Ratings agency Standard & Poor’s (S&P) has declared that the European Union (EU) is “unsustainable” in its current form and in need of urgent reform. In the current situation, the EU faces two options: become a United States of Europe with a federal government in Brussels, or return the project to its original status as a trading bloc.

The review comes following the UK referendum to leave the EU which raised the level of uncertainty both about the future of the UK and the EU itself.

S&P highlights that the issue lies within the fact that the EU currently lacks a coherent “pooling” of sovereignty as some aspects of national sovereignty are shared while others are not. The way forward is to either share more – resulting in full federalism – or share less – and go back to a looser confederation of sovereign states.

“Sharing sovereignty via monetary union but not via fiscal union hobbles the ability of member states, and the euro area in aggregate, to flexibly deploy macroeconomic policy tools,” says S&P.

Meanwhile, sharing sovereignty at the EU level regarding freedom of movement is at odds with not sharing sovereignty to secure the external border and with member states retaining sovereignty when it comes to internal security, foreign affairs and national identity.

“Brexit can be seen as just one, rather rude, manifestation of the underlying incoherence of the current pooling,” says global chief economist at S&P, Paul Sheard.

“There are [now] too many moving parts in the electoral politics of 28 nation states, and too many conceivable random-like events that could push political and economic developments in one direction or another, with impossible-to-predict consequences and timelines.”

S&P is not the first to call for major review of the EU. The European Council (EC) has stated that it has started “reflection” on the future of union with the 27 states and plans to meet on September 16 to continue talks.