Since the beginning of the euro crisis, a sharp economic fragmentation has emerged within Europe, exposing different business models and fiscal approaches in the North and South. But several other splits are also afflicting the continent. The Scottish independence referendum has revealed a new degree of potential nationalist fragmentation. And there is a related populist fragmentation—a rift between the elites and the people—as evidenced by the success of nonmainstream parties in the 2014 European Parliament elections. Finally, the question of an independent Scotland’s membership in the European Union, as well as the crisis in Ukraine, highlights the fragmentation between Europe’s “ins” and “outs.”

These divides are mainly based at the national level, and they often reinforce one another. In Catalonia, for example, where 80 percent of voters backed independence in a nonbinding poll in November 2014, economic fragmentation increased nationalism, as residents of the wealthy Spanish region grew unwilling to support their central government and poorer regions of the country.

Cornelius Adebahr Adebahr is a nonresident fellow at Carnegie Europe. His research focuses on European foreign policy. More >

While there is no panacea to these trends, the European Union and its member states should make two bold structural changes to counter them. First, the EU should radically overhaul its internal architecture to accommodate the widespread frustration of citizens. This requires full acceptance of what the EU calls subsidiarity, which means ensuring that decisions are made at the lowest possible level, even within member states. Second and more fundamentally, the EU should embrace the mechanisms of “multispeed Europe.”

In the spirit of thinking big, the case can be made for the EU to become a pan-European union that encompasses all of the continent’s sovereign countries. The idea is simple: rather than fortify its current exclusivity, which makes entry increasingly difficult and exit a political emergency, the EU should broaden its membership to the entire continent, while allowing different levels of integration.

This symbolically and politically powerful move would not only help preempt the ripple effects of a post–Scottish referendum secessionist wave or a potential Brexit (the nickname for a UK decision to leave the EU). It could also encourage a resolution to the stalled enlargement debate as well as the protracted conflict in Ukraine.

Of Austerity and Inequality

Such dramatic change is easier said than done in an environment of continuing economic crisis in Europe, and particularly in the eurozone, which has produced its own multifaceted fragmentation. The divide between an austere North and a profligate South is so widespread that it has become a caricature. However, all indicators such as GDP per capita, national debt, and unemployment—especially youth unemployment—show a clear core-periphery divide, separating the likes of France, Germany, and the Netherlands from Greece, Ireland, and Spain. In fact, the economic gains of the early years of convergence under the euro currency have been wiped out by the ongoing crisis.

Obviously, these differences existed before the crisis, and indeed, they partly triggered it. However, they have become even more profound due to the EU’s lack of resolve in countering the situation. At the insistence of the core countries, most notably Germany, the main line of defense has been in each member state. Joint responses came forth only at the very last moment, and they did not go beyond the bare minimum needed for some immediate relief.

As a consequence, differing trends of growth and competitiveness have raised the possibility of an economic decoupling within the EU in which countries—rather than converging under a common currency—would follow different paths, ultimately breaking the currency regime. Even the recently established, limited banking union and the still fairly active role of the European Central Bank (ECB) cannot compensate for this.

The role of the ECB also points to a fault line between the eurozone on one hand and member states that are not using the common currency on the other. Five years of crisis management with two institutionalized bailout programs and a proactive ECB have knit the eurozone tightly together. The danger now is that this will lead to a financial fragmentation within the EU between the euro core and non-euro shell.

Another economic fragmentation stretches across boundaries while at the same time reinforcing the core-periphery divide: the rising social inequality that is being felt in societies throughout the EU. In most of the periphery countries, inequality has increased over the last ten years while wages have decreased. Worse still, not only do many people experience a disconnect between work and prosperity, but the young—particularly in the crisis-hit, austerity-stricken countries of the periphery—complain that the post–World War II social contract has been cancelled and they can no longer expect to be as well-off as or better-off than their parents. With the costs for healthcare and pensions (whose benefits usually go to the established parts of a society) rising faster than any other government expenditure, there is much less money to invest in future generations even if one assumes a steady public income from taxes.

This has led the eurozone to display signs of a particular “inequality puzzle”: inequality rose in core countries such as Finland, Germany, and the Netherlands in the period between 1998 and 2008 but declined through the recent crisis years. In periphery countries like Greece, Ireland, and Spain, the reverse was true. A closer look reveals that the design of the currency union prescribes policies that favor the core countries both in a boom and a recession. As a result, real wages have grown, although moderately, in those core countries throughout both periods, whereas the periphery had stark wage rises in the boom until 2008 but has seen pronounced decreases since then.

These are not new insights, and ample suggestions have already been made about how to overcome the built-in imperfections of the European monetary union. The problem is that, while current measures have been able to nearly stem the acute crisis, they fall far short of remedying the fundamental centrifugal forces within the single currency space. To address these, the eurozone would have to make an integration leap that it shies away from given the uncertainties of any treaty change.

Identity Trumps Rationality

The immediate worry surrounding the September 2014 Scottish vote was that it could give a boost to independence movements throughout Europe. The simple fact that a referendum was held with the consent of central authorities has already emboldened those who seek independence elsewhere.

The success of the Scottish referendum—in terms of procedure, not outcome—is laudable as an exercise in civility and democratic decisionmaking. However, the whole campaign and the ultimate result have shown that questions of national identity or pride can trump economic considerations, even in an “advanced” Western society. This rationale drives a country such as Iran to withstand international pressure and maintain its nuclear program, which it considers its right and a source of national pride; and it drives Russia to defy the West with its actions in Ukraine in the name of a national renaissance.

Now, with 45 percent of Scots opting for the socioeconomic uncertainty of independence that would accompany the freedom to make their own decisions, this thinking has gained significant ground in the EU. The Catalans in Spain are the most vocal example in a country that also has a Basque minority; Italy has independent-minded people in its north, both in the autonomous province of South Tyrol and the wider Padania region; France has long battled separatism on the island of Corsica; and an increasingly anti-European, self-declared illiberal government in Hungary may go beyond simply provoking its neighbors and actually lay claim to people and territory in Romania and Slovakia. Outside the EU, semiautonomous or quasi-independent territories from Republika Srpska in Bosnia and Herzegovina to Abkhazia, Nagorno-Karabakh, and South Ossetia in the South Caucasus may decide to go for the real thing or at least feel vindicated in their claims to statehood.

This trend is even more significant because it goes against the very idea of European integration, which sees value in sharing sovereignty to achieve shared prosperity. True, the proponents of an independent Scotland can rightly claim to follow the Enlightenment argument that people and nations should be free, rather than ruled by a foreign power, which is what they consider the Conservative government in Westminster.

However, their movement poses real dilemmas, both practical and ideological, for today’s EU. In a continent where borders do not fit the nations they contain, this cannot but spell trouble.

So far, Europeans have followed a two-pronged approach to this mismatch between borders and people. The first ruled out the possibility of changing borders other than by peaceful means. The second aimed at reducing the importance of borders to the extent possible. While the latter approach began in Europe’s west and, with EU membership expanding, gradually extended east and south, the former approach became especially relevant in the context of post–Cold War disintegration.

In a way, the region of former Yugoslavia, from the country’s demise in the early 1990s to the present day, is a prime example of the failure of this two-fold approach to uphold borders. In the beginning, the carrot of joining the European Economic Community (a forerunner of the EU) and its project of making borders less relevant was not attractive enough for those nations from the Socialist Federal Republic that strived for independence. Then as now, nationalism grounded in emotions won the day over economic considerations based on rationality.

In 2008, after nearly a decade of war and almost another of postconflict reconstruction and stabilization, the West gave up on the principle that borders may not be changed unilaterally when it agreed to the independence of Kosovo. Today, this hollows the West’s—fundamental, not procedural—arguments over why it will not accept Crimea’s independence following a contested March 2014 referendum on the territory’s relationship with Russia and Ukraine.

Thus, both the effects of the Scottish referendum and the continuing crisis in Ukraine demand a new approach to the meaning of borders and sovereignty in Europe. Referring to the 1945 Yalta and 1975 Helsinki accords does not alone suffice as a response to the question of which borders are legitimate today. The EU will have to find a new answer to self-determination, addressing painful issues of sovereignty for its members along the way.

The Populist Undercurrent in Europe

Many of the arguments that the proponents of Scottish independence employed are similar to those used in all EU member states by citizens who are alienated from and frustrated by the ruling classes in their national capitals or, indeed, in Brussels.

What is for Scots the Westminster elite is for many others their respective national elites. When governments change but policies do not (as in Ireland), or when governments are replaced without a popular vote (as in Greece and Italy), people feel disenfranchised. Throughout the EU, citizens complain about political decisions being made too far away.

And for many, Brussels, the heart of the EU, has been a useful scapegoat for decades. That is one of the reasons populist parties have surged, as in the European Parliament elections in May 2014. (Unsurprisingly, English populism underlies much of the UK Independence Party’s rise to become a real threat to the established parties.)

Much of the real problem is at the national level, where mainstream parties have to stitch together coalitions to govern. Such grand coalitions reduce the need for contestation between the major left-right parties, and the perceived lack of accountability tends to increase the divide between the mainstream and the fringe.

Going beyond the mere threat of populist parties, an even greater danger stems from “institutionalized populism” and state capture in countries like Hungary and Bulgaria. Their governments have started to employ “gray tools,” such as taxation of media and the Internet, or patronage and procurement, to tighten their grip on the state. Such actions threaten the EU from within, undermining EU standards and the rule of law, including rules that govern competition in the energy market.

While the proponents of Scottish independence cloaked their (partly populist) arguments in a general EU friendliness, there is no reason to expect that they would have remained above the fray. On the contrary, it is a safe bet that the initial enthusiasm for having a prime minister from Edinburgh sitting in council meetings with his or her 28 colleagues and a Scottish commissioner being part of the European Commission would have soon subsided. Scots in particular may be more Europhile than the English, but once the Brussels bureaucratic routine kicks in, it is hard to see that they would continuously be more optimistic about the EU than, say, the Irish or Danish. Both Ireland and Denmark—each with around 5 million people—joined the EU alongside the British in 1973, and their citizens generally hold relatively positive views of the union, but with nuanced criticism of “too much” federalism.

Where does this leave the more general populism that has gripped Europe in recent years? With high unemployment persisting, social inequality rising, and migratory patterns posing new challenges to resident populations on the continent, national and European politicians alike must address both the root causes of and the public discourse about these issues. Electoral results show that growing numbers of people care about them, and they want to make their voices heard. The challenge is to respond to those grievances—where warranted—without adopting those populist policy proposals.

In or Out: Enlargement or Fragmentation?

The mere idea of Scotland’s secession from an EU member state has produced more than theoretical questions about enlargement. The EU was tied to Scotland’s referendum debate on one crucial question: whether an independent Scotland would remain within the union. All of the pro-independence campaign’s arguments rested on the regularly unpronounced, but unambiguous assumption that Scotland would become the EU’s next member on the day it became independent.

While this matter is settled—for now—in the case of Scotland, the broader question of continuing EU membership remains relevant, for example, in the face of ongoing independence efforts by the Catalan government. Obviously, a number of member states fearing their own independence movements would be dead set against the Scottish scenario. However, given the EU’s populist challenge as well as a minimum degree of common sense, the EU might want to reconsider whether punishing a newly independent state for its democratic decision would be worth the cost of excluding a fairly prosperous country that fulfills all membership criteria.

Indeed, the EU may be forced to rethink its enlargement process, which has so far been geared toward countries that must prepare for membership by adopting European standards. It has not yet had to deal with a territory that is in de facto compliance with EU laws and regulations but still has to go through the technical andpolitical process of applying for membership.

This challenge comes at a time when both the EU’s enlargement policy—once dubbed its “most successful foreign policy”—and its neighborhood policy—its most failed foreign policy—face an overhaul. The new commission setup has only a single commissioner for European neighborhood policy and enlargement negotiations, down from two previously, one for enlargement and the other for neighborhood policy. The new designation aims to underscore that there will not be any enlargement over the next five years, requiring the new commissioner, Johannes Hahn, to devise an entirely new approach to the Eastern neighborhood from Armenia to Moldova to Ukraine, in addition to the Southern Mediterranean.

But Hahn will also have to find a way to make accession negotiations meaningful to the countries of the Western Balkans. These countries are well aware that nine years passed between the entry of their most advanced neighbors, Slovenia (in 2004) and Croatia (in 2013), after six and eight years of negotiations, respectively. All told, the current holdouts’ hopes of entering the union anytime soon are fading.

However, while obviously necessary, a new approach consisting of different political and technical tools is unlikely to overcome the broader trend of enlargement fatigue in member states as well as in acceding countries.

In the context of the Ukraine crisis, where the EU and its member states have palpable difficulties envisioning and credibly proposing membership to the country, this concern has become urgent. The experience of ten years of neighborhood policy has shown that “anything but membership” is too weak a promise to prompt a country to embark on serious reforms. This is even more true for a country like Ukraine, which has been bankrupted by its elected politicians, ravaged by war and persistent internal cleavages, and held hostage by a hostile neighbor that controls a (not quite) frozen conflict on its territory.

Under these circumstances, the chances of turning Ukraine into a success story are slim. But they will actually be nonexistent as long as the Ukrainian people hear that they are to remain “out” rather than be allowed “in” for, say, the next generation.

With the practical politics of enlargement stalled, and the mere idea of extending EU membership to countries other than elusive Norway or Switzerland difficult even to contemplate, the fragmentation between those inside the club and those outside will only become further entrenched. The optimistic idea around the 2004 enlargement (when ten countries joined)—to avoid creating new borders in Europe—will be turned on its head. Bulgaria and Romania, which entered in 2007, as well as Croatia, which joined last year, will come to be seen as latecomers who arrived just before the drawbridge closed.

Thinking Boldly: Rebuilding Ties Among All Europeans

Amid these many strands of fragmentation, some may argue for united, targeted approaches to what appear to be a series of European problems. But three aspects of the current situation make it unlikely that specific EU responses will succeed.

First, Europe’s rifts overlap and reinforce each other. The combined threads of economic fragmentation and nationalism can be seen in Catalonia and in the north of Italy, richer regions that are unwilling to support their poorer co-nationals. Economic divisions also play into the hands of populists who are eager to direct latent resentments at mainstream political institutions. This dynamic requires a comprehensive response, rather than tackling each problem on its own.

Second, these fragmentations have their roots mainly at the national, rather than the European, level. The clash between the people and the elites is played out in every democracy when the former feel that they do not have influence over the latter’s decisions, be that because the political class is closed off and self-interested or because market forces are dictating the way to go.

In fact, the populist turn has been more often deflected toward—rather than directed at—the European level, whose elites are much less well known than their national counterparts. Moreover, while the much-reviled drive for austerity has a European dimension to it that needs to be addressed, the fundamental economic decisions that led to the euro crisis were made in national capitals. Any solution would thus have to involve member states and the relationship between them and the union.

Finally, the EU also needs to recognize that it provides a permissive environment for both nationalism and populism. Under its roof, people and movements can express such ideas, including through elections, because they are unlikely to see the consequences of their actions. With a European framework guaranteeing a certain degree of order and prosperity, and with NATO providing broad security in Europe even for nonmembers, populists can play with fire—as long as they do not actually burn the house down. Thus, a country like Hungary is unlikely to experience the investor flight—and subsequent economic turmoil—that the announced illiberalism of its leader would otherwise create.

At the same time, efforts to repatriate certain powers from Brussels fall far too short of the necessary overhaul. Instead, to counter the forces of fragmentation, an overall rebalancing of the relationships between Brussels and member states’ capitals, the subnational (regional and local) levels, and Europe’s citizens is needed.

To accomplish this, the EU as a whole should redirect its course with two bold measures. It should overhaul its internal structure to address the deep frustration of its citizens. And, more importantly, it should broaden its membership to the entire continent.

The EU’s work on internal construction should go beyond management decisions such as those made by the new commission president, Jean-Claude Juncker, who asked his team to be big and ambitious on big issues, and small and modest on small issues. Rather, the focus should be on the core of the unwieldy word subsidiarity, EU-speak for making decisions at the lowest level possible. This general principle of EU law has so far not been imbued with tangible meaning beyond the relationship between the EU and its member states. Instead, the concept has been reduced to a claim for national over European authority.

A broad revision of powers and responsibilities would require a change to the Lisbon Treaty, which established the EU’s current legal framework. Rethinking whether all powers currently held by Brussels need to remain there could, for example, include an assessment of whether more general treaty provisions—such as those on health and safety—allow for specific regulations on maximum work hours in all member states. Such a debate, and an assortment of national ratification processes in the wake of a treaty change, would bring with it many uncertainties. Still, planning this process carefully is certainly more advisable than jumping into it involuntarily.

The Scottish case again is instructive: trying to stem the pro-independence surge in polls ahead of the referendum, the UK government eventually promised the “maximal devolution” of power to Scotland—something it had explicitly ruled out at the outset of the process. Likewise, the EU could be tempted to make last-minute promises to the UK ahead of a Brexit vote, which could occur in 2017. Instead, it should start thinking about treaty change on its own terms and not just accommodate the wishes of particular member states.

Once a treaty revision is on the table, the case can be made for the EU to become a pan-European union, encompassing all of the continent’s sovereign countries—currently standing at 50, although there may soon be more—at different levels of integration.

The most basic level of integration would be about rights and democracy as currently embodied in the Council of Europe. It counts Russia among its 47 members, which have all signed the European Convention on Human Rights. Fusing this body’s work in the name of 800 million Europeans with the EU’s own rights mechanisms would give human rights and democracy promotion a much-needed lift.

The next level of integration would be economic, as currently enshrined in the EU’s single market and its association with the European Economic Area (including Iceland, Liechtenstein, and Norway) and Switzerland. This is the level of integration that the UK presumably would want to keep. Here, a revision should put mechanisms in place that aim to increase EU members’ competitiveness.

Higher levels of integration—economic-monetary as in the eurozone or political-internal as in the Schengen area (the 26 European countries that have removed controls at their common borders)—could be reached according to clearly defined internal rules. However, these would be enhancements to a country’s membership status rather than enlargement of the union as a whole. Ideally, this would enable the UK and others to choose a level of integration that better fits their preferences. It would also considerably improve the prospects for countries in the Western Balkans, Eastern Europe, or even the South Caucasus to advance within the EU rather than outside of it, where it is difficult to know when they would be good enough to join.

Framing European integration around different levels within one big organization has a major benefit: at the moment of its creation, such an organization allows for changes to membership status without being politically disruptive (say, for the UK). Similarly, subsequent moves of member states along the integration ladder—even downward, if needed—are less likely to threaten the overall cohesion of the union. Today’s cumbersome and politically fraught scheme of enhanced cooperation, under which a number of member states can integrate in a particular field without the consent of all 28 countries, would be replaced by regular mechanisms that allow quicker responses.

Regarding the multiple fragmentations confronting Europe, a pan-European union offers further advantages. It gives Europe the positive boost needed to overcome its economic crisis, while at the same time providing a constructive framework to address the treaty changes necessary for the eurozone. By promoting subsidiarity, it takes away separatist as well as populist pressures. Should certain regions still want to become independent, they would not pull the whole union into crisis because their continued memberships could be secured more easily.

Halting the advance of the forces of fragmentation requires a bold move: a Congress of Europe that institutionalizes a “Europe whole and free.” This pan-European union for all European states would be built with new internal mechanisms to distribute responsibilities among all levels of government. Such an act, brought about by 4 million Scots, as well as the millions of disillusioned voters and frustrated protesters throughout the continent, would go a long way to meeting Europe’s current challenges.