The Hindu Business Line : What now for EU?

TWO NAYS COMING one behind the other over a new Constitution for the European Union raise questions about the feasibility of the Eurozone and even of one currency. For as much as it is about the politics of EU expansion, the results of the referenda are also about the economic consequences of integration. The EU Constitution, that includes provisions for an elected EU President and Foreign Minister, expands the powers of the EU Parliament, and proposes a non-subsidised free market economy, requires the approval of all member-states before it can take effect in 2006. Nine countries, including the EU bigwig Germany, have so far ratified it, and France was the first major member to reject it. The general distrust of Brussels that it undermines London's sovereignty and continues the construction of a European super-state will make it difficult for the ruling Labour Party to get the Britisher to say yes; the UK is set to take over the EU presidency on July 1.

By their dissent vote, the French may have simply voiced the general opinion in Europe against the poor economics of the EU which seeks to bind all member-states to an inflexible regime. This voice may only get louder. It is perhaps a reality check that one currency or one set of rules cannot go far in solving the diverse problems as such a system would inherently curb the flexibility of response. It would indeed be surprising if Brussels did not foresee the French decision. For France does not take too kindly to European treaties. The 1992 Maastricht Treaty scraped through by just 2 per cent. This time around the opposition was more successful in projecting the threat to the French way, even as the ruling party tried to underplay the whole thing as a mere enabler for smoother functioning of the EU. With a none-too-robust economy and a high 10 per cent unemployment rate, it was surely not very difficult for the opposition to convince the people that France does not need a real free market at this juncture. The nay-sayers also played on the people's fears that French industry will move out to where cheap labour is available, that workers from Eastern Europe will take away their jobs, and that it will be the end of a generous social security system. In the Netherlands, added to all these were the disaffection with the euro, which was blamed for inflation, and the anger that France and Germany got away with breaking EU rules on budget deficits. And xenophobes in both countries are suspected to have even questioned Turkey's impending membership.

So what now? Perhaps the treaty can be redrawn. But that cannot assure any unanimity, with each member seeking something different. European leaders are now to meet on June 16 to try and salvage the treaty. They have a real problem on hand. For they must come to terms with the fact that significant country-specific livelihood issues can breach the idea of Fortress Europe. But, at the same time, it cannot be status quo indefinitely, as in the fast-changing WTO-governed era, they must also learn to accept a changed world order and the reality of cheap labour. Till the leaders manage to reconcile these aspects there is bound to be confusion and uncertainty.

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