The European Union in crisis. And now, the euro

Europe's leaders are slowly coming to terms with the death of the constitution, but they continue to fight over money

MOURNING can take many forms. After the death blows to the European Union constitution dealt by French and Dutch voters, many European politicians were for a time in denial. The French and Germans, and the bosses of the EU institutions in Brussels, insisted that the constitution was alive and that ratification should continue. Some federalists even clung to the hope that a yes vote in Luxembourg on July 10th might revive the corpse. The British have been widely accused of showing an unseemly desire to bury the constitution, even though all they did this week was to announce that they were suspending the parliamentary bill authorising a referendum.

The fact is that the constitution has indeed been killed by the French and Dutch votes. This is not just because of the formal legal position that all 25 EU countries must ratify the text if it is ever to come into force. It is also because the federalists' scenario for reviving the constitution is wildly unrealistic. Their hope was that, if ratification could be kept going, a few naysayers might eventually be isolated - and prevailed upon to try again.

The trouble is that, for this to happen, France and the Netherlands would have to vote once more. And there is no reason to suppose that their resounding no verdicts (55% and 62%, respectively) would be turned around in a second vote, particularly since there is no appetite in the rest of the EU for any renegotiation of the text. It is also likely that further referendums around Europe will produce further rejections. The Danes, who at first insisted that they intended to press ahead with their own referendum on September 27th, have piped down, after the opinion polls swung massively towards a no. Like the British, they now hope for an agreement to “pause” the ratification process at the EU summit in Brussels on June 16th-17th. It might turn out to be a very long pause.

These political realities were at last sinking in this week. Even some who had initially been loudest in calling for a continuation of the ratification process were reconsidering. As Alexander Stubb, a federalist Finn in the European Parliament, put it, “we need to stop the bleeding.” And some who continued to press for more referendums were pursuing an agenda that actually had little to do with saving the constitution.

Thus the main motive of France's Jacques Chirac seemed to be to shift some of the blame for the constitution's demise, and to force his rival, Britain's Tony Blair, into his own referendum humiliation. Surprisingly, Mr Blair seemed disinclined to take the bait. The Irish say they are committed to a referendum, but this is mainly for reasons of diplomatic etiquette: “we're lying”, says one Irish analyst. The Polish government has also indicated that it may still hold a vote. But this is a gambit to keep Germany sweet for the summit. The Poles' overriding aim is to get a generous deal on the EU budget for 2007-13, giving them billions of euros over the course of six years. If the cost of such a prize is a few insincere promises on the constitution, so be it.

As the Polish position shows, the constitution is not the only game under way. There are fears about the health of the single currency, the euro. And next week's summit may be largely dominated by a row over the budget, as Europe's leaders strive hard to reach a deal on the EU's future financing, if only to show that Europe can still function after the constitutional debacle.

There are, however, huge issues still to be resolved on the budget, notably over how big it should be, and whether to scrap or cut the British budget rebate. The size of the budget could perhaps be settled by the time-honoured tactic of splitting the difference between those who want it to be no more than 1% of the EU's GDP and the maximalists pressing for 1.14%. The Luxembourg presidency has put forward a compromise that leans to the minimalists.

On the rebate, though, Mr Blair will find himself in a minority of one - just like his predecessors. The British have been trying in vain to win allies by hinting to the Poles and nine other new EU members that Britain might find some way of returning the new members' contribution to the British rebate - avoiding the public-relations problem of poor central Europeans appearing to write cheques to the rich British. The presidency has proposed a different solution: to “freeze” the British rebate at around its present level of €4 billion ($5 billion), instead of letting it rise to €7 billion, as it otherwise would under the two-thirds refund of her net payments that Margaret Thatcher secured at the Fontainebleau summit in 1984.

Mr Blair is under pressure to give ground, but officials insist he will resist. Even after the rebate, Britain has for many years been the second-biggest net contributor to the EU budget. The government accepts that Germany, the Netherlands and Sweden, which all now pay more per head than Britain, have a case for rebates too, but not at British expense. In any case, argue the British, the cause of the budgetary burden that led to the rebate is, as it always was, excessive spending on the common agricultural policy. So the solution should be further reform (or renationalising) of the CAP, not attacks on the rebate.

Mr Chirac will not accept this, on the ground that the EU agreed to preserve CAP spending in 2007-13 at a summit in October 2002. But unless and until that CAP deal is reopened, Britain will not give way on the rebate either. The odds must be on no budget deal at the summit.

Editorial says that fundamental economic reform in eurozone countries is necessary to restore confidence in the euro.

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