Federalism's last gasp

The prospect of a two-tier Europe, with Britain outside the core, causes alarm in Downing Street. Joschka Fischer's vision of a European federation - with a group of more ambitious states forming its vanguard - is the latest such proposition, albeit one for the long-term. But does Tony Blair have much to fear?

On the surface, what Mr Fischer has proposed is a classic federal structure for the EU: a European parliament and government with real legislative and executive power, circumscribed by a constitution. But his ideas - which are deliberately vague - depart from traditional German thinking. He suggests that a European executive could be formed from national governments rather than the Commission, which many federalists consider as the government in waiting. And he believes that the European Parliament should have a second chamber of national MPs to reinforce the role of the nation-states - an idea championed by several other leading politicians, including Robin Cook.

Where Mr Fischer's proposal is radical is the process by which the member-states would achieve federation. First, he calls for an end to the 'Monnet method' - the gradual pooling of sovereignty, policy by policy. There should instead be a once-and-for-all constitutional settlement that would divide up powers between the federation and the states - as in Germany.

But it is doubtful whether there could ever be such a neat division of powers in the EU. Even where the European Community has exclusive competence - competition policy, for example - it is national governments which must devise and implement the rules. And there are a growing number of policy areas which, although largely in the national domain, have an important EU dimension.

Second, Mr Fischer calls for a core group, or 'centre of gravity', to press ahead with federation. He declines to say which countries would comprise the core. Some would like to see it embrace the members of the euro-zone, which are likely to develop closer economic ties. France, in particular, blames the current lack of 'political union' for the weakness of the euro. However, some countries inside EMU, such as Spain, Portugal and Finland, are unenthusiastic about federation.

It is more likely that any core would be formed around the original six. But not all of them will always play a leading role in all policy areas. Although the Benelux countries assume they would be part of any future core, they will not count for as much as Britain in defence. The EU will probably have multiple cores, covering defence and foreign policy, economic policy co-ordination and home affairs.

There will be no serious attempt to establish a core group - for example, by introducing a 'treaty within a treaty' - during the current inter-governmental conference. Jacques Chirac, for one, is eager to see a limited set of reforms wrapped up at the Nice summit in December. But it is clear that the more ambitious member-states want to frame the modest IGC agenda in a wider debate about the long-term future of the EU.

Mr Fischer's proposition will strengthen the hand of those governments now arguing for greater scope for 'flexibility', or closer co-operation between smaller groups of EU member-states in specific policy areas. They are especially keen to abolish the right of any member-state to apply an 'emergency brake' to block such a venture - a restriction obtained by the British during the Amsterdam IGC.

Mr Blair will be reluctant to agree to this. The British fear that if closer co-operation is made any easier, the euro-zone countries may forge ahead with the harmonisation of taxation and budgetary policies, thus upping the price of British membership of EMU. This is unlikely - at least in the medium term. The governments of the Euro-11 will need to co-ordinate economic policies more closely. But what they do will fall a long way short of the 'economic government' championed by the French.

There are many other constraints on the use of flexibility - such as the need to maintain the single market - which most member-states and the Commission would insist upon. For tactical reasons, Britain should agree to make flexibility easier. Otherwise the argument can only contribute to the head of steam building for a two-tier Europe. Most of it may indeed be only hot air. But this in itself could be enough to convince the British that they have no future in the EU.