Sean O'Grady: Don't be fooled – the federalist agenda in Europe is still being slowly accomplished

Economic View

I wouldn't normally come over all John Lennon, but surveying the agonies of the eurozone I cannot help but "Imagine". Imagine, that is, if the European Union really was the United States of Europe that its founding fathers dreamed about.

Imagine if it had one European treasury and one fiscal policy to match its single monetary policy. Imagine there was no Irish, Spanish or Belgian government debt, only European bonds guaranteed by the eurozone as a whole. Or, as Lennon put it, rather more, well, imaginatively:

Imagine there's no countries

It isn't hard to do

Nothing to kill or die for

And no religion too

Nice idea, and one that the architects of the single currency, EU Commission president Jacques Delors, Chancellor Helmut Kohl of Germany and President François Mitterrand of France back in the 1980s also set as their ultimate goal. The euro was the means to that end, nothing less than the abolition of the nation state that had caused so much trouble with killing and dying in the first half of the 20th century.

The inchoate idea was that the euro would force integration by freeing up trade and investment. Rules, apparently austere about countries not running up debt, were enshrined in the 1992 Maastricht Treaty, itself designed to foster convergence.

It didn't quite work out like that. The zone's most likely fate is to break up. But there is an alternative federalist script, and it is closer to reality than you might imagine.

The euro project is now a little like the Labour Party or someone trying to ride a bicycle; it either goes forwards or it falls over. Short term, there is no reason why it should not go forward, and that may, almost imperceptibly, be what is indeed happening now by stages and pragmatically rather than in some great sweep of summiteering and treaty making.

The economists at Royal Bank of Canada have given us a little perspective on all this (see the charts). A combined United States of Europe would be no paradise; the very recent explosion of debt in Ireland, Greece, Spain, Portugal and the other peripherals has made sure of that.

But if you bundle Europe's debts together it is little worse than the US, a little less healthy than the UK, and a lot less weird than Japan. Europe's annual budget deficit would probably be manageable – maybe 6 or 7 per cent of GDP. The total stock of debt is big. A debt-to-GDP ratio peaking at 90 per cent is dangerous territory, as tax revenues might not meet the interest bill. Overall, though, such an entity might well be able to make its case to the markets. And, with a forceful head of a European treasury, a sort of Euro-Osborne, the debt could probably be made safer.

You say I'm a dreamer? Not quite. First, as we saw with the conditions placed on Ireland and Greece, the peripheral nations have lost a good deal of the fiscal autonomy they had anyway. Small nations have their pride so it was presented as a "deal" rather than a "diktat". The effect is the same; Brussels telling Dublin and Athens what they can borrow, and strongly suggesting how they tax and spend too. The European Financial Stability Fund has already been doing the work of a European Treasury, albeit with no democratic accountability.

And a single euro zone bond? There again the reality is creeping in. A single European treasury would depend on a German guarantee, and we're implicitly there already. When Chancellor Angela Merkel starts speculating about investors taking a hit in case of a sovereign debt restructuring, the price of Spanish bonds collapses. If Berlin's stance is "clarified", the bonds are in demand again and the risk premium – the extra interest demanded by investors to hold Spanish debt over German – modestly recedes.

That is why the German proposals for a clear sovereign debt restructuring mechanism for government bonds issued after 2013 is so important. For it is part way – say 80 or 90 per cent – to such a blanket German guarantee. So if your Irish bond gets into trouble you might only get 80 cents in the euro back, thanks to the German/European taxpayer – but it would still be firm backing for a big chunk of it.

That set-up is not very far from a single European bond, though it has the morally satisfying effect of making the profligate pay for their sins. Greedy investors would take a haircut, while sloppily run economies would find it more expensive to borrow in future. In return, Germany underwrites their promises to pay, and that is the key part.

Lastly, the European Central Bank, already in existence, is edging towards monetising Europe's debts. This is the sort of thing the Bank of England and the US Federal Reserve have frequently been told to do by their treasuries. If private investors won't buy our gilts, then we used to just get the Bank to buy them and print the money – quantitative easing as we cal it now, or overfunding national deficits as it was also known.

At the moment the ECB, watchful of its statutes and reputation, is careful to "sterilise" the government bonds it buys so the money supply does not explode. The ECB could, in extremis, probably do just that, and, given Europe's minimal inflation, it might not be such a disastrous thing as it was in the 1970s when Britain tried it.

Financially and politically the euro can be fixed. Short term. What seems elusive is a truly economic answer long term. For the "Club Med" (not so much Ireland) the fundamental problem is that their competitiveness is so far behind Germany's that they cannot grow out of their difficulties, so all these crises we have just seen will simply recur. Like West Virginia in the US or South Wales in the UK they would be destined to permanent depression and dependency on aid from their neighbours. Would they be happy? Would the Germans grow resentful? Could we then "Imagine all the people/Living life in peace..."?

Liberated by the 'weather event', I've learned to like the idea of working from home

I'm writing this from home, where I am being confined because of what the Transport Secretary, Philip Hammond, calls the "weather event".

I have found it a novel and liberating experience.

It is also a trend that I hope will be given a major boost by the cold snap, as more people have had to try it, and more employers discovered that the sky did not, after all, fall in. OK, tyre fitters couldn't do this, nor posties, nor teachers.

But there are very few functions in many people's work that could not be easily transferred to home, broadband and email being most of the answer. For a journalist there is no opportunity to skive because you either deliver the words or you don't.

There are wider benefits too: less crowding on public transport and the roads; more time spent actually working rather than travelling; lower overheads and rents if office space is downsized to match.

Less travel also means less pollution and savings on fuel and energy, so good for the planet. Reducing commuting would also relive the housing pressure on the South-east and help even up house prices – the long-awaited "death of distance".

It isn't even a new idea. "Homeworking" was one of the ways that the industrial revolution took off, economising on the cost of capital and pushing workers closer to a state of self-employment. In the hosiery trade it was not uncommon to find people with overlocking machines at home into the 1990s.

How much money could a hard-pressed enterprise save by scrapping most of its floor space and going virtual? Or downsizing by even just allowing its staff to work one day a week, say?

George Osborne should consider a modest tax break for such an enlightened approach.

We may have broken a few taboos while snowed in last week.