Charlemagne. The hour of mighty Luxembourg

The European Union presidency passes to its smallest member

A FAINT absurdity hangs in the air whenever the Grand Duchy of Luxembourg takes on the rotating presidency of the European Union. Now that the EU has enlarged to 25 countries, with a total population of 455m, it seems more ridiculous than ever that Luxembourg - total population 451,600, of whom only 277,400 are citizens - should be charged with running its affairs. If the presidency were purely honorific, the prospect of Luxembourg taking over might not be so striking. But it is in fact a job with increasingly onerous responsibilities. During the six months that a country holds the presidency, its ministers chair all EU meetings and broker all deals to keep the show going. The presidency shapes the agenda and represents the EU to the world.

Thus, when President George Bush visits Brussels next month, his counterpart will be Jean-Claude Juncker, prime minister of Luxembourg. It is as if the United States were to decree that, for the next six months, all foreign leaders would have to deal with the mayor of Fresno, California. Understandably, foreigners find meeting EU “presidents” from tiny countries baffling - particularly when the identity and nationality of the president changes every six months. During a previous Luxembourg presidency, Bill Clinton was irritated that the two most senior people he met at the EU both hailed from Luxembourg: at the time, the president of the European Commission, Jacques Santer, was also a Luxembourger. The problem of having Luxembourg in charge can seem most acute at times of international crisis. The lameness of the EU response to the outbreak of fighting in the Balkans in 1991 was highlighted when it was left to Jacques Poos, foreign minister of Luxembourg, to make the impotent claim that this was “the hour of Europe”.

To be fair, the Luxembourgers have some compensating advantages. As founder members of the European club, they have had plenty of practice in the chair. The official literature promoting their presidency claims that their chief national characteristic is “an almost obsessive search for consensus”, as well as noting that “a touch of paradox characterises the local gastronomy”. The ability to find a compromise, even a paradoxical one, is essential to steering the EU. Luxembourg's role of honest broker is enhanced by the fact that it has few national interests, save for bank secrecy, to protect. Patriots point out that Luxembourg has been building Europe for decades. It has provided two presidents of the European Commission. And Pierre Werner, a former prime minister of the Grand Duchy, wrote the first report proposing European monetary union.

Jean-Claude Juncker, the current prime minister, is in the classic mould of the Luxembourg fixer. A man with a magnificently old European attitude to the consumption of alcohol and cigarettes, he is never happier than when locked in a marathon European negotiation. His feel for how the EU runs, his close relationship with France and Germany, and his linguistic expertise all made him briefly a front-runner for the presidency of the commission when the job came up last year.

But Mr Juncker and the tiny team around him will carry a huge burden. He is not only prime minister, but also finance minister, which means that he will have to chair European summits, EU finance ministers' meetings and the euro group of single-currency members. Mr Juncker's colleagues must also juggle a multitude of briefs. Fernand Boden, for example, is minister for agriculture, viticulture, rural development, tourism, housing and the middle classes. (Ultra-bourgeois Luxembourg has no ministry for the working classes.)

Mr Juncker says that his three priorities will be “the Lisbon process” of economic reform; changing the discredited “stability and growth pact”, which sets budgetary rules for euro members; and reaching agreement on the EU budget for 2007-13. This third challenge will be by far the most difficult, since the issues involved - who pays and who receives - cannot be fudged. The Germans, the traditional paymasters of the EU, insist that they can no longer bear this burden. Together with five other net contributors, including Britain and France, they are insisting that the EU budget must be restricted to 1% of combined GDP. The European Commission responds that an enlarged EU needs an enlarged budget, so it wants the limit kept at 1.27%. The difference could amount to €27 billion ($36 billion) a year.

Besides the overall size of the budget, there are even bigger issues to be settled over its distribution. The Spanish and the Poles have already had a stand-up row at a meeting of EU ambassadors over the allocation of regional aid. The French, meanwhile, miss no opportunity to snipe at the “British cheque”: a rebate on Britain's contribution negotiated by Margaret Thatcher in the 1980s. The British fire back about the outrages of EU spending on agriculture, which benefits France above all. Sorting this mess out in six months would take a diplomatic genius: it is not likely to happen on time.

Constitutional nightmares

Mr Juncker also faces the discouraging possibility that his presidency could coincide with the rejection of the painfully negotiated EU constitution, in a referendum held somewhere in the EU. Spain, France and the Netherlands are all likely to vote in the next six months; Luxembourg itself may follow them. The fact that the constitution would actually abolish the EU's rotating presidency - and with it, Luxembourg's occasional chances to run Europe - will not prevent Mr Juncker from campaigning for a yes vote. Luxembourgers have scant resources to deal with the crisis that a no vote would provoke, although they do have a long historical memory. In a potted history of Luxembourg presidencies, Mr Juncker's team recall the fraught year of 1980, when Mrs Thatcher was demanding her money back, France was opposing any further enlargement of the EU and “an air of gloom and pessimism predominated.” Some things never change.

Commentary feature previewing the programme and challenges of the Luxembourg EU Presidency, January-June 2005.