Can the EU continue to muddle through?

Steve Walt is pessimistic about the future of the European Union: 

There are in theory two ways that the EU could go in response to these events. One possibility is that these recent failures will eventually prompt a further expansion of all-European institutions.  This view is the modern version of old-style functionalism: if Europe needs certain institutions to work properly, it will eventually create them. 

The second possibility-which I’d deem more likely — is that we have in fact seen the high-water mark of the EU project.  Nationalism is still alive and well in Europe, the Cold War is over and there is thus less need for unity against an external threat, Germany is gradually shedding its post-World War II reticence, and the consequences of over-expansion and excessive ambition have been fully exposed. I’m not saying the Union is headed for the dust-heap of history or anything like that (no bureaucracy goes out of business that quickly, especially when there are thousands of pages of laws involved), but a significant consolidation of power in the near future seems most unlikely.

Given that the EU Union has been one of the more interesting political experiments in recent decades, this is going to be fascinating to watch. Time for IR theorists to place their bets?

It’s really in vogue to predict the downfall of the European Union, and for good reason — they have had a truly awful 2010.  Steve, like any good realist, predicts the stalling out of the European project.  And he may very well be right. 

There are two things that hold me back from making a similar prediction, however.  First, the EU has had significant policy reverses in the past — and the institution has always responded with further economic and political integration.  If I had said, the day after Black Wednesday, that the EU would create a single currency in less than a decade, all my realist IR friends would have bared their teeth in an effort to simulate laughter laughed.  Similarly, the failure of the EU constitution last decade did not deter the EU from creating new offices designed to centralize foreign policy coordination.  These offices haven’t really been put to good use yet — but new leadership could change that. 

Second, I’m not sure the eurozone can go backwards — the common currency might be locked in.  There are suggestions that Greece needs to exit the eurozone for a spell, but there’s no mechanism and/or infrastructure to make that transition (let me add here that the functionalist argument would predict that there should be a few departurues from the euro, for reasons that Paul Krugman laid out last Friday).  Since Greek debt is denominated in euros, and since I doubt the French and Germans will allow that debt to be devalued because it will kill their financial institutions holding Greek debt, Athens has strong incentives to stay in the euro fold. 

When going backwards isn’t an option, and muddling through is no longer viable, the only thing left to do is move further along the integration project. 

It’s entirely possible politics will get in the way of this — but my 51/49 prediction is that come 2020, the European Union will look more centralized than it does today.  

What do you think?