A marginalised Britain makes the break-up of the EU more likely

European integration has been defined by two, apparently contradictory trends: technocracy and popul

Europe's Franco-German motor, which many thought had been consigned to the dustbin of history, has returned in the shape of "Merkozy". The relationship between the two countries has always been based on a balance. But where the partnership once benefited Europe by offsetting Germany's economic might against France's political and military leadership, it now merely balances Teutonic power with French weakness. France is so frail financially that it must hug Germany close and agree to most of its demands in order to preserve its triple-A credit rating. Berlin, on the other hand, needs a Parisian fig leaf to conceal the extent of its dominance.

For all the lengthy summits and bickering about the details, there is a gathering consensus about what needs to be done to save the euro: tighter fiscal rules, recapitalisation of the banks and deep fiscal integration, rather than persisting with the miserable, piecemeal progress that has done so much to spook the markets and so little to solve Europe's banking and sovereign debt crises. Yet the politicians are faced with a dilemma. While they agree on the necessity for more integration, they cannot see how they can carry their voters with them.

Populist backlash

European integration has been defined by two, apparently contradictory trends: technocracy and populism. Technocrats aimed to build Europe incrementally through the "Monnet method". As the EU matured as a political project, however, its very success as a bureaucratic phenomenon fuelled a populist backlash.

The backlash started in Britain under Margaret Thatcher but has become a pan-European force that embraces groups from both left and right. Their common complaint is that the EU is an elite conspiracy to build "Europe against the people". In its place, they plan to mobilise the "people against Europe".

For them, the EU looks after the welfare of big business and the banks, but not ordinary people; it promotes globalisation rather than protecting its citizens from it.

Populism and technocracy are treated as opposites, but they are mutually reinforcing, as the saga of the Lisbon Treaty illustrates. The more EU leaders try to remove European integration from national politics, the more brittle the EU's legitimacy becomes. The result is that policymakers become even more suspicious of public opinion, which in turn creates a space for populist parties.

The technocrats have three options for solving the institutional crisis that lies behind the euro crisis. The first is to continue muddling through with the current system of incremental shifts without treaty change, by creating new intergovernmental arrangements, continuing to marginalise the European Commission and encouraging the European Central Bank to buy bonds. This model places much greater burdens on the deficit countries than the creditors through agreements that penetrate deeply into domestic policy.

The second option, favoured by the Germans, would be to change the European treaties to create a "stability union". This could entail the establishment of a de facto finance ministry and the creation of a parliamentary and legal basis for budgetary rules, allowing the European Commission to take EU member states to the court if they do not stick to the fiscal rules.

The third option would be for the 17 eurozone members to break free from existing treaties and sign a legally binding agreement among themselves for fiscal union. The former German foreign minister Joschka Fischer has argued for a two-speed Europe that will divide the EU into a vanguard (the euro group) and a rearguard (the rest). The irony of this arrangement is that it would create a kind of "federalism without the federalists". Institutions such as the European Commission, the European Parliament and the European Court of Justice, and enthusiastic member states such as Poland, would be left outside the new euro-core.

Road to ruin

Each version of the deal has advantages and disadvantages, but they have one thing in common: none of them is likely to close the gap between Europe and its citizens. Since the No votes by the French and the Dutch in 2005, pro-Europeans have found themselves defending an unsatisfactory and unsustainable status quo: a currency that is not backed by a treasury; joint borders without a common migration policy; and a European foreign policy that is divorced from national sources of power.

The only way to regain credibility will be to tackle the problems that the populists talk about, and head-on - showing how the single market can be made to work for ordinary citizens as well as bankers; engaging with fears of migration and ensuring that the costs of accommodating refugees are distributed fairly; overhauling the common foreign and defence policy.

The fragmentation of Europe is a real threat; and each of the three paths I've just described could lead to ruin. In the first scenario, the eurozone crisis could lead to a collapse of the single currency. The second danger is that the attempt to agree a bold change to European treaties fails, triggering the disintegration of the EU. The third and most dangerous possibility is that of disintegration in disguise. Eurozone leaders could save the euro, but in the process destroy the EU by building a core that is so tightly integrated that it kills the single market, leaving Britain permanently in the slow lane and preventing Europe from exercising its collective power on the world stage.

The tragedy is that the coalition government in Britain, by deliberately marginalising itself in European decision-making and refusing to take part in the rescue of a eurozone that accounts for almost half of all British trade, is making this last scenario the most likely.

Mark Leonard is director of the European Council on Foreign Relations