About a year ago, I wrote a couple of articles in Swedish daily Dagens Nyheter proposing that the Nordic countries and autonomous territories should establish a federal state.

Seldom have I witnessed such passionate reactions. As a result, I drew up a more detailed set of proposals, which has been published in the Nordic Council and Council of Ministers' Yearbook 2010.

Student or retired? Then this plan is for you.

The difficulty does not lie in outlining how a federal state might look. Switzerland is one possible model for a similar federation, which would have as its members the five Nordic countries (Denmark, Finland, Iceland, Norway and Sweden) and the three autonomous territories (the Faroe Islands, Greenland and Aland).

The United Nordic Federation would only have powers that are expressly ceded to it by its members. Foreign and defence policy would be federal matters; economic and labour-market policy would need to be co-ordinated; and research policy would probably also be best served at federal level.

Bringing the countries together in a federal state would not mean that all political decisions would be taken at federal level. The Nordic countries have a strong tradition of local autonomy - the local authorities and county/regional councils are responsible for many areas, especially social services, but equivalence is guaranteed at national level.

The Federation would work in the same way, as an arena for comparisons and co-ordination, without the need for decisions to be unanimous before they can be implemented. Most taxation would remain at national level, as would most social services, perhaps including social security, unless it is generally agreed that a joint system would be more beneficial.

The federal state would need a constitution, a legislative assembly and a government, the exact nature of which would be a matter for the member countries.

Establishing the Federation would undoubtedly be a long process, but it could start with the Nordic Council taking the initiative to launch a feasibility study of alternative forms of future co-operation.

The prospective members would then negotiate on the basis of the feasibility report. Later, the parliaments and the peoples of the Region would need to have their say about the outcome of the negotiations. By around 2030, the people of the Region would be ready to elect their first joint legislative assembly.

Past impediments

The strange thing is that this has not happened already.

The Nordic countries may well be internationally renowned for their peaceful and successful co-operation but alternative interpretations of the region's history are equally plausible.

Elsewhere in Europe, similar areas with the same culture and language have long since formed countries and states: England and France in the early Middle Ages, Spain in the 15th century, the United Kingdom in the 17th century, Germany and Italy in the 19th century… only the five Nordic countries have stubbornly remained separate.

This is partly because Denmark/Norway and Sweden/Finland were equally strong for a long time, with no single kingdom managing to dominate the others, and partly because major powers such as the Hanseatic League, the USA and the Soviet Union opposed any attempts at unification.

Nowadays, however, the great powers no longer interfere in Nordic affairs. For the first time in 600 years, the Nordic countries have the opportunity to discuss their collective future in peace and quiet. During the 19th century, Nordism was borne by strong cultural and idealistic currents. Today, I would venture that economic and foreign-policy reasons are at least as important.

The world's 10th-biggest economy

This all started with me playing about with numbers. I added together the GDP and population statistics for the countries. The results were astonishing. As things stand today, the United Nordic Federation would have 25 million citizens and a GDP of approximately $1,600 billion - about the same as Spain and Canada - making it one of the world's 10–12 biggest economies. This opens up two important perspectives.

The financial crisis has made international co-operation far more important. The collapse of the Bretton Woods system in the early 1970s heralded a period of deregulation, during which the role played by international organisations diminished significantly.

However, in recent years, it has become increasingly apparent that the financial markets are incapable of operating properly without international regulation. The problem is that the UN, WTO, IMF/IBRD and even the OECD have sometimes been far too unwieldy to achieve the results needed from major international negotiations.

The solution has been the G20, which draws the big picture and then lets the traditional organisations deal with the detail. Presumably, this is not a passing phenomenon: for example, there will be an equally great need for similar mechanisms when it comes to solving the climate issue.

Unfortunately, the Nordic Region is not part of the G20 - a loss for both the region and the world.

The Nordic countries are more supportive of free trade than some G20 members, and have also been prepared to do more about the environment. Yet a divided region means that the Nordic perspective carries no weight in the most important international bodies, to which only the biggest economies have access.

The United Nordic Federation would play an obvious and constructive role in the G20.

Stronger together

It is also a matter of the Nordic countries' own economies. A joint economy with a population of 25 million would be far more dynamic and fruitful than five economies with populations of 10, 5, 5, 5 and 0.5 million respectively.

More joint legislation, an active joint labour market and a co-ordinated research policy would provide a significant boost to the Region's growth potential.

The United Nordic Federation would also be less economically vulnerable than five individual countries.

The small countries are heavily dependent on individual goods, industries and/or markets, whereas a federal state would be less susceptible to the vagaries of economic fluctuations. The United Nordic Federation could be a USA in miniature. The more we feel at home in each other's countries, the more people will be able to ward off the effects of economic fluctuations by moving to areas where their services are in demand.

In fact, the region's companies and people have already made some progress towards federation.

In Oslo, one in 10 employees are Swedish. Every day, 3 percent of the population of Malmo commute across the bridge to Copenhagen, and half of them are Danes. Business has gone even further. Half of the finance and insurance sector is Nordic; the forestry, energy and food industries are heading in the same direction; and multinational companies often have a Nordic presence rather than a national one.

Federation over co-operation

The main objection is often as follows: "Yes, but surely closer co-operation could do that?" Or: "Why bother about the Nordic Region, when EU integration involves so many more countries?"

But it's not like that.

Closer co-operation is significantly different from a federal state. With closer co-operation, each individual project would have to be negotiated separately. If all five countries fail to see sufficient advantages, the proposal comes to nothing.

This has happened to many important proposals over the years. If closer co-operation is the route we are to take, then there is a grave risk of the Nordic countries sliding further apart.

In a federal state, on the other hand, new issues have to be dealt with all the time. For its members, federation is a matter of swings and roundabouts - concessions one day facilitate progress the next.

A joint federation would create a completely different framework and preconditions for agreements than that offered by loose co-operation.

Further than the EU

The Nordic Region is in no way incompatible with the EU. In fact, the region can strengthen the Union. The United Nordic Federation would be one of the Union's four or five biggest members. For some eurosceptics, this may cast a whole new light on the question of membership.

I understand those who hesitate when faced with a union in which the French–German directorate can steamroll Sweden, Finland or Denmark - but Spain or Poland do not get treated like that. And the United Nordic Federation would be on a par with Spain.

Nordic co-operation could also go significantly further than European co-operation. Joint Nordic values have already laid the foundations for co-operation on legislation, social security and taxation, which it would take generations to achieve within the EU.

Nordic co-operation can function as an example and a model for the wider European community.

The great opportunity

Sometimes, politics does make a difference – it determines the institutional frameworks for our actions. Geographical borders are the most important institutional framework. The markets can do nothing about them. On the contrary, borders interfere in both trade and business.

In 2008, Paul Krugman was awarded the Nobel Prize for his research into economics and geography. His conclusions are striking. He shows that your neighbours and allies play a vital role, that it is important for industries, companies and skilled people to be gathered in one place.

Geography is economics, and it is in the hands of politics.

From the foundation of Switzerland, to the liberation of the Netherlands, to Italian unity, German reunification and the fall of the Soviet Union, political geography has, time and again, been redrawn and left its marks on the passage of history.

Now, the Nordic Region has just such an opportunity to shape the future of its people, companies and culture.

This opportunity is the most important issue facing the countries' politicians. If they decide to grasp it, then the United Nordic Federation will have every chance of transforming the region into an entity capable of offering its citizens far more than the individual countries ever could.

It is this opportunity that the Nordic Yearbook 2010 addresses.

The author, Gunnar Wetterberg, is a Swedish historian and economist, a member of the Royal Swedish Academy of Sciences. The article first appeared in the Nordic Council / Nordic Council of Ministers' online news magazine, Analys Norden. The views expressed therein are those of the author