The Hindu Business Line : Imponderables in the EU

WHITEHALL'S DECISION TO put on hold plans to hold a referendum in the UK on the 2004 Treaty of Rome, which would set up a new Constitution for the 25-member European Union, is widely seen as a serious blow to the ratification process. This may or may not be the case but surely the postponement has damaged the EU image to such an extent that it may affect its standing at international forums where, Brussels, representing an integrated and expanding Europe, was seen as a force of consequence. It will not be surprising if there is a sense of muted elation in world capitals that have watched with concern the rise of a politically and economically united Europe.

But what will be the impact of the two decisive negative referendum results (in France and the Netherlands) and the UK's decision to put off its vote slated for some time in the first half of next year? Immediately, the EU is likely to start a damage-control exercise, the lead being taken by the French President, Mr Jacques Chirac, and the German Chancellor, Mr Gerhard Schroeder, who quickly got into that mode after the Dutch `nee' last week. They may calm the waters, but the fact remains that the two nays and the postponed referendum will have strengthened the "anti-Brussels" camp in important EU member-countries, which could ultimately affect the "content" of the enlarged EU (enshrined in the new Constitution) and also plans for expansion.

The litmus test for the EU experiment has been the success of the Common Market and, subsequently, the monetary union, the two important milestones of the latter being the setting up of the European Central Bank and the birth of the euro as the common currency. There is evidence to suggest that economic problems such as rampant joblessness led to the negative referendum vote, which has been interpreted in some quarters to mean that the EU is failing to deliver in the economic sphere. In fact, one school of thought holds that neither the economic integration nor the euro has promoted Europe's international competitiveness, which is resulting in a secular slowing down of economies in the EU, one indicator being the rising unemployment in France and Germany. Further, it is thought that the EU enlargement will only worsen the situation because with less developed economies entering the fold, the economic pressures will rise manifold.

The world will wait to see how the internal problems of the EU shape Brussels' foreign relations, both political and economic. To take one example, the move to end the arms embargo on China may lose steam especially as Mr Chirac, who was fully backing it, now has his plate full with other problems. For India, crucial is the impact on the value of the euro not merely because of its export interest in the European market but also because the RBI has chosen the euro as one of its intervention currencies. With some diversification happening into this currency, the euro will bear close monitoring.

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