Why crises may induce federalization of the European Union

Madeleine O. Hosli, Caterina Zamparini, Oliver Price, and Vahistha Jyalita summarise a recent article published in Regional & Federal Studies, examining how major crises can accelerate the gradual federalization of the European Union. They argue that the EU remains a hybrid political system, combining strong central authority in areas such as trade and monetary policy with continued national control over taxation, welfare and public health. The Eurozone crisis and COVID-19 exposed the weaknesses of this arrangement, but also encouraged greater coordination through mechanisms including the European Stability Mechanism, Banking Union and Next Generation EU. Comparisons with Switzerland and Trentino-Alto Adige show how decentralized systems can temporarily centralize authority during emergencies while retaining regional autonomy. The authors conclude that the EU is unlikely to become a fully federal state, but may continue developing stronger central institutions through crisis-driven, uneven and contested integration.

The European Union (EU) is neither a state nor a traditional international organization. It has its own institutions, legal authority and policy responsibilities, yet member states remain central actors in areas such as taxation, welfare, defence, public health, and education.

This creates a recurring question: should authority sit centrally, where common problems can be addressed collectively, or closer to citizens, where regional and national differences can be better reflected?

The EU’s recent development can therefore be understood as a tension between federalization and de-federalization. Federalization refers to the gradual transfer to or strengthening of powers at the central level. De-federalization refers to a movement in the opposite direction: Resistance to centralization or renewed emphasis on national authority.

Switzerland and the Italian Autonomous Region of Trentino-Alto Adige (TAA) while different in terms of historical trajectories and size, offer useful comparisons, based on a most similar systems design, showing how decentralized political structures manage linguistic and political diversity, coordinate policy, and respond to crises. 

The Basic Trade-Off: Efficiency or Local Autonomy?

At the heart of federal and federalizing systems lies a simple but difficult trade-off: Centralization can make policy more efficient when challenges affect everyone, i.e. countering them constitutes a ‘public good’. Moreover, it can create economies of scale, avoid duplication, and allow governments to pool resources. This may be especially relevant in areas such as macroeconomic stabilization, defence, and crisis management.

By comparison, decentralization allows policies to reflect local preferences and gives regional or national governments room to adapt decisions to their specific circumstances. This matters especially in multilingual or culturally diverse systems, such as those studied here, where one-size-fits-all solutions may lack legitimacy. 

Reflections based on fiscal federalism provide one way of thinking about this balance. They suggests that stabilization and redistribution are often best handled centrally, while many public services can be delivered more effectively by lower levels of government. In practice, however, political systems rarely follow this logic perfectly. 

The EU is a clear example of this mismatch: While it wields strong powers in areas such as trade, competition policy, market regulation, and monetary policy for Eurozone members, it lacks these in other areas such as taxation, welfare, health policy, and fiscal redistribution. This makes it less like a full-fledged federation and more like a hybrid system: Highly integrated in some policy areas but strongly decentralized in others. 

What the Financial Crisis Revealed: Challenges and Trends

The global financial crisis and the subsequent Eurozone sovereign debt crisis exposed the limits of this hybrid structure: The EU had a common currency for Eurozone states, but fiscal policy largely remained in the hands of national governments. This meant that monetary policy was centralized for many, while taxation, spending, debt management, and social support remained mostly decentralized.

However, this arrangement created major difficulties: Some member states were hit harder by the sovereign debt crisis than others, while there was no strong central fiscal capacity to absorb asymmetric shocks. Instead, collective responses had to be negotiated between governments.

Over time, the crisis pushed the EU towards stronger coordination. Steps and measures such as the Fiscal Compact, the European Stability Mechanism, and the Banking Union strengthened oversight and created new tools for managing instability. While these did not turn the EU into a full fiscal union, they did represent a move towards greater coordination on the central level. 

In this sense, the financial crisis encouraged federalization, but in an incomplete and contested way: The EU gained stronger mechanisms for supervision and crisis response, yet member states retained powers over fiscal policy. 

COVID-19 and Collective Action

The COVID-19 pandemic posed a different kind of challenge: Unlike the financial crisis, it began as a public health emergency, an area where the EU has limited competence: Health policy remains primarily a responsibility of member states, even though viruses clearly cross national borders.

At the beginning of the pandemic, this created fragmentation. Member states introduced their own measures, including lockdowns, border restrictions, and public health rules. The EU could coordinate and support, but it could not simply impose a unified health response.

However, the economic consequences of the pandemic soon required a broader collective response. The creation of Next Generation EU and the Recovery and Resilience Facility (RRF) marked important moments in the EU’s development. Through common borrowing and large-scale financial support, the EU took a stronger redistributive and stabilising role than ever before. 

This represented an important step towards a more federal kind of fiscal policy. It suggests that, when faced with a shared crisis, member states may accept stronger EU-level tools that previously seemed difficult to establish. Meanwhile, the response remained exceptional and negotiated and did not settle the deeper question of whether the EU should become a permanent fiscal union.

Switzerland: A More Settled Federal Model

Switzerland offers a useful contrast: It is a mature federal system with strong cantons, extensive decentralization, and well-established coordination mechanisms. Cantons retain important powers, especially in education, culture, taxation, policing, and health policy. At the same time, the federal level has clearer authority in defence, foreign policy, monetary policy, and several aspects related to social security.

Switzerland also has stronger fiscal equalization mechanisms than the EU. Transfers between levels of government and between cantons help manage disparities and support cohesion. The Swiss system is therefore closer to core principles of fiscal federalism, even though it remains highly decentralized by international standards. 

During the COVID-19 pandemic, Switzerland showed how a decentralized federation can temporarily centralize authority in an emergency. Federal law allowed the central government to take stronger control when the pandemic was classified as an extraordinary situation. Yet cantons remained important in implementation, and their role reflected Switzerland’s long tradition of intergovernmental cooperation. 

Trentino-Alto Adige: Autonomy Under Pressure

The Italian TAA adds a subnational perspective. It is not a sovereign federal system, but it has a high degree of legislative, administrative, and fiscal autonomy, especially in relation to language, education, and local governance. Its multilingual character makes it particularly relevant for thinking about political diversity and multilevel governance.

The region shows how autonomy can be both protected and constrained. In normal times, decentralization allows local institutions to respond to specific cultural, linguistic, and political challenges. Yet during crises, higher-level fiscal and legal pressures can limit regional autonomy. 

After the financial and sovereign debt crises, Italy’s need for fiscal consolidation limited regional room for manoeuvre. During the COVID-19 pandemic, TAA also aligned closely with the central Italian government, especially in health policy. 

This illustrates a wider pattern: Crises often create pressure for recentralization. Even where decentralization is valued, central governments may reclaim authority when financial stability, public health, or national coordination are at stake. 

Where Does this Leave the EU?

The EU’s future is unlikely to follow a simple path towards either full federalization or de-federalization. Instead, it is likely to continue moving unevenly:  Integration advancing in some areas, while facing resistance in others. 

Crises have repeatedly pushed the EU to develop stronger central tools. The financial crisis strengthened fiscal surveillance and banking oversight. The COVID-19 pandemic created new forms of common borrowing and recovery funding. These developments show that the EU can federalize through practice, even without a formal constitutional transformation.

Yet the same crisis can generate political backlash. Greater EU fiscal authority can provoke concerns about sovereignty, democratic accountability, and unequal burdens between member states. 

The key question is therefore not simply whether the EU will become more federal, but whether the EU, based on support by its member states, can build flexible, legitimate, and balanced institutions to weather crises, command support, and respect diversity across member states and regions. 

The EU sits somewhere between these models: More integrated than a traditional international organization, but less settled than a mature federation. Hence, its future may depend on turning crisis-driven improvisation into a stable, democratically legitimate system of multilevel, federalized governance. 

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Madeleine O. Hosli is a Professor of International Relations at Leiden University. Her main research interests are in international organization, the European Union, and international political economy.

Caterina Zamparini has been working in EU-affairs in Brussels for the past 2 years. Her research has focused on EU policy-making in different areas, with a particular focus on gender equality and human rights. She is an alumna of the Master in International Relations and Diplomacy at Leiden University.

Oliver Price’s research focuses on migration, right-wing populism within the EU and nationalism. He is a master’s student at Leiden University specializing in international relations and diplomacy. 

Vahistha Jyalita’s research interests concern the intersection of foreign policy and regional studies, with ASEAN and the EU as focus areas. She specializes as a Master student in international relations and diplomacy at Leiden University.

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Note: this post represents the views of the authors and not those of Regional & Federal Studies, the Centre on Constitutional Change, or the University of Edinburgh. It summarises this article from Regional & Federal Studies. 

Image credit: Mænsard Vokser - Own work, CC BY-SA 4.0.