and enhance the growth prospects of the Union. While making this point, it is also appropriate to recall that the draft European Constitution was rejected largely because its complexity did not communicate clearly to citizens how they would remain in control of European democracy.

Two initiatives would fundamentally enhance European democracy:

1) Give citizens more power when they vote for the European Parliament. Move away from the current national election rules that only permit closed lists, as is already the case in an increasing number of member states, and open them up to allow voters to select individuals even if they belong to different parties, as is allowed in Ireland. A lower standard would be to make sure that all member countries have at least partially open lists, with voters allowed to choose from a predetermined list of candidates for each party.

2) Improve further upon the current nomination process for the president of the European Commission through the Spitzenkandidat process. One such improvement would be to allow the direct popular election of the Commission president, followed by her or his automatic nomination in the absence of an opposing majority from the European Council. Having been granted such further enhanced legitimacy, the president should have an increased say in the selection of commissioners. One way to achieve this could be to allow each member state to suggest a shortlist of two or three candidates, from which the president then selects one candidate to put forward for confirmation. Today the president simply selects the portfolios of each commissioner proposed by each member state, before submitting them to the European Parliament for confirmation. Such a visible and substantial democratic mandate for the Commission would be a useful enhancement of its mandate as guardian of the treaties.

The above two changes could materially increase the quality and power of the democratic mandates that the legislative body of Europe and the European Commission receive. This is because through this increase in both the quality and the quantity of the democratic mandates, the existing border between national and supranational competences would be moved as far as the precedence of laws and case law could justify. In particular, should a member state be taken to the European Court of Justice and convicted of not properly harmonising national legislation with EU law, European law could automatically take precedence over national law and bind the national administration.