EU muddles forth with market intact

by Hugh Cortazzi

LONDON — The proposed European Constitution was decisively rejected by French voters on May 29 and by the Dutch on June 1. The constitution has been ratified by other European states including Germany, which did not hold a referendum, and by Spain, which did. In theory, the referendums in France and the Netherlands could be repeated and the constitution approved, but it seems unlikely that the French and Dutch electorates would change their verdict. As the constitution must be approved by all 25 European Union states before it goes into force, it must now be seen as having failed.

There is no single answer as to what went wrong. The constitution was too long and complicated for the average voter to understand. It tried to be “all things to all men,” incorporating all the previous treaties.

The electorates in France and the Netherlands opposed the constitution for different reasons, but both expressed disillusionment with the government in power as well as suspicions of bureaucratic over-regulation from Brussels.

In France, the reasons were sometimes contradictory. Farmers voted against the constitution because they thought it might lead to a cut in subsidies authorized by the Common Agricultural Policy. Many workers voted “no” because they fear the EU will become too liberal in its economic policies.

The most important factor was probably the failure of the Chirac government to reduce France’s unemployment rate of more than 10 percent. The French electorate feared that, as a result of enlargement in the east, France would be inundated by migrants from new EU-member states ready to accept lower wages. The image that arriving Poles would put French plumbers out of work was one chimera cited by constitution opponents. Opposition to further EU enlargement and, in particular, to Turkish membership was played up by the “no” campaign, although this issue was irrelevant to the constitution.

Many see the rejection as a slap in the face to President Jacques Chirac, who campaigned hard for a “yes” vote. His chances of being re-elected for a third term look much slimmer now. Many view him as a lame duck president, and the London Financial Times has said he should resign. He won’t, of course, and it would be unwise to write off this arrogant but wily politician must yet.

The Dutch too showed that they were unhappy with enlargement, but their main concern has been immigration, especially by Muslims, and the fear that their cherished ways of life would be sacrificed in Brussels. The Dutch have complained that the single currency has led to price increases in the Netherlands. They also note that Germany and France, the two largest countries in the euro area, have been allowed to flout the rules of the stability and growth pact on the single currency.

There will inevitably be criticism of efforts to bring in some constitutional provisions “via the back door” — through consensus among governments. If the EU is to work more effectively, some changes will probably be necessary. For instance, the presidency system, in which each member state holds the presidency for six months, will hardly work anymore. It is true that Luxembourg, which currently holds the presidency, has done a good job, but it would be difficult for some of the newer, smaller countries to be equally effective. It probably will be possible to reach a consensus to appoint a European foreign minister and to agree on modifications to voting procedures.

The main challenges facing the Union are economic. Unemployment remains a major problem in Germany where an election may force out Chancellor Gerhard Schroeder this fall. The Italian economy looks particularly sick. Competition from China has grown exponentially and will increase further if Indians follow the Chinese example. There will be problems in completing the Doha round of trade negotiations because of growing protectionism against textile imports from China and U.S.-European rivalries not least over aircraft subsidies.

The British view is that the only way to meet the major economic challenges facing Europe is through increased competition and liberalization of employment. The French, on the other hand, favor more central control and more protection against internal and external competition. These views seem likely to make the French and the Germans increasingly opposed to a single market for services and to a stronger European Commission that could limit state subsidies and facilitate cross-border transactions. French and German efforts toward EU tax harmonization seem unlikely to be successful.

In the past, Franco-German cooperation was one of the main motors of the Union. At present, the Dutch are certainly unwilling to take direction from Berlin and Paris and the newer members resent Chirac’s arrogant criticism of their stance on the Iraq war. The Italians are also hostile to what they see as German pretensions. Britain, whose economy has done comparatively well, may play an increasingly influential role in shaping Europe, but only if it avoids high-handedness.

It would be a mistake to see the rejection of the constitution and the emergence of concerns about the suitability of a single currency as signs that the EU will disintegrate. Certainly further expansion will become more difficult, but the single market has been a major factor in European growth.