When Denmark assumed the rotating EU presidency this January, European leaders had started taking the first real steps toward resolving the debt crisis that threatened to cripple the European Union. But the resulting fiscal compact treaty proved insufficient to do so, and six months on – as Denmark prepares to hand over the presidency to Cyprus – the EU is now considering even greater economic, political and financial integration to fix the high levels of debt and low economic growth that is plaguing the continent. 

Europe’s leaders will meet today and Friday to discuss the controversial proposals that were drafted by the presidents of four key EU institutions – the European Commission, European Council, European Central Bank and the 17-country Eurogroup.

Even before the negotiations have begun, PM Helle Thorning-Schmidt has already expressed her doubts.  

“It would be quite difficult to say to the Danish public that they would be suddenly responsible for debt in other countries, or bank problems in other countries,” she told Reuters, referring to the suggestion that EU members collectively raise money through bonds issued by the European central bank.

With a yearning for European influence but committed to its own currency, Denmark is in a tricky position. In order to become part of the ‘genuine political union’, as its promoters are calling it, through greater banking, fiscal and economic integration, Denmark would likely have to hold a referendum as it would require handing over sovereignty to the EU. 

Thorning-Schmidt this week admitted that it could be several years before Denmark had another referendum about the EU, despite her government promising in its election manifesto to hold votes on the defence, justice and home affairs opt-outs.

“We need to hold the referendum at the right moment,” Thorning-Schmidt told Politiken newspaper. “And at the moment there is a lot of turbulence about what is going on in Europe.”

The current government is mostly pro-EU, and its desire to remain close to Europe was evident when the PM signed the fiscal compact treaty this March. But while the presidents’ proposals acknowledge that countries with opt-outs will have to be accommodated in a ‘two-speed Europe’, Denmark risks getting left behind unless it decides to fully commit to the European project by adopting the euro.

“[Denmark] can participate if they want to join the monetary union,” the European Commission’s president, José Manuel Barroso, told Berlingske newspaper, though he warned that, “the speed of the EU cannot be set by the slowest member. We cannot accept that.”

Erik Boel, from the pro-EU organisation Europabevægelsen, fears that Denmark may lose influence by standing on the sidelines.

“This is a critical moment for Denmark in Europe,” Boel told Berlingske. “It will be in these weeks and months that the new European co-operation will be forged so it is now that we can have influence.”

Denmark is not the only sceptical country, however. The UK is opposed to any oversight of its financial sector by Brussels, while Germany’s chancellor, Angela Merkel, has repeatedly objected to the idea of EU member states being responsible for each other’s debt, something that would be required if the financial union would be realised. 

In such a scenario, a new EU finance ministry would assume some control of member states’ budgets and debt. This in turn would require that member states shoulder the risk of each other’s debt, a move that is not possible in Germany and also because it would require Denmark to surrender sovereignty, it would need to be passed in a referendum here.

The presidents do not hide that their ambitions are a move toward a more federalised Europe, though they recognise that it would come in phases.

First would be a banking union in which there would be a single European banking supervisor, as well as an insurance scheme so that banks end up bailing each other out rather than having to resort to draining the public purse to stay afloat.

The banking union would not require a treaty change – and so there would be no need for a referendum – and could be created as early as 2013. 

It may take a decade before Europe becomes the ‘genuine economic and political union’ of the four presidents’ vision, and reaps the economic stability they believe will arrive as a result of the increased fiscal and budgetary co-ordination.

But jobs and growth are needed today and so European leaders will also discuss a proposed ‘Compact for Growth’ that is hoped to get European economies started in the meantime.

Unlike the fiscal compact that addressed ways to rein in government spending, the growth compact will create measures to stimulate European economies through reducing debt while maintaining investment.

The compact proposes that EU members restore lending in the economy, liberalise markets, strengthen the European Investment Bank and create project bonds to finance infrastructure projects.

The compact was brought about in response to widespread criticism that the austerity measures forced upon countries such as Greece and Spain were doing little to repair their suffering economies.