LONDON: If Britain had joined the current European single currency regime, this would have been a sobering weekend. We would be living in a euro-zone whose rules had just been smashed in a naked power play by its two biggest members.

We would be wondering what the new rules would be, why they had not been developed, despite the palpable unworkability of the old rules and whether the whole system was going to disintegrate as member states now ran their economic policies heedless of their impact on others in a new lawless environment. Loyalty to the European ideal would seem thin gruel beside the threat to the integrity of our currency.

The dismay across Europe about the collapse of the ill-fated ‘Growth and Stability Pact’ on Tuesday is testimony to the depth of the crisis. Of course, as the Chancellor observed and the consensus in the financial markets agreed, Europe’s finance ministers made the right economic decision not to enforce the pact on France and Germany.

To have required both countries to cut public spending and/or raise taxes at this stage of the economic cycle to meet the arbitrary terms of the pact — and thus avoid swingeing fines — would have been self-defeating and absurd. It would have threatened their economic recovery and made Europe’s rules and institutions seem incredible and ridiculous.

That, though, is not the point. Not applying silly rules is to be applauded; not developing substitute rules to guide public borrowing and spending among member euro states is profoundly worrying. The defence that France and Germany are still observing the ‘spirit of the pact’ and that they only missed meeting the pact’s terms by a bit won’t wash. They have broken its terms for three successive years without penalty; if the adjustment was that small, why didn’t they make it?

The truth is that, after Tuesday, the European Commission cannot insist on any state conforming to its terms. The euro-zone now has no rules or common guidelines for how fiscal policy is to be pursued by member states; none is even being discussed. If the dollar wasn’t on the threshold of a potential epic sell-off as the financial markets wake up to the astonishing weakness of the US’s international balance sheet, the euro would be enveloped in a crisis of its own.

But instead of addressing the issue, Europe’s finance ministers are transfixed by their internal row. Some system like Britain’s, in which borrowing was targeted over the whole economic cycle and whose sustainability was judged in relation to national debt, would make more sense and allow countries to stimulate their economies in recessions — but no proposal is on the table.

The Finns, Dutch, Spanish and Austrians, having defended the pact to the last, are not minded to discuss a new system, while France and Germany prefer a system of rules they can bend to any substitute. The European Commission offers no leadership. Gridlock, recrimination and yawning intellectual differences rule.

For my part, I can only repeat that my support for British membership has always been conditional on scrapping the pact and introducing British-style rules. Our joining could and should have been the trigger for change. What is worrying for pro- Europeans is that Europe could not deliver this reform itself; it is paralysed even in the one area where it has appeared to have made significant progress — the single currency.

The same gridlock is emerging over the negotiations for the new European treaty, inaptly characterised as giving Europe a ‘constitution’. Sadly, it is no such thing; rather, it is a feebly worded consolidation of six European treaties into one with a few twists to make an EU of 25 states more workable: as such, it does its job quite well.

However, the smaller and middle-ranking countries of Europe are trying to hang on to every advantage they currently have while giving up nothing. They worry about being run by a directorate of France, Germany and, to a degree, Britain. They worry that the new treaty is a mechanism for developing an intergovernmental Europe run by the big three in the guise of Europeanism which is, in fact, being traduced, and they want more say.

It is not just Tuesday’s events that will fan the flames. On Friday, it emerged that the big three have struck a deal for ‘structured co-operation’ on defence, establishing the basis for a joint European defence capacity. This is either the European army feared by the Eurosceptics or a recognition that only by pooling defence capability can Europe’s states have a worthwhile defence force.

I take the latter view, but from the smaller European states’ point of view it’s an alarming development. What control do they have over how these forces might be deployed and what foreign policy they might serve? In effect, France, Germany and Britain will decide on Europe’s defence, foreign and security policy.

All would be less rancorous if the mood of the moment was generous and if there was a shared sense of European identity and direction. There is not. All across Europe, the pace of turning inwards towards national rather than European certainties is accelerating. It began with a reaction to globalisation and has been speeded up by the reaction to illegal migrant workers and asylum-seekers.

Everywhere, the language is similar; these alien others must be barred from entry to protect domestic jobs and public services, rhetoric bitterly familiar in Britain. But soon, alien others become not just asylum-seekers but citizens of other European countries. On 1 January, when workers from eastern European countries can legally settle anywhere in the EU, the culture of closure and protection will grow.

Nor has the United states helped. Until the end of the Cold War, it backed more European integration as a bulwark against communism on the Euro-Asian land mass. Now it sees the EU as a potential rival and champion of multilateral rules and institutions that could tie the US down — from a belief in an international criminal court to upholding the United Nations. The US wants a compliant and divided Europe that can do nothing; from its point of view, the more gridlock and division it can encourage the better.

There is no doubt that 2004 ought to have been a great year, the year East Europeans became full members of a revived, streamlined and more democratised European Union. Instead, Europe is in its worst shape for years. The British always take the view that nothing is more certain than a powerful EU steamrollering our interests and national identity alike. It’s all very much more fragile, and could so easily come apart.

There is only so much battering, criticism and friendlessness any institution can take before it breaks. Europe is no different.—Dawn/The Observer News Service.

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