Britain is renegotiating the terms of its EU membership. The EU faces a crisis of legitimacy. Both require reform of how the EU makes its law. The UK government should demand it in the negotiations.

Over the 40 years of our EU membership, British governments have shown little interest in institutional reform. This needs to change. As I set out in my paper Ending the Ratchet, published by the Centre for Policy Studies, reform of the process of lawmaking (and unmaking) is now at least as important as any one-off repatriation of powers. The legislative ratchet, embodied in the commitment to ever-closer union, must be ended.

It is not only the eurozone economic crisis that is undermining the EU. The commitment to ever-closer union is also contributing to the nationalist resurgence evident in many European countries, from the Front National in France to Italy’s Five Star Movement and the Congress of the New Right in Poland.

The legitimacy crisis is made worse by a complex and opaque decision-making process. Who, outside a charmed circle of insiders and lobbyists, understands the trialogue, or has even heard of it? Yet these recently devised, informal and often secretive negotiations between the European commission, the European parliament and the European council are now central to EU lawmaking, pre-empting debate.

It is in Europe’s interests as well as Britain’s to secure major reforms. The principle that policy decisions should remain with member states unless there are compelling reasons for them to be taken at the EU level – subsidiarity in the Euro-jargon – needs to be given substance; Europe’s institutions should be rebalanced, increasing the strength of the national governments in the Council of the EU; and the EU’s financial watchdogs, the European court of auditors and the anti-fraud agency Olaf, need to be reformed and emboldened.

The role of national governments in EU lawmaking needs to be restored

Attempts to make subsidiarity meaningful have been thwarted, partly by integrationists, for a generation. Its definition must be strengthened and clarified, so that demonstrable and substantial benefits in the efficiency and cost-effectiveness of measures are required to justify EU-level action. Where that cannot be demonstrated, decision-making should remain with or return to the member states. Not only should this be applied to new legislative proposals; the existing stock of law and regulation, the acquis communautaire, needs to be subjected to continuous review: a reverse ratchet.

National parliaments can and should play a bigger role in strengthening subsidiarity. The mechanisms – of yellow and other coloured cards – through which they can challenge proposals must be enhanced and made easier to use. But that won’t be enough.

It is still more important to restore the balance at the heart of EU decision-making. Legitimacy ultimately flows from the member states. The European parliament carries out crucial legislative and scrutiny work, but cannot substitute for national governments. The strength of the council, and the role of national governments in EU lawmaking – weakened by recent treaty reforms, particularly at Lisbon – needs to be restored.

The commission was designed to provide an integrationist drive from the very earliest days of the community. It has been successful in discharging that mandate. That has been a noble project, but one that, if unreformed, will be unsustainable in the 21st century. In a mature EU, a more visible counterweight to integration is now essential.

To help provide that counterweight, a new body should be established under the auspices of the council to monitor and enforce the application of subsidiarity. It should be led by a small group of commission-level political appointees – preferably a troika - and with high-quality staff from the domestic civil service of member states. Its recommendations would enable the council to require, by qualified majority, withdrawal of a proposal on subsidiarity grounds; it would lead reviews of the acquis; it would shine some light on the unacceptable way in which trialogues work and would support a more open and transparent legislative process; and it would support the council in developing more rigorous impact assessments of legislative proposals.

This must be a body capable – and seen to be capable – of enabling the council to challenge, and from time to time reverse, the drive to “ever-closer union”. It would strengthen the intergovernmental aspects of the EU, bolstering the council, the national governments that comprise it and the national parliaments that stand behind them.

If confidence and transparency are to be restored, scrutiny of EU (and member state) action and expenditure must also be enhanced. The European court of auditors has the potential to perform at EU level a role equivalent to that of Britain’s National Audit Office and the public accounts committee. It needs to find its voice and streamline its working methods, searching more vigorously for value for money. It should in addition assume responsibility for clamping down on fraud. Olaf should be added to its remit.

No single reform can remove the tensions inherent in an international institution as complex as the EU, and these proposals do not attempt to do so. Nor is a full and final settlement of the functioning of a 28-member union to be found in a single negotiation, however wide-ranging. Nor should closer cooperation – with safeguards for the 28 – between smaller groups of members be discouraged.

What can and should be achieved is a decisive shift away from an EU of 28 in which the default position too often appears to be towards integration. EU activity should be limited to those areas in which there are demonstrable gains from common action, and robust mechanisms established to entrench that principle.

The UK government can make clear that it is earnest about this principle by carrying out its own review of the acquis and publishing a list of at least some measures that should be considered for repatriation. It may be nervous of doing so on the grounds that not achieving full and immediate repatriation in these areas would be seen as a failure. This need not be so. Everyone must recognise that, in international negotiations of this kind, the UK will not get all of what it needs or wants. However, launching this debate, and setting out a detailed and rational case can help change the terms of trade in this European debate; if coupled with institutional reform, it can give member states greater control over their own affairs.

If the crisis of legitimacy is not addressed through these or other means, the tensions within the EU could pull it apart. That is why Britain’s renegotiation can and should also be Europe’s opportunity.