You don’t need a common currency to form a political union but it certainly helps if you want to ease trade – no exchange rate fluctuations to start with…
From what I’ve seen, that’s part of the problem in the original thinking on the EU, they confused political and economic union and mashed them together. All the negotiations since have been largely around trying to fix something that is fundamentally flawed: not being able to clearly separate economics and politics.
The current Euro-strife is a symptom of this confusion but the common currency is not the cause so getting rid of it won’t actually solve anything. In fact, if you got rid of the Euro and reverted to national currencies with floating exchange rates in the current climate you’d also have to abolish the Schengen Agreement and reinstate border controls to prevent mass movement from the economically weaker nations. Political and social suicide.
We need to remember that Europe and her institutions are not perfect but such an exercise has never been done before so they are bumping along as best they can. But I do believe that the people working on the agreements understand very well that to equate a currency and sovereignty is economically primitive. How high they can lift the debate remains to be seen…
Finally, on the issue of Europe being the UK’s largest trading partner there’s another aspect to this that appears to be little reported. The City will thrive if the Euro wavers because currency and stock traders live on volatility. But 60% of the UK’s manufacturing goes to Europe and manufacturers need stability. Cameron has effectively sold out the manufacturers to appease the financiers but it’s the manufacturers who provide jobs. The political ramifications of this “strong stance” are yet to be felt, methinks…