BERLIN — Former British Prime Minister Tony Blair said the European Union’s political community could break up if the financial crisis in the euro area is not resolved.

The European Union (EU)  cannot fix the single-currency region’s debt crisis through the sort of “incremental steps” that have so far been agreed on, Blair said in a speech to the Nicolas Berggruen Institute on Governance in Berlin Monday.

A “grand bargain” is needed to convince the public and international investors that fundamental issues have finally been resolved, he said.

“I would give a stark warning,” Blair said in the speech, which was released by his office. “If eurozone structures end up with a Europe that is fundamentally divided politically as well as economically, rather than a Europe with one political settlement that accommodates different levels of integration within it, the EU as we know it will be on a path to break up.”

Blair, the British prime minister from 1997 to 2007 who now serves as a Middle East envoy, made his intervention on the day his Labor Party tried to seize the initiative from Prime Minister David Cameron in the debate over the EU’s future budget by calling for a reduction of spending in real terms.

Cameron has said he wants the EU to cap the increase in its budget to the rate of inflation, though he’s declined to set out exact figures on the deal he’s seeking for Britain.

Blair said that Cameron risks “sidelining” Britain in the future governance of Europe. Cameron has suggested a “two- tier” budget structure for countries within the euro and those outside.      

Blair said there would be some “differentiation of speed” within the EU as political institutions catch up with economic ones, though the gap should not be too wide.

“I can almost feel the relief in some euro-federalist quarters and amongst most euro-skeptics at the prospect of a two or three-speed Europe,” he said. Even so, it’s not in Britain’s interest to play “short-term politics” on the issue, he said.

Blair reiterated a call for a Europe-wide election for the presidency of the European Commission, the EU’s executive arm, or the Council of Ministers as a way to involve the public in European affairs.