BRUSSELS: Europe faces a deepening crisis of political leadership after German Chancellor Gerhard Schroeder called for an early general election following the rout of his Social Democrats in a key state poll.
British Prime Minister Tony Blair is widely seen as weakened after his re-election with a sharply reduced majority this month and French President Jacques Chirac will be on the ropes if he loses a referendum on the EU constitution next Sunday.
Barring a last-minute reversal in France’s grumpy public mood, the European Union faces a period of gloom and introspection, its main leaders distracted by domestic fights for survival and unable to give new impetus to EU integration.
The first casualty could be efforts to craft a deal next month on the EU’s 2007-2013 long-term budget, but the limbo would also affect Europe’s ability to revive a flagging economy and manage sensitive relations with Iran and China.
“There are two circumstances that narrow the chance for a compromise — the announcement of early elections in Germany and an uncertain result of the referendums in France and the Netherlands,” Poland’s Minister for Europe, Jaroslaw Pietras, told reporters on Monday with diplomatic understatement.
Diplomats said Schroeder’s crushing defeat in North Rhine-Westphalia and his decision to go for early polls removed any flexibility for Europe’s biggest paymaster to permit higher EU spending before a general election likely in the autumn.
“You can kiss goodbye to a budget deal in June,” one diplomat said on hearing the German result on Sunday.
Blair’s weaker position, while less dramatic, also makes him less able to yield any ground on Britain’s annual EU budget rebate, which others led by France want to scrap, analysts say.
Failure to agree on the budget would plunge EU financial planning into turmoil and hurt new east European member states, delaying the start of urgently needed infrastructure projects.
EU business has effectively been on hold for the last two months after controversy over a proposed liberalisation of the services sector in Europe fuelled anti-constitution sentiment in France, forcing the European Commission to shelve the plan.
The EU executive has also postponed moves to tighten rules on state aid to industry and poor regions to avoid upsetting the French.
Many economists see the opening up of services ranging from architects to plumbers to greater cross-border competition as the key to spurring sluggish growth, but French and German opponents see it as an open door to “social dumping” — undercutting west European wages and labour standards.
The conservative French president has railed against Anglo-Saxon-style “ultra-liberalism” in an effort to coax left-wing voters into backing the EU constitution.
Opinion polls suggest the French are likely to reject the charter, as may Dutch voters on June 1 for different reasons.
The mood of hostility to liberal economic reform may swell in the short term, with Schroeder’s SPD stepping up the anti-capitalist rhetoric it used in the North Rhine-Westphalia campaign and Chirac demanding a more “social Europe”.
Schroeder has launched attacks on Brussels several times before when he had his back to the wall at home.
Financial markets hate political uncertainty, so the impact of a looming German election and a defeat of the EU constitution in France and the Netherlands is likely to be a weaker euro and delayed investment, according to investment bank research notes.
International economic organisations have already revised downward their growth forecasts for the 12-country euro zone to a paltry 1.6 percent for this year.
The looming leadership crisis also seems bound to weigh on efforts to build a coherent common foreign and defence policy at a time when relations with the United States remain convalescent after transatlantic rifts over the Iraq war.—Reuters
