Europe at the crossroads

PRIDE cometh before a fall. Only a few weeks ago, Jacques Chirac was warning Britain: if any country tried to hold up the constitution, its membership of the EU would be under threat. Since the bruising and wholly merited encounter between his hindquarters and the toe of democracy's boot, he has not been in a hurry to repeat those comments. The discomfiture of the French europhile elite has been a richly comic spectacle.

It also marks a historic turning-point. Institutions have often looked most formidable when they were actually worm-eaten into decline: examples include the Spanish empire, the British empire and the British trade union movement. The same is now true of the European federalist movement. Its imperial ambitions have been frustrated, forever. As a result, the EU is in turmoil. But for once, the centre of the storm is not in Britain. It is in France.

The problem goes back to the EU's origins. In the early 1950s, two neurotic nations met in the psychiatrist's waiting room. The first was West Germany, crippled by war guilt. The German political elite felt that their country would be condemned for all eternity to bear the burden of its militaristic excesses, and successes. The second was France, equally crippled by war guilt; the guilt of being unable to fight a successful war. The French saw the answer to their problems. They would exploit German guilt in order to create European structures which France could control and which Germany would finance, so that German manufacturing subsidised French agriculture. France could then compensate itself for the loss of superpower status and the inevitable withdrawal from empire by achieving a political mastery of continental western Europe, thus realising the dreams of Louis XIV and Napoleon.

These ambitions were covert. The Treaty of Rome is not a blueprint for a French European empire. It sets out the goal of an ever-closer union among the peoples of Europe within an economic framework which would maximise free trade and eliminate protectionism.

We British have often been accused, and justly, of ignoring the federalist aspects of the Treaty of Rome, partly because our politicians assured us that they were only waffle - the sort of nonsense that Continentals would talk after a good dinner, with much cheese-eating.

But the French were equally ready to ignore the Treaty's anti-protectionist sentiments. They never intended to open up their markets to international competition.

Over the years, however, they were confounded by a Germanic concept: the logic of events. The German political elite was sincere in renouncing German nationalism. But this was to create a united Europe, not to become a French satellite. The Germans were equally committed to free trade.

The divergence was containable, until the fall of the Iron Curtain. Franois Mitterrand, then President of France, was immediately aware of the threat to French interests. He knew that reunification would strengthen Germany's political self-confidence. The final healing of the great war wound of disunity would help Germany to escape from the trauma of war guilt. The opening of new economic opportunities to the east would entice Germany away from the tight little EU which France hoped to control.

Mrs Thatcher went public with her doubts on German reunification. Monsieur Mitterrand did not. But, according to Charles Powell, Mrs Thatcher's foreign policy adviser, Mitterrand was sulphurous in his suspicion of Germany whenever the two leaders spoke privately. Yet he could do nothing. Increasingly, the jockey was obliged to placate the horse.

From the French point of view, matters got steadily worse. Once Eastern Europe was free, it was eager to rejoin the European mainstream. The Germans were enthusiastic; this was a further expiation of war guilt. But the French knew that an enlarged Europe would be ever harder to manage.

The late Daniel Bernard, who was then the French ambassador in London, was a classic example of the endangered-jockey mentality. He repeatedly told me that enlargement would never happen. He was wrong. The Germans could not be prevented from insisting on the logic of the Treaty of Rome. Enlargement was inescapable.

Jacques Chirac tried to be as unwelcoming as possible. Rebuking the new nations for their pro-American stance, he advised them to shut up. That was just silly. The Eastern Europeans knew all about bullying. They had experienced it. Bullying was Panzers shattering their cities. It was Russian tanks massing on their frontiers. After surviving that, the accession states were hardly likely to be intimidated by Monsieur Chirac's Gallic flouts and sneers.

Nor were they to be deflected in their desire for free trade. Eastern Europe had not escaped from Comecon in order to be swallowed up by Euroecon. They wanted to trade, they wanted to work. The French might be retreating to economic fantasy land, deluding themselves they could enjoy a 35-hour week without sacrificing living standards. A lot of the Eastern Europeans were happy to work a 35-hour day.

Even before enlargement, the Rhineland economic model was under threat. From the 1950s to the 1970s, it had been successful. In those years, international competition was less intense and Europe's command of high technology enabled its industries to thrive despite the heavy social costs imposed by its governments. Globalisation was making that unsustainable. Europe was already in no condition to resist an economic onslaught from the Far East even before the challenge from its own East.

So the East Europeans were joining a Europe which was losing its economic self-confidence, while its political structures were inherently unstable. Helmut Kohl had seen to that. German Chancellor for 16 years, Herr Kohl is an under-rated figure. Even if the building is now falling down, he was the most important architect of Europe since the founding fathers. Because he was a ruthless party manager who was built like a small elephant and gorged himself on pig's stomach and cream cakes, Herr Kohl's intellectual and visionary qualities are often underestimated. But he had a grand plan for a reunited Europe. He also believed that it could only be implemented in response to instability.

The instability arose from the democratic deficit. By the late 1990s, Europe had a currency and a bureaucracy: the infrastructure of nationhood. It also had a flag and a national anthem: the trappings of nationhood. It only lacked a strong parliament, to legitimise its nationhood. Herr Kohl believed the peoples of Europe would understand that they were on a bicycle. If you stop pedalling your bike, it will quickly fall over. He believed that the Europeans would keep pedalling, and would deal with the democratic deficit by demanding a proper European parliament.

It was a bold attempt to reshape Europe's destiny. This week, it was rebuffed terminally. The bicycle is falling over. The peoples of Europe are far more likely to respond to the democratic deficit by demanding a repatriation of powers to their national parliaments, and the crisis over the constitution has rapidly been followed by a currency crisis. Throughout the Continent, the euro is being blamed for every social and economic problem.

Extraordinarily enough, that is even true in Italy. In pre-euro days, Italians had little confidence in the lira - and no wonder, with all those absurd noughts that required a focusing of the eyes on the dinner bill. Had you merely overindulged on good wine and grappa, or were they trying to sell you the restaurant? At least in the north, most Italians seemed happy to escape to a rational currency. That is no longer true.

If a Europe-wide referendum were held now on the euro, it would collapse. Even without a referendum, it is under threat. In the leading Continental countries, no government is stable; no head of government is certain of re-election. None of them possesses enough political authority to re-persuade their voters as to the euro's merits. All over Europe, people are complaining that the political elite stole their currency. These resentments will grow.

All this makes it impossible to foresee the likely development of Europe. The elite will not give up. Their immediate response to popular rejection is to insist that the populace must be mistaken. If they gave unacceptable answers to the question, it is because they did not understand it.

We can be sure that over the next few months, there will be determined efforts to rescue the European project.

We can also be sure they will fail. When the Danes and the Irish gave the wrong answers, they could be made to re-sit the exam. That would not work in France. The French voters would merely reply: "Which bit of non is it that you do not understand?" Nor will the Dutch be bullied. If the Poles were to hold a referendum, there would probably be a "No" vote, and the same may well be true in Denmark. As for Britain, there was never any chance of a "Yes" vote. The government is delighted to escape its obligation to hold a referendum. Europe's immediate future will be cloudy. But it is possible to foresee a long-term resolution. Within 10 or 15 years, there could be a Europe based on two great principles: free trade and political co-operation between free nations. Within that framework, there would be nothing to prevent individual nations from forming closer bilateral or multilateral links. If some of the nations of Europe do wish to federate, let them.

This version of Europe comes naturally to the British: one reason why it will be resented and resisted by the French. But it should not be impossible to persuade other countries of its merits. There will be diplomatic opportunities for Britain, especially in the East.

The British advocates of the moribund constitution used to claim that it embodied Anglo-Saxon economic principles. That was nonsense. It was a dirigiste document, which would have been interpreted by federalising judges.

But now that the constitution is dead, there is no reason why the new Europe should not embody Anglo-Saxon values. The new Europe could be persuaded to repudiate regulation, in favour of freedom.

Four ways for Europe to go in face of constitution setback

WITH Europe at the crossroads, a number of possible routes lie ahead.

DIVORCE

FRANCE insists that referenda on the treaty continue across the continent, leading to mass rejection in Denmark, Britain, Poland and the Czech Republic. The mood of rebellion, worsened by a deepening recession in the eurozone, triggers a full-scale meltdown of the Union.

Italy pulls out of the euro and returns to the lira, France launches a furious campaign against Europe's Anglo-Saxon reforms, demanding even more protection from free trade, leading to a further referendum in the UK over whether pro-reform Britain should pull out of the EU altogether and back a new trans-Atlantic alliance between USA and 'new" Europe. The public back it, and the new alliance, headed by former Prime Minister Tony Blair, begins its campaign for further enlightened intervention across the world, including an invasion of Iran.

DYSFUNCTIONAL MARRIAGE

THE June summit resolves nothing, with Blair insisting he will only hold a referendum once France sets a date for another attempt, which Chirac refuses to contemplate.

The warring New and Old Europe factions bunker down and carry on as before, with few changes to the Union apart from the introduction of an EU foreign minister and a diplomatic corps. The economic reform process gets bogged down, Britain's referendum on membership of the euro gets kicked into the longer grass and the US continues to out-muscle the Commission. Plans to invite Turkey into the EU are put back until 2050.

CO-HABITATION

NEW and Old Europe agree to a two-speed Union. The integrationists - France, Germany, Belgium and Luxembourg - form their own inner alliance, backed by a constitution which preserves the European social model of high tax, booming welfare payments, thumping subsidies and high environmental standards.

The rest stay out, including the UK which presses ahead with further deregulation and flexible markets, and takes back control of certain powers such as fisheries.

EUROPHILE FANTASY

THE constitution is reworked and passed by voters, who have been sated after their rebellion over the first version.

Tony Blair is joined by Germany's new conservative chancellor Angela Merkel and France's new president Nicolas Sarkozy to press forward a new dynamic, productive Europe which soon becomes the world's economic powerhouse.