Wed, May 25, 2005 page9

• The French wobble on EU treaty as economic fears hit home

  • By William Keegan / THE OBSERVER
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  At the beginning of last month, opinion in France had shifted within a couple of months from being in favor of the proposed European Constitutional Treaty to being against. France of all countries, the historical driving force behind the EU!

  In recent weeks the mood has altered several times but, with only a week to go until next Sunday's referendum, the Chirac government still faces powerful opposition, and there is much speculation about the consequences of a "no" vote.

  It would be a quintessentially Gallic result if the "yes" campaign managed to scrape a decimal point or so above 50 percent -- and very reminiscent of the French referendum on Maastricht.

  In my opinion, the economic troubles now worrying the French electorate were fomented by the restrictive economic policies adopted in the run-up to the Maastricht Treaty and the policy regime since then. For though referendums are supposed to be about a single issue (and historically they are seen as such) they are the occasion for all manner of protests about sources of discontent with governments and individual leaders, and the performance of the French economy, not least its high unemployment rate, has featured prominently in recent debates.

  Last week, even as British Chancellor of the Exchequer Gordon Brown admitted to the Confederation of British Industry that his confident forecasts of economic growth would be affected by downward revisions to forecasts of growth in the eurozone, Le Figaro was proclaiming: "The British miracle should serve us as an example, provided we have the courage to cross the Channel and seek answers ... to the anaemia of our economy."

  Yes, the grass is always greener on the other side of the Channel. I wish I had Le Figaro's confidence in the durability of the British economic miracle: there have been disturbing echoes recently of the "miracle" that Lord Lawson thought he had worked here in the late 1980s. Then as now we heard a lot about the flexibility of the British labor market after all those Thatcherite reforms that essentially amounted to strengthening the hand of employers against the employed. But that flexibility was not much consolation when disastrous macroeconomic policies brought us recession in the early 1990s.

  Of course, pace Figaro, you do not need courage to cross the Channel or take a train beneath it. London is teeming with French waiters escaping the high unemployment in France. Indeed, they add a touch of class to the rather dubious standards we take for granted in our so-called "service economy."

  But to return to the French economy. The great hope of the French during the work on the Delors report of the 1980s and the Maastricht Treaty was that the outcome would be an expansionary European economic policy, providing some insulation (as far as was possible) from the vagaries of a world economy dominated by the US.

  What the French and the rest of the eurozone ended up with was subjection to a European Central Bank that seems to think Weimar inflation lurks just around the corner, plus fiscal rules that did not take account of the lessons of economic history and economic cycles -- rules which have recently had to be stretched, inevitably, but whose framework was, and is, fundamentally inimical to the kind of "dash for growth" that is required when unemployment is chronically high.

  With its "opt out" from the Maastricht Treaty, Britain escaped this straitjacket, an escape which assisted the impressive economic performance recorded under the chancellorships of both Kenneth Clarke for the Conservatives and Brown for Labour.

  The British government did remarkably well in securing its opt-out from the eurozone while preserving membership of the EU. But London was determined that it should not again fall into the trap that ensnared former prime minister Margaret Thatcher; she had signed up for the single market, without catching on to what it entailed (the single currency).

  Thus the British proceeded to play an active part in the negotiations for the Constitutional Treaty as is well brought out in the revised edition of Peter Norman's book The Accidental Constitution, which provides what the Economist has called "the definitive account" of the making of the treaty on which France votes next Sunday.

  Le Monde commented: "Whatever people say, this text remains a British victory," and a Belgian newspaper termed it "a text in the service of Her Majesty."

  a bulwark

  The view that the treaty is too supportive of the "Anglo-Saxon" approach to economic policy is one of the factors cited by Laurent Fabius, former French Socialist prime minister, in support of his campaign against the treaty (although the party itself officially voted in favor). But the treaty is such a hard-honed compromise that French President Jacques Chirac can himself promote it as a French bulwark against the British.

  The essential point about the treaty is that with the blessing of both British Prime Minister Tony Blair and Chirac it is aimed at enabling the enlarged EU to function more efficiently. The federalist scare is for the birds.

  The former French president Valery Giscard d'Estaing, who was in charge of the convention that produced the treaty, was once of the Monnet school of "ever closer union." But Giscard's view became closer to the British concept.

  As Norman says: "The union would instead develop as a hybrid, as a `union of states with federal competences.'" Trade negotiations for instance are already conducted at the federal level.

  Norman, who has spoken to everyone who matters, including, it sometimes seems, celestial powers, is of the view that "a rejection by France in its referendum would be a crisis for the union as a whole and could kill off the constitutional treaty."

  "A rejection by the UK in 2006, at the end of the ratification process and following approval by all or nearly all other member states, would be a crisis -- but a crisis for Britain, and for its relations with the rest of Europe," Norman says.

  One of the treaty's proposals strongly pushed by Blair was that the presidency of the European Council of Ministers should be in the same hands for two-and-a-half years, and not rotate every six months.

  Whatever the outcome of the French referendum, and the Dutch one that is due to follow hot on its heels, Blair will be in charge of the still "rotating" presidency from July to December. He will either be sorting out a mess caused by a French "no" or he will himself be preparing for a British referendum.

  Whatever the French end up doing, those who admire the British economic model may have their eyes opened as the UK's housing and credit bubbles deflate, and the public sector ceases to create employment at such a breathless pace. It may well be a return to "economic problems as usual." Meanwhile, if the French say "yes" and Britain does indeed go ahead with a referendum, then our prime minister, who is so obsessed with "respect," must face the problem that there are few people left in this country who respect his judgment.

  Ironically, if Blair wants to go down in history as the man under whose premiership Britain's position in Europe was secured, he himself will have to take a back seat in the "yes" campaign.
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