23 June 2005

EZA 688/: Euro Politics

Euro Politics; Constitution/budget setbacks not catastrophe for EU / EMU but risks remain
Constitutional Treaty and budget set-backs not a catastrophe for EU/EMU The two referendum “no” votes and the consequent decision by heads of state and government at last weeks summit to put the constitutional Treaty into cold storage sine die do not mark the beginning of the end of the European project. Nor does failure to reach agreement on the EU’s budgetary framework for 2007-2013 and address the anomalies of the CAP. In terms of the Constitutional Treaty, for the time being the EU can muddle along with the legal status quo of the present treaties, ill-suited though this is to efficient law-making and decision-taking in a community of 25 rather than 15 members (EZA675/21Apr05). In due course – well beyond the UK’s 6 month presidency and probably after several of the heads of government have left the stage – Treaty amendments appropriate to the needs of an even larger community will be brought back, possibly without the constitutional pretensions. As for reaching agreement on the next 7-year budgetary framework, it seems unlikely that President Chirac would allow Prime Minister Blair the satisfaction of crowning Britain’s upcoming EU presidency with such a diplomatic coup (let alone trading Britain’s budget rebate for radical reform of the CAP). This contentious issue will most likely therefore, drag on well into 2006 and, if need be, even into 2007 but it will eventually be resolved – with or without a deal on CAP and the UK rebate. So poor marks to the EU for conduct and achievement but no melt down scenario. That appears, for now, to be the verdict of the financial markets too. But there is still a danger (as spelt out in EZA675/21Apr05) that if the politicians show signs of allowing the matter of treaty change to drift indefinitely, without any guidance being given as to Europe’s future and popular support being courted – especially if disagreements over future financing and squabbling over the CAP drag on, the markets mood could turn. With major countries continuing to flout even the revised Stability and Growth Pact, the feeling could grow that the EU (and with it EMU) had not just temporarily lost its way but was even going into reverse. The one mitigating factor then could be that the longer things drag on, the greater the number of present players who will have moved on, to be replaced by a new generation more attuned to the needs of their electorates and to the imperatives of markets

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© Graham Bishop