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Adrian Hamilton

Adrian Hamilton: Forget about fiscal integration. What Angela Merkel wants is political union

It will have to be done through common defence and economic policy

So the eurozone totters on, despite all. Of course it does. David Cameron is quite wrong, as is President Obama, in talking of abysses and final chances. It isn't like that. At each point, Europe manages, as it has always done, by muddling through with some measure or agreement which avoids the worst and staves off the immediate. And, at each point, the markets react first with a brief burst of relief and then with a renewed chorus of a crisis unresolved.

There's no reason why this can't go on for some time yet. Commentators talk of Spain's 7 per cent borrowing costs as if it were the final threshold before collapse. It isn't. It might be in the long term, but so long as the country can actually fund itself, 7 per cent is not an absolute barrier.

So, too, with Greece. Of course, the elections haven't sorted out its debtproblem. But so long as the new government can keep talking, and its eurozone partners aren't given a clear reason for pulling the plug, they won't.

The problem isn't an economic one. It's political. What Cameron is asking for is a unity of action from Europe for which there is no consensus and would probably be unacceptable to him if there was.

Germany, increasingly fed up with being made the whipping boy for European inaction, is now digging in its heels. In a switch of policy that has received far too little attention, Angela Merkel is moving from a demand for fiscal union as the price of further help, to a call for total political union.

In a series of speeches and statements over the past week, the German Chancellor has laid down Germany's position on this crisis. Germany, she has said loud and clear, is not going to go along with a pooling of debt or a direct purchase of troubled sovereign bonds, however heavy the pressure on it to do so. The constitution won't allow it and the politics are against it.

If the rest of Europe wants Germany to shoulder the burden, then it will have to be done through a decisive move towards political integration, including common defence as well as common economic policy and the loss of sovereignty to Brussels oversight.

This is pretty heady stuff, particularly coming from a country which seemed happier with a looser alliance of separate states in the past. It would require radical new treaties. It would push Germany straight up against France, which is heading in the opposite direction under President Hollande and is opposed to handing over power to Brussels.

Ms Merkel's position also poses a real challenge to Britain, which has always been able to count on Germany to resist too much federalism. We are now faced with a Germany calling for political integration, which is anathema to the Conservatives, and a France calling for a neo-Keynesian economic policy and a tax on financial institutions, which is equally inimical to this Government.

Germany may not get its way, of course. Indeed, Ms Merkel's call for political union may be a tactic for getting its partners off its back. If that's what you want, she is saying, then this is where it will lead you.

The practical problems of doing what she suggests are huge. But then the logic of her argument is equally strong. If Europe, as its critics keep carping on about, cannot go on like this, the most obvious alternative is a truly federal solution.

Britain has a huge interest in this debate yet absolutely refuses to join it. Instead, it sits on the sidelines declaring that this is a financial crisis which the eurozone must solve on its own. More than ever before, the country stands isolated in Europe. More than ever before it seems possible, likely even, that it will end with us falling out of the Union.

Brotherhood's bad call


The Muslim Brotherhood in Egypt must surely be ruing the day that it decided to go on taking part in the country's presidential elections after the courts had dissolved the parliament.

The alternative would have been for it to withdraw from the race, leaving an election without a choice, a president without legitimacy and a military rule without support abroad or at home.

The Brotherhood has only itself to blame. Conscious that it was the one group with an organisation capable of taking power in elections when President Mubarak fell to popular revolt, it chose to separate itself from other elements in the revolution and to temporise with the generals in pursuit of its aims.

Now, whether the Supreme Council of the Armed Forces uses the Constitutional Court to make sure that its favoured candidate, former PM Ahmed Shafiq, wins – which is what most of the proponents of the Arab Spring believe – or whether it allows an empty victory for the Brotherhood's Mohammed Mursi, the army will remain firmly in power.