Time for reflection on the state of the EU - but at what cost?

World View: The word crisis has been thrown around liberally this week following the EU summit failure to agree a budget last weekend. Coming on top of the decision to let each member-state come to its own conclusion on whether and how to ratify the constitutional treaty rejected by the French and Dutch electorates, there has been much talk of whether the crisis is conjunctural, existential or terminal for European integration.

The word crisis derives from the Greek krinein, to decide. In this light it seems an accurate description of what is at stake.

Much depends on one's point of view. Those committed to integration as the most effective way to manage and regulate globalisation as a system of growing interdependence see this difficult period in conjunctural terms.

It is a product of weak political leaderships in major states which will take several years to resolve as they go through their electoral cycles and encounter afresh the international pressures and domestic demands that make integration an indispensable part of contemporary governance.

In this perspective time for debate and reflection in a more relaxed atmosphere is needed above all - on the budget, the constitutional treaty and how best to create a more effective system of transnational politics with mass participation in an enlarged EU which has a potential continental reach.

But opportunities to respond to international events constructively may be missed in the meantime, weakening what has already been achieved.

The continental benefits of enlargement including imperatives for political, legal and economic reform in aspirant member-states could be undermined by such a loss of political will. This would have dire consequences for political progress and stability in the Balkans, Ukraine, the Caucasus and for relations with the Muslim world.

On holiday in Greece over the last few weeks I was struck by the growing realisation there that relations with its Balkan and Turkish neighbours would change rapidly for the worse if the commitment to enlargement becomes a real casualty of the French and Dutch votes and nothing is put in its place. The costs of such a reversion would be very large for all Europeans.

Many conjuncturalists acknowledge the validity of the case made by existentialists who argue the time has come to decide conclusively on the nature of integration, if it is to continue to exist as a solution to these problems.

Several models are on offer from political leaders and theorists. Andrew Moravscik, the prominent American theorist of the EU as a liberal inter-governmentalist system argues in Prospect magazine that the French and Dutch votes mark the end of the federalist idealism which has animated many of the most committed since the 1950s. The constitutional treaty is dead. So is Turkey's ambition to join.

EU leaders and citizens should understand these political realities and adjust their policies accordingly, according to this argument, which echoes that of Tony Blair this week.

They should recognise that the EU has in fact reached a mature political settlement which was defined and consolidated but not greatly added to by the treaty. The mistake was to call it a constitution, opening up unrealistic expectations of - and fears about - the transfer of political power away from nation-states to an unaccountable Brussels bureaucracy.

The EU is, in terms of comparative government, a weak confederation based on intergovernmental bargaining, albeit with certain federal institutions.

It lacks the power to tax, spend, implement or coerce typical of federations. But it is well-endowed with political checks and balances and is legally heavily constrained.

It does not have a democratic deficit, does not suffer from a genuine crisis of legitimacy and does not need a large injection of transnational politics but more effective policies.

Health, education, defence and culture, among the most salient issues for voters, remain rooted in the member-states.

Voters are much less interested in what the EU deals with.

This leaves referendums subject to capture by populists of the right and left, squeezing out the centrists who dominate national politics.

The solution to the EU's existential crisis, according to this scenario, is to recognise these realities, live with them and make existing arrangements work. Policies rather than institutions should dominate debate. A somewhat similar argument was made here last week by Jim Duffy.

He argued that the constitution was pushed above all by those who believe the days of the nation-state are numbered; it would allow "a new state, Europe, to become the focus of loyalty and identity".

Integrationist critics of these intergovernmental positions say they are complacent, out of date and misconceived. Federalism should be distinguished from federation - as a method of political association and not necessarily a recipe for a federal state.

Defined classically by Daniel Elazar as a combination of "self-rule and shared rule" it encompasses many different types of political arrangement, including confederation.

He believed this represents a new means of constitutionalising globalisation in post-modern conditions where the modern nation-state has lost its role as the sole, but remains the primary, source of political authority and identity.

In fact nation-states have been strengthened, not weakened, by integration.

The trouble is that by pursuing such selective "executive federalism" at EU level since the mid-1980s governments have reinforced their own power vis-a-vis national parliaments and electorates without creating new democratic means to make this accountable.

But they still lack adequate means to deliver effective political and economic outputs at European level.

Thus there is a genuine "dual legitimacy" problem which the constitution was intended to address at national and European levels. But it does not create sufficient democratic links between citizens and Europeanised politics.

How to do this should be the substance of the forthcoming debate; it is natural and right that there should be deep arguments, disagreements and contests about this. And it is misconceived to counterpose national and European loyalty and identity. Both are required to make such a system of deeper transnational government and politics work.

The EU is much more than an international organisation like the WTO or the UN, but much less than a state like the US. We need a new political vocabulary to understand it.

Terminalists deny this is possible. The political community or demos of self-rule is located only in the nation-state and cannot be shared, they say.

Multiple political loyalties or identities combining the national and the European are conceivable only as steps towards a federal state.

For them this crisis is a welcome opportunity to roll back the (limited) political and economic union established in the EU over the last 20 years.