This contribution reflects on the prospects of various forms of "political union" in the EU in the wake of the Eurozone crisis. To do so, it uses a theory of institutional change operating along three dimensions: functional, political, and cultural/ideological. The chapter recognizes that the concept of political union is notoriously slippery, ranging from the quite limited notion prevailing among European leaders — as exemplified by meanings Angela Merkel has given to the term in various public pronouncements — to the more robust notion advanced by European federalists such as Jürgen Habermas. The former largely limits the prospects of political union to increased supranational discipline over national budgets but not any significant fiscal transfer mechanisms, debt-mutualization, or the supranationalization of taxing, spending, or borrowing power under the authority of some kind of European federal "government." The latter calls precisely for greatly augmented taxing, spending, and borrowing capacity at the EU level, as well as a deep legal and political transformation of the European Parliament and European Commission into an autonomous legislature and government of the Eurozone. The aim is to legitimize the expanded fiscal authority of the EU, which federalists see as a crucial necessity. This chapter argues that Merkel’s conception of the prospects of political union comes much closer to the sort of reconciliation between the functional, political, and cultural dimensions of institutional change that has animated the process of European integration for more than a half-century. Despite the fervent hopes of federalists stretching back sixty years, European integration has remained a process of largely instrumentalized rather than idealized supranationalism. Regulatory powers have been transferred to achieve certain defined functional demands of interdependence, but the locus of political legitimacy for those powers has never been properly supranationalized (i.e., rendered autonomous of the members states, as in a genuinely federal system). This tension between supranational regulatory power and national democratic and constitutional legitimacy has shaped the deeper grammar of European governance for nearly a half century, and it will likely continue to do so in the wake of the Eurozone crisis. Federalists may well be right that, today, the optimal solution to the Eurozone crisis is the shift of full-blown fiscal capacity to a strongly legitimated European political "government" — a "political union." But history (not just of European integration but of the modern administrative state upon which it builds) strongly suggests that institutional change is never simply a consequence of functional demands. It also entails a complex process of political and cultural/ideological contestation, in which functional demands are satisfied to the greatest extent possible, but the outcome remains recognizable in light of conceptions of legitimacy inherited from the past. And in the case of integration, those conceptions of legitimacy continue to pull toward national institutions, even as functional demands of interdependence — and the resolution of the Eurozone crisis — continue to demand the shift of regulatory power to the supranational level
