What are we to make of a leading European finance minister arguing that Europe needs to create a new financial institution and adopt draconian punishment of countries that threaten the financial stability of the euro area, particularly when that finance minister has form as a proclaimed federalist? 

With an apparently iron determination to launch a public debate, first in an interview with Die Welt and then in an opinion piece in the Financial Times, Germany’s Wolfgang Schäuble has set out the case for a European Monetary Fund (EMF) and further integration within the eurozone. German coalitions being what they are, we cannot assume that Schäuble has the unqualified support of his chancellor, Angela Merkel. She has publicly endorsed his idea, but she added the ambiguous observation that a new treaty would be needed to achieve the Schäuble vision. Given the widespread revulsion in most European capitals at the thought of negotiating another treaty, was the chancellor shooting her finance minister down in flames?

Schäuble himself appears to have carefully avoided discussing how the EMF could be brought into existence and the eurozone more tightly integrated. Instead, his interventions suggest distress at how weak governance of the eurozone has allowed the Greek problem to fester and become a quasi-systemic crisis. They also arouse the intriguing suspicion that this avowed federalist sees an opportunity to move European integration forward at a point when the Lisbon treaty has taken on the appearance of a swansong.

If that is his intent, is Schäuble an unrealistic dreamer? That is how many dismissed a joint paper that he produced in 1994 with Karl Lamers, another senior member of the Christian Democrat Union/Christian Social Union (CDU/CSU) coalition. Their paper was written at a time when the EU was about to enlarge to accommodate Sweden, Finland and Austria and was preparing for eventual enlargement into eastern Europe. Schäuble and Lamers wanted German-style federal institutions at the European level and, more significantly, the maintenance of Franco-German leadership within a ‘hard core’ of countries who would lead and co-ordinate the Union as a whole.

Since then we have seen membership of the monetary union grow from 11 to 16 states and the creation of ‘enhanced co-operation’, a so far unused instrument that allows a minority of member states to pursue common policies. Schäuble belongs to that school of German elite opinion that believes a durable and stable euro is a fundamental German interest, but fears that only a much larger dose of political union will sustain the euro and keep it steady.

So how might greater political union be achieved without another treaty? Enhanced co-operation would not extend the Union’s powers and so would not create a new institution with real authority.

We know Merkel thinks a new treaty is necessary. So may Schäuble. But he may be thinking of the idea, first floated by Jacques Delors, then the European Commission’s president, and taken up in 2000 by Joschka Fischer, the then German foreign minister, of “a treaty within a treaty”.

Supporters of the euro have from the outset talked up its potential as a ‘federating’ project. To date, the track from the euro to political integration has not been marked out, let alone laid. But, not for the first time, an external crisis that highlights internal weaknesses is now prompting calls for ‘more Europe’, not ‘less Europe’.

Do all the members of the eurozone share the same vision of a more united Europe? Almost certainly not, which is one reason why analysts have dismissed the idea of a treaty within a treaty based on membership of the euro area. And many doubt whether there is room within the Union’s institutional and political set-up for a federating group, since such a group would need democratic and executive institutions of its own.

But if Schäuble’s compatriots and fellow ministers come to take his idea seriously, others will too. Here, France’s reaction would be crucial. So far, President Nicolas Sarkozy has said little about an EMF, which is why Prime Minister François Fillon and Finance Minister Christine Lagarde have shown a polite interest while gently suggesting that an EMF does not head their list of priorities. Sixteen years ago, the Schäuble-Lamers paper did not go down well in Paris, which highlighted that it paid far too little respect to the vitality and durability of the nation state. The difference between now and then is that the euro is an established fact – and Germany will fight for the currency’s interests because they are inseparable from Germany’s.

Schäuble is bent on changing the game and he may yet convince Germany that the Union should exercise stronger powers over the fiscal and macroeconomic policies of its member states. If so, Berlin will test France’s often-stated enthusiasm for the EU to have a greater role in economic governance. Ultimately, if Germany wants a new system of financial governance in the eurozone, it will get its way. But this should not be a matter decided by one country. Can Germany accept that?

John Wyles is chief strategy co-ordinator at the European Policy Centre.