Europe is at a crossroads. The European model is failing and the Brussels Consensus seems to be at an end.

Until now, Europe was managed through careful compromise, centrism was the rule and social democracy the means.

The Brussels Consensus consisted in economic deregulation coupled with environmental and social caveats, all bungled together with an agreement in promoting human rights worldwide.

This consensus has been at the base of the acquis communautaire (“common body of law”) subsequently reflecting itself in the Copenhagen criteria for accession to the European Union and the Maastricht criteria for economic harmonization.

The consensus was the result of decades of negotiation and compromise between, fundamentally, France and Germany.

In 1957, the Rome Treaty was signed giving way to the Coal and Steel Community and Euratom, after Paris and Berlin had agreed to allow West Germany into the European community of nations politically and economically but protecting in the process the French steel industry which would have underperformed under free-market competition with Germany.

Decades later, with a much enlarged EU, the method was still the same: in the negotiations for the Maastricht Treaty and the Treaty of Amsterdam, French agriculture was protected through subsidization and the Deutsche Mark formed the basis for the euro currency in return for the permission to reunify the two Germanys.

The construction of Europe was political. Angela Merkel referred to it in her Brugge speech as the “Union method,” a hybrid between Jean Monnet’s gradual federalist “community method” and the pure and classic “intergovernmental method.”

Whenever an exception emerged against the consensus, there was an immediate ostracizing reflex by the community as a whole. Britain was often sidelined in spite of its economic and political importance and this tendency eventually came to be institutionalized as the opt out mechanism. The British faced difficulties even joining the European Economic Community and remain to this day outside of the euro area group.

Weaker countries such as Austria saw themselves ostracized diplomatically when they elected politicians (anti-immigration far-right leader Jörg Haider) from outside of the politically correct ideological spectrum and elections for the European Parliament were even more blatantly affected by this trend with candidates for the Barroso Commission being pushed away due to their ideological convictions (anti-gay rights Rocco Buttiglione).

In essence, Europe’s social democracy run system depends on a political compromise over most matters with dissenting voices being unwelcomed. However, Europe’s current tribulations are economic rather than political and they seem to require a clear radical and stark choice: more integration or none at all.

The maintenance of the euro is untenable according to many economists. Long-term sustainability is threatened by the partial financial integration process of the seventeen currencies which saw interest rates harmonized but not the labor market, where the European Central Bank fights inflation and capitals are free to move across borders but economic policies are still run separately. This gives rise to too many externalities and distortions and cannot be maintained.

The problem now is that the Brussels Consensus of political compromise as a solution for all problems is insufficient to handle the crisis.

Germany has been living in paradise being able to import basic agricultural products and cheap manufacturing goods making use of its strong currency but exporting back high end technology and industrial products which bring it greater comparative returns. There is nothing wrong with a semi-protectionist policy so long as international integration is not at stake. But Berlin cannot on one hand uphold “cohesion policies” aimed at streamlining development in Europe and on the other maintain a constant positive commercial balance.

Chancellor Merkel still lives in the past though. The “fixes” being applied to the Greek economy are nothing but band aids and will not solve Greece’s structural problems.

The other Mediterranean states look at Greece and are alarmed at how badly the lab rat is doing. They will push for a different agenda. Germany will have to eventually make an unpopular choice — escape forward or escape backward.

For the moment, Merkel is trying to escape making such a choice and keeps hoping to jump start the Greek economy but this populist stance deprives her of statesmanship. Angela Merkel is no Margaret Thatcher, even if her political career may turn out to be longer. It may be difficult, and even implosive for Europe, to generate a Berlin Consensus but in this case it seems to be more urgent to try and fail rather than not act at all. Ultimately, as a closet Euroskeptic, Chancellor Merkel simply lacks the political courage to give federalist elites in Europe a fatal diagnosis.

In the meantime, while Europe does not sort out its internal shortcomings, European power projection abroad will remain feeble and the Europeans will continue to be ignored in the most pressing issues of today’s international scene.