Passport to prosperity

That was one of the EU's big attractions; but is it still?

Corbis

A mature perspective

WHAT do ordinary Europeans want from the European Union? The opinion polls provide an unambiguous answer: jobs. The heart of the Union is plagued by high unemployment. In the euro area—the 12 countries that have adopted the single currency—average unemployment is 9% of the workforce. European leaders may be preoccupied with high-minded tasks such as enlargement or drafting a constitution, but the voters' main concern is their livelihood. The early years of European integration were helped by rapid and sustained economic growth in western Europe, but recently growth has become slow and intermittent. This is undermining one of the chief arguments for European unity: a reasonable expectation of ever-growing prosperity.

In the 30 years from 1945 to 1975, west European countries that had been devastated by war rebounded with astonishing speed. From 1950 to 1960, German GDP grew at an average of 7.9% a year. The number of private cars in France and Germany increased 20-fold between 1950 and 1966. The spread of affluence and the rise of the consumer society became a familiar story across the western world, but growth in western Europe was even faster than in the United States. Average income in western Europe rose from about 40% of American levels in 1950 to just over 70% by 1973.

Exactly how much of western Europe's economic development can be attributed to the merging of markets and the dismantling of tariff barriers that formed part of the drive for European unity is a moot point. Many economists think the EU has played a crucial role by creating a secure legal environment for business and enabling European companies to reap the economies of scale previously available only in the United States. On the other hand, it is striking that by the time the common market was established, almost half the miracle years of 1945-75 had already passed. Nonetheless, countries that had stood aside from the European experiment were soon casting envious glances at the economic success of the participants.

In his valedictory dispatch in 1979, Sir Nico Henderson, Britain's ambassador to France, pointed out that in 1954 Britain's GDP per person had been well ahead of France's and West Germany's, but by 1977 it had fallen 41% and 46% respectively behind those of its big neighbours. Sir Nico attributed much of this relative decline to Britain's lack of enthusiasm for the process of European integration.

Britain did not join what was then the European Economic Community until 1973, along with Ireland and Denmark. Since then successive waves of enlargement carried the hopes of poorer European countries to achieve the wealth levels of “core Europe”.

For many new EU members, entry has indeed triggered rapid economic growth. The biggest success story is that of Ireland, where income per person was only 62% of the EEC average when it joined in 1973, but had reached 121% of the EU average by 2002. However, other late entrants have also done well. Spain, a much larger country, has emerged from the poverty and isolation of the Franco era and is now one of the fastest-growing and most dynamic countries in Europe. The eight central European countries that joined the EU this year have high hopes that membership of the Union will work its magic for them too.

But whereas some peripheral European economies boomed after joining, the core European economies that they sought to emulate began to stagnate. In Germany, France and Italy, the heart of the single-currency area, unemployment is now hovering around 10% and public finances are in a mess. Germany in particular has had a grim few years: since 1996, it has averaged growth of just 1.3% a year. In fact, western Europe's economic miracle ended a long time ago. Average income levels, having risen to 70% of America's in the early 1970s, have been stuck there ever since and are now declining in relative terms.

Efforts to re-launch the EU economy through bold reforms have mostly proved disappointing. The Single European Act, passed in 1986, was meant to light a bonfire of trade-restricting regulation and create a true single European market by 1992. The euro became a reality in 2002, launched in the hope that a single currency would spur trade, competition and ultimately growth. Yet neither the single market nor the single currency have yet fulfilled these hopes.

European policymakers are feeling glum. Guy Verhofstadt, the Belgian prime minister, recently summed up their mood: “Growth in Europe last year was 0.8%, in the United States it was over 3%, in China it was over 10%...If we don't change things, we risk turning Europe into a social and economic museum.” A senior EU economic policymaker, noting that America's productivity has once again begun to surge ahead of Europe's, muses: “Europe urgently needs to press ahead with structural reforms. It is unsustainable, year after year, to fall behind in GDP per head because you do not improve labour productivity.”

But are things really that bad? Some observers think that the sense of gloom in Europe is exaggerated. The Asian tigers may be growing much faster than the European economies, but then they started off far poorer. And much of the faster growth in the United States simply reflects the country's rapid increase in population: productivity per worker is actually fairly similar to that in the EU. Any remaining gap between Europe's and America's economic performance in recent years is due largely to problems in Germany, which is still trying to recover from the economic effects of unification. By contrast, some of the more peripheral European countries have done strikingly well. The World Economic Forum last year rated Finland as the world's most competitive economy, with Sweden coming third.

Perhaps, too, most Europeans have simply decided to enjoy some of their wealth in the form of leisure, rather than working ever longer hours, as the Americans do. Their economies may be growing more slowly, but their lives may be pleasanter. However, this theory of a European “preference for leisure” is controversial. Some experts believe that Europeans work less because they genuinely prefer to take time off; others argue that it is high taxes that discourage people from working and creating jobs.

But this beauty contest between the American and European models is ultimately beside the point. Miss Europe and Miss America may each have their admirers, but Miss Europe is at a huge disadvantage because she is growing old far more rapidly. Because Europe's society is ageing, the EU's real economic problems are yet to come. Suppose, for the sake of argument, that Europeans collectively have indeed made a choice to accept lower economic growth in return for more social protection and leisure time—the so-called “European social model”. The trouble with this model is not that it is illegitimate, but that it is unsustainable.

At present, the EU has 35 people of pensionable age for every 100 of working age. But Europeans are not having enough children to replace today's workers. A Deutsche Bank report in 2002 calculated that, on current demographic trends, by 2050 there will be 75 pensioners for every 100 workers in the EU. More immigration might ease the problem, but the numbers needed to offset the effect of ageing would probably be politically unacceptable.

State pensions in the EU are mostly paid for out of current tax revenues, so either taxes or national debts, or both, may have to rise steeply. In a recent report on the fiscal implications of ageing in Europe, Standard & Poor's, a credit-rating agency, predicts that the EU countries with the most serious pensions problems—including France and Germany—could see their public debt grow to more than 200% of GDP by 2050. For comparison, countries that want to join the euro are supposed to keep their public debt below 60% of GDP.

EU policymakers realise that something has to give. According to an authoritative report commissioned by the EU and led by André Sapir, an economics professor at the Free University of Brussels, “The current combination of low growth and high public expenditure is not sustainable and will become less so in the future.” As the Sapir report makes clear, the major European economies have become locked into a vicious circle: low growth has led to higher unemployment, which has led to higher social expenditure, which has led to higher taxes and thus to lower growth. It states bleakly that: “The sustainability of the European model(s) of development is increasingly challenged, without a viable alternative in view.”

The EU's demographic problem is worsened by the number of working-age Europeans relying on welfare. The unemployment statistics of 9-10% in the euro zone are just the tip of the problem. Much larger numbers of potentially working-age people are not at work but are drawing some sort of welfare benefit, perhaps because they are single mothers or are classified as disabled or have retired early. In the Netherlands, for example, around 1m out of a working-age population of less than 9m are now classified disabled, many with psychological ailments.

Raymond Torres of the OECD, an economic think-tank, reckons that around 40% of Europeans of working age are economically inactive, compared with 29% of Americans. He says that Europeans must get more people back to work, both by raising the pension age and by reducing welfare rolls. The alternative is that “welfare systems will collapse and there will be a forced and chaotic reduction of benefits.”

There is hope that it may not come to that. Already calls for structural economic reforms have become a staple of European politics, and even some of the trade unions are becoming more realistic. Big German employers such as Bosch, Siemens and DaimlerChrysler have recently negotiated agreements to extend working hours without increasing pay, which should sharply increase productivity. The enlargement of the EU, and the knowledge that just across the border there are workers willing to do the job for far less money, has clearly acted as a spur to reform.

Some European governments have introduced successful policies for getting the unemployed back to work. In Britain and Denmark the ratio of the population at work is higher than in America. Such successes have spurred other European governments to try harder. Gerhard Schröder, the German chancellor, has pushed through a package of reforms, including the first cuts in the level of unemployment benefits in Germany since 1945.

But reform remains fearsomely difficult. Mr Schröder's reward has been to see his party slump in recent regional elections, and to be told by economists that his efforts are inadequate. The political climate elsewhere is equally discouraging. In Italy, the government of Silvio Berlusconi recently had to call a vote of confidence to force through a reform to raise the country's retirement age. In France, nobody has attempted a bold pension reform since the government of Alain Juppé was fatally damaged by street demonstrations in 1995. The memory still lingers.

But however menacing the demographic time-bomb may be for Europe, is it really a problem for the EU? After all, welfare and pensions are still run by national governments, not by the EU—and it is those governments that will be punished at the ballot box if things go wrong.

All the same, the EU is unlikely to escape the consequences. It has deliberately tied together its members' political and economic fates. Twelve EU countries now share a currency, and all 25 members are linked by a dense network of economic and social policies. If economic problems mount, so will political tensions among EU members.

These tensions could be most serious inside the euro zone (see article), but some consequences of a deteriorating economic climate will be equally felt by all EU members. In particular, this is likely to affect the direction of economic policy. Over the past few decades, EU countries have united behind big joint projects such as the creation of the internal market. But different countries have interpreted the “single market” in different ways.

The British complain that it has been introduced with too much Brussels-inspired regulation attached to it, and call for further and faster market-opening and less red tape. The French grumble that the internal-market programme has promoted “liberal Europe” at the expense of “social Europe”. They want to redress the balance by introducing more Europe-wide social legislation on such things as workers' rights and minimum wages. The Germans, for their part, fret that zealots in the European Commission have been hurting German industry, and are campaigning for less onerous environmental legislation and a more relaxed attitude to state subsidies. A new element has been added by the arrival of the new central European members, who are anxious to preserve their competitive advantages: low wages, low taxes and light regulation.

Historically, the genius of the European Union has been that it has managed to accommodate and contain such different traditions and priorities. But things could soon get much more difficult. Enlargement has greatly added to the diversity of the EU. How do you design rules that make as much sense in Sweden as they do in Slovakia? One answer would be simply not to try. But the EU has a terrier-like record of never retreating from any policy area that has become part of the acquis communautaire, the body of laws, rules and regulations agreed on by the member countries.

The clash between the different political philosophies within the EU could also become sharper in the next few years. The French and the Germans, for example, have made it clear that they would like the EU to do more to develop a pan-European “industrial policy”. Yet that would be anathema to the market-based policies on competition and state aid that have in recent years been pushed by Britain and indeed by the European Commission itself.

When economic times are hard, such problems become more difficult to gloss over. In the past, with a prosperous Germany at the heart of a self-confident Union, many tough problems were eventually resolved by the German government reaching for its cheque book. In the 1960s, as European integration got going, the Germans agreed to the common agricultural policy, a baroque system of farm subsidies that has always benefited France disproportionately, almost as a form of war reparations. In the 1980s, when Spain and Greece hesitated to agree to the single market because they feared their industries could not cope with the competition, huge EU regional-aid programmes, again underwritten by Germany, smoothed the way.

But modern Germany is no longer willing or able to be this generous. Other traditional big payers such as the Dutch are also in a much meaner mood. The next EU budget round, which starts in earnest later this year, will be extremely tricky.

The real risk, however, will not be that EU negotiations become harder. It will be that European citizens, facing difficult economic times and the erosion of their much-loved “European social model”, decide to put some of the blame on the Union itself. The opinion polls already make troubling reading. The latest Eurobarometer polls, taken in the 15 countries that made up the EU before enlargement, asks, “What does the EU mean to you personally?” Although the EU's most far-reaching powers are over the economy, “prosperity” came way down the list, cited by 19% of respondents; more (26%) said the Union was a “waste of money”.

On the main economic issues facing the EU—fighting unemployment, containing inflation and protecting pensions—those that give it good marks are outnumbered by the critics. The strains of reforming the “European social model” could exacerbate what is perhaps the EU's most profound problem: the lack of genuine popular support for “ever closer union”.

One for all

The perils of a single currency

EPA

Watch out for free-riders

MANY predicted chaos when the euro was launched on January 1st 2002. Withdrawing 12 national currencies simultaneously and replacing them with a new single currency was fraught with logistical and political risks. In the event, the transition to the euro went like clockwork. Watched over by its guardian, the European Central Bank (ECB), the new currency swiftly established itself with consumers and the international money markets. It has become the single most powerful symbol of European unity.

But as the old joke goes, whereas the euro clearly works in practice, there are still question marks over whether it works in theory. Theoretical doubts about the euro have almost always centred on the long-term problem of maintaining a single currency without a single government behind it. The early years of the euro have not yet answered these questions: if anything, they have made them more intriguing—and troubling.

When an individual country runs into financial problems, it may be faced with high interest rates, a threat of inflation and a run on its currency. But when a number of independent countries share a currency, the risks are spread, so some countries may become “free-riders”. Even if they fail to tackle their own fiscal problems, they may escape the full consequences of their lack of action—but only because other, more responsible countries pick up some of the tab.

It was this prospect that persuaded the EU to draw up a “stability and growth pact” which required all euro countries to keep their budget deficits below 3% of GDP at all times, on pain of huge fines for repeat offenders. Unfortunately the pact proved unworkable. Portugal, the first country to exceed the 3% deficit, obediently slashed public spending, thus deepening its recession and pushing up unemployment. But when France and Germany broke the 3% barrier, they leant on the other EU members not to enforce the pact. In effect, despite a ruling by the European Court of Justice, the stability and growth pact is now in abeyance.

But the “free-rider” problem remains unresolved. Indeed, it is likely to become increasingly troublesome as the ticking of the demographic time-bomb becomes louder. It may not be entirely coincidental that the three EU countries that have chosen to stand aside from the single currency for now—Britain, Sweden and Denmark—have gone further than most to put their pensions systems on a sound financial basis.

No love lost

The EU is becoming ever bigger and more powerful—and ever less popular

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Pandora's box?

“THIS is what you have to do if you want the people to build statues of you on horseback in the villages you come from.” Valéry Giscard d'Estaing was trying to stiffen the resolve of his 12 colleagues on the committee that was drafting a constitution for the European Union. He was doubtless joking, but the joke made a serious point. European unity has been driven forward by people such as Jean Monnet, Robert Schuman, Jacques Delors and Mr Giscard d'Estaing himself (all of them French, as it happens).

Many of the “founding fathers” of European unity emerged from the second world war with a profound suspicion of populism. Germany has consistently refused to hold referendums on crucial steps towards European unity such as the euro, citing Hitler's misuse of referendums as a reason for leaving such decisions to elected politicians. Some committed Europhiles frankly acknowledge that, at times, they have deliberately disguised quite profound changes as mere technical adjustments to avoid causing popular alarm. Jean-Claude Juncker, the prime minister of Luxembourg and the EU's longest-serving head of government, explains: “We decide on something, leave it lying around and wait and see what happens. If no one kicks up a fuss, because most people don't know what has been decided, we continue step by step until there is no turning back.”

Carried to extremes, such an approach could be sinister and undemocratic. But those in favour of an elite-led Europe point out that all these decisions are made by elected leaders. If ordinary voters object, they can always take their revenge at the ballot box. But the hope is that each step towards “ever closer union”, although potentially controversial at the time, will eventually come to seem inevitable and a good thing.

In many ways this method has worked. Plenty of European Union policies seemed visionary, or even reckless, when first suggested, but have come to be accepted with the passage of time: the abolition of frontier controls, the establishment of a single currency, even the admission of relatively poor countries such as Spain and Portugal in the 1980s or Poland today.

Visionary leadership is all very well if the statesmen get it right. But if they make a big mistake without having first secured popular backing, they could be in deep trouble. And even if voters are prepared to accept individual steps in the process of European integration, they may eventually object to the cumulative effect.

Step by step, the EU has expanded its frontiers and its activities so that in its present shape it is unrecognisable from the modest coal-and-steel community of the early 1950s. Whether or not the EU is intent on turning itself into a “United States of Europe”, as some critics claim, it has already acquired a great many state-like characteristics: a currency, a central bank, a parliament, a civil service, a supreme court, a military staff, a diplomatic corps, even a flag and an anthem.

So far, it has managed to do all this without exciting much popular opposition. No national government in the EU has ever lost power because of an electoral revolt against European integration. Even so, there is growing evidence that Euro-fatigue and Euroscepticism are spreading from traditionally critical members such as Britain to countries that used to be much keener on the European project.

Nearly half a century after its birth, the EU's approval ratings remain pretty feeble. In the most recent Eurobarometer, just 43% of EU citizens said they had a positive image of the Union, against 21% with a negative image. Even in Germany, one of the weightiest founder members, only 39% thought the country had benefited from EU membership, against 38% who thought it had not. A previous Eurobarometer found that almost half of EU voters would not mind, or indeed would be “very relieved”, if the EU were simply to disappear.

Evidence from the ballot box is not much more encouraging. Sweden and Denmark both voted in referendums against adopting the euro. (Most countries embraced the euro without a referendum.) Even Ireland, which has arguably benefited more from EU membership than any other nation, initially voted to reject the Nice treaty that paved the way for EU enlargement, and had to stage a second referendum before coming up with the “right” answer.

Recent elections to the European Parliament have not been heartening either. Although the parliament has steadily gained more powers over the years, voter turnout has fallen equally steadily. It reached a new low of 45.7% in the elections in June this year; not bad, perhaps, by anaemic American standards, but much lower than in national elections in Europe. The parliament was meant to connect the EU directly to the European public, but most European parliamentarians remain much less well known than national politicians. Moreover, there may be no institutional fix for the EU's “democratic deficit”, because there is no real European demos—a population with a sufficiently strong European identity to breathe life into common democratic institutions.

A comparison with the United States of America clearly shows up where a putative United States of Europe is missing out. America has a common language, national media, a national identity forged through a couple of centuries of shared history and a population that is famously willing to move from state to state. None of this applies to Europe. According to one EU survey, about half of all citizens of the pre-enlargement Union speak only their mother tongue. That rules out any real pan-European media, which in turn ensures that political debate across the EU remains staunchly national. And although almost all barriers to Europeans working or studying across the Union have been removed, most EU citizens remain determined homebodies: only 1.6% of them live permanently in an EU country other than their own. No wonder that national identities remain much stronger than any loyalty felt towards the EU.

So what?, ask the defenders of the EU. The whole point of the Union is that it does not pose a threat to national identity. Instead, it is a forum for European countries to co-operate in, while preserving their national identities and democracies. Yet even some of the architects of European unity are beginning to wonder whether integration has been overdone. In a recent speech in Berlin, Ben Bot, now the Dutch foreign minister and before that one of the longest-serving ambassadors in Brussels, argued that the EU had developed too fast for many of its citizens, causing many of them to fear a loss of national identity and yearn for the “familiar old world, the nation state”.

Individual member countries worry about different aspects of the EU. In Austria, Euroscepticism has been fed by the rules on free movement of goods, which allow endless convoys of huge lorries from other EU countries to grind across fragile Alpine passes. It may seem petty, but many Austrians feel that the EU is threatening the very look and feel of their country. In France, people are concerned that an organisation invented by French statesmen, and until recently largely francophone and run on French administrative lines, has been captured by the dreaded Anglo-Saxons. Rather than serving as a bulwark to preserve French culture and influence, the EU is now being portrayed as part of an assault against them.

Yet there is also a more general problem with the political underpinnings of the EU. The steady advance of European integration has taken the EU into some of the most sensitive areas of national politics, at precisely the time when the traditional justifications for European union—peace and prosperity—have become less compelling.

In their day-to-day interactions with government—in schools, hospitals or welfare offices—most Europeans are still dealing with national rather than European institutions. But the creation of the euro, with a single interest rate and monetary policy for the euro area, has put the EU at the heart of economic life. It has also made national budgets subject to EU supervision: Portugal imposed swingeing budget cuts at the behest of the EU, and Italy may be about to do the same, despite the weakening of the stability pact.

The regulations introduced to make the single market work have also sometimes delved deep into what the British call the “nooks and crannies of everyday life”, occasionally making the EU an object of scorn and anger. British market traders have been prosecuted for failing to introduce metric weights and measures, as required by EU law. Dutch window cleaners were outraged to discover that their standard ladders were too long to comply with EU health-and-safety regulations. Such feelings are exacerbated by the widespread belief that EU institutions and spending programmes are corrupt and wasteful.

EPA

Waiting for a common immigration policy

Over the past decade the European Union has also increased its hold on social policy, leading to a clash of political philosophies between free-market Anglo-Saxons and welfare-minded continentals that can leave both sides unhappy. It is an article of faith in France that Britain practises “social dumping”, undermining French industry by refusing to impose decent minimum standards on employers. The British, for their part, are convinced that the French and the Germans, finding themselves unable to reform their welfare systems, are seeking to impose their own inefficiencies on everybody else through EU regulations.

The expansion of the EU into foreign policy has broadened the scope for disagreements and bitter feelings, as demonstrated over Iraq. And the “progressive framing of a common defence policy” promised in the new EU constitution could, in time, become equally contentious. Historically neutral countries such as Ireland and Sweden were given an opt-out from the defence aspects of the European Union, but that may not be enough to allay concerns about the “militarisation of the EU”.

The new European constitution also gives the EU a role in what may now be the most fraught political issue in Europe: immigration. Over the past 30 years immigration from developing countries, and particularly the Muslim world, has changed the face of western Europe. The number of Muslims in France is estimated at 4.5m, or about 7.5% of the population. In the Netherlands' four biggest cities—Amsterdam, Rotterdam, The Hague and Utrecht—the majority of those under 14 are the offspring of immigrants from non-western countries, most of them Muslim. Such striking social changes had provoked political reactions even before September 11th 2001 and the al-Qaeda attack on Madrid this year. But the terrorist threat has made race relations in Europe worse and fuelled the rise of anti-immigration and far-right parties.

In Austria, the Freedom Party led by Jörg Haider managed to force its way into a coalition government. In France, Jean-Marie Le Pen, the leader of the far-right National Front, came second in the presidential election of 2002, eliminating the socialist candidate. In the Netherlands, Pim Fortuyn caused something of a political revolution by running on an anti-immigration ticket in the 2002 election before he was assassinated.

Might the EU itself aggravate this anxiety about immigration? Any commitment to admitting Turkey may get a hostile reception in Austria, France and the Netherlands, mainly because of the likely consequences for immigration. The new European constitution could also cause trouble because it gives the EU the beginnings of a common immigration policy, in particular through common rules governing political asylum. This matters because in recent years most new immigrants from the developing world in countries such as Britain and the Netherlands have been asylum-seekers. Although there is no provision in the constitution for European countries to lose control over the level of immigration they are prepared to accept, such nuances may be lost in any referendum campaign.

Eleven countries have already promised to let their people vote on the European constitution. These referendums could throw the EU into the sort of crisis that puts the integration process into reverse or even causes the EU to split.

Europe à la carte

With many more members and increasingly diverging interests, a one-size Europe may no longer fit all

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Where it all began

“GENTLEMEN, you are trying to negotiate something you will never be able to negotiate. But if negotiated, it will not be ratified. And if ratified, it will not work.” Those were the words of the British representative at the negotiations from which the European Economic Community eventually emerged in 1957. Nearly four decades later the British were still sceptical about European integration. Writing in The Economist in 1993, John Major, then Britain's prime minister, derided efforts to form a single currency as having “all the quaintness of a rain dance and about the same potency”. Wrong again.

Given this long British record of lofty and mistaken predictions that European integration cannot work, a British newspaper should be especially cautious in expressing scepticism about the future of the European Union. Yet to this writer at least, it does indeed seem that the EU is about to enter a particularly troubled period. It still seems highly unlikely that the Union will collapse. What is much more probable is that it will split.

The likeliest immediate cause of a split in the Union would be a failed effort to ratify the EU constitution. But the ground would have been prepared much earlier by the developments described in this survey: the waning of the forces that originally propelled the drive for European unity; the growing diversity of views and interests introduced by EU enlargement; and the increasing difficulty of maintaining popular support for the European project as the EU's powers expand.

Just how much new power the constitution gives the EU remains a matter for debate. It clearly does increase the EU's say in sensitive areas such as immigration and criminal law. It also strengthens the Union's foreign-policy role and puts down a marker for the development of a common defence policy. Moreover, the constitution includes a detailed charter of fundamental rights, which could mean that the European Court of Justice will play an increasing role in defining social, political and economic rights across Europe. It also advances EU powers in many other small ways, for example by creating an explicit EU role in the promotion of sport and tourism for the first time.

Some defenders of the constitution nonetheless insist that it is not a very radical document, certainly compared with the Single European Act of 1986, which set up the single market, or the Maastricht treaty of 1992, which created a single currency and a common foreign policy. That is probably true, but it may be beside the point. Countries such as Britain and the Netherlands did not hold referendums on the internal market or on Maastricht, so a vote on the constitution will be the first opportunity for their voters to express their cumulative misgivings about what the EU has become. Even in France, which did have a referendum on Maastricht, voters may still take the opportunity to voice discontent with recent developments in EU policy—say the European Commission's “ultra-liberal” economics, or the unpopular promise to admit Turkey to EU membership.

Eleven of the 25 EU countries—Belgium, Britain, the Czech Republic, Denmark, France, Ireland, Luxembourg, the Netherlands, Poland, Portugal and Spain—have now promised or all-but-promised to hold referendums on the constitution, and even Germany is thinking about it. For most of the countries involved, this desire to consult the people about European integration is new, and itself reflects growing uneasiness about the popularity of the European project.

The constitutional referendums will carry a heavy risk for the EU. In theory at least, if even a single country refuses to ratify the treaty the constitution cannot come into force. But as Giuliano Amato, a vice-president of the constitutional convention, puts it, “Legally we could not proceed, but politically we could not stop.” It is difficult to imagine more than a score of EU members meekly abandoning a political project to which they have committed so much energy just because one or two countries have turned it down. For the moment they have simply agreed that if there are problems with ratification, EU leaders will meet in two years' time and decide what to do next.

Leaving some wiggle-room is probably wise, because much would depend on how many countries had rejected the constitution, and who they were. The biggest question marks hang over Britain, Denmark, France, the Netherlands, the Czech Republic and Poland, but at the moment the outcome is impossible to forecast. For example, the latest polls would suggest an easy victory for the “yes” camp in France, where opinion is running 2:1 in favour of the constitution, and a big defeat in Britain, which is split roughly 2:1 against. But French supporters are palpably nervous, recalling that the Maastricht treaty only just squeaked through with a “yes” vote of 50.5% in 1992. With the French socialists divided about the constitution, President Chirac unpopular with the electorate and the extremes on left and right likely to take a share of over 20% of the vote, a French “no” is certainly possible.

In the same way, Britain may change its mind. Europhiles there are currently deeply gloomy, but cheer themselves up by recalling that when Britain held its only other European referendum back in 1975, on whether to remain in the EEC, the “yes” camp started way behind and ended up winning by a respectable margin.

The outcome in the other battleground states is equally hard to call. The Danes have a record of rejecting European treaties in referendums, but seem to be bucking the EU trend by becoming less Eurosceptic. Poland was always deeply doubtful about the constitution; on the other hand, Polish farmers will soon begin receiving large cheques from the EU, which could turn opinion around. The Dutch have tended to be solidly in favour of European integration, but have been in a funny mood ever since Pim Fortuyn set off a wave of populism. The Czechs have no overriding grievance, but the country's president, Vaclav Klaus, is opposed to the constitution.

It remains possible that the constitution will be approved everywhere. For example, if sceptics such as Britain and Poland vote last, after a string of “yes” votes elsewhere, they may end up approving the constitution, fearing that otherwise they may have to leave the EU altogether. But it seems much more probable that one or more members will say “no”. What happens then?

If only one or two countries reject the constitution, they might simply be asked to leave the Union. There is already a lively debate in the French press about whether Britain should be thrown out if it votes against the constitution. But ejecting Britain (or any other country) might not be so straightforward. Under current EU law, Britain would have every right to insist on staying in the Union under the existing legal framework. And many of the smaller EU countries might be reluctant to see Britain leave because they see British influence as a valuable counterbalance to Franco-German dominance.

One outcome might be that Britain and other sceptics establish a semi-detached relationship with the EU. At one extreme this could be similar to the one Norway has negotiated. Norway is not a member of the EU and opts out of policies it dislikes, such as those on agriculture and fisheries. However, it is a member of the European Economic Area, which gives it access to the EU's single market. In return, it has to accept single-market laws on which it has no vote, and it also has to contribute to the EU budget. For Britain, a semi-detached relationship with the EU might be even more complicated. For example, as a major European power it might press for continued participation in EU summits and diplomatic activity.

If a larger number of countries said “no”, the EU could evolve into two blocks, with an integrated “political union” at its core and a looser economic union around it. The “core” countries would push on with integrationist projects that the British have traditionally rejected, such as the introduction of direct EU taxes and the establishment of an independent EU military force. They would also try to persuade Turkey to enter the looser economic “outer” Europe, which might include Britain, Poland and much of Scandinavia.

The most difficult scenario to predict is the aftermath of a putative French “no”. The French have always been so crucial to the EU that this would kill the constitution. That might bring about a sullen period of Eurosclerosis in which the EU remained in its current form but was increasingly by-passed by the bigger member countries in favour of bilateral deals, condemning it to increasing irrelevance.

Niall Ferguson, a British historian at Harvard, suggests that it might end up as just another big international organisation, like the International Labour Organisation in Geneva or the OECD in Paris. Alternatively, there could be a dramatic attempt to relaunch the EU and save the dream of European unity. In France itself, the political elite, already disenchanted with EU enlargement, has long fantasised about dissolving the present EU and starting again with a political union of the original six members; or perhaps just with France and Germany.

All these scenarios share a common factor: they envisage some sort of split in the European Union. Some observers find this prospect alarming. “Anyone with any knowledge of European history would be wary of seeing Europe split into rival camps,” says Oxford University's Timothy Garton Ash. The Iraq crisis provided a taster of how disturbing such a scenario might be. The sight of the German chancellor and the French and Russian presidents issuing joint statements on an international crisis sent shivers down a few spines in London and Warsaw. Mid-Atlantic meetings between the British and the Americans also stirred a few memories.

It is certainly conceivable that the European Union will split into rival, mutually suspicious camps, but the eventual outcome is likely to be messier and less frightening. Instead of two clearly defined alliances—an inner and an outer core, or an “old” and a “new” Europe—there will be a range of overlapping structures depending on the form of co-operation. Countries such as Germany, France and Italy are likely to belong to everything—the euro, the border-free area, the internal market and any future EU military force or judicial zone. Others, such as Britain and Denmark, will try to pick and choose, taking part in the single market and perhaps a new military structure, but avoiding monetary or judicial union and perhaps trying to slip out of participation in such areas as social or fisheries policy.

As it happens, this is the sort of European Union that has already been evolving over the past decade. The assumption that all EU countries would eventually join the euro has gradually eroded as first Denmark and then Sweden voted to reject membership of the single currency and a British decision moves ever further into the future. The passport-free Schengen area operates on a similar multi-tiered model: Britain and Ireland have stayed out and the central European countries have not yet been allowed to join, but Norway and Iceland, which remain outside the EU, are members of Schengen.

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The evolution of defence co-operation will further blur distinctions. Certainly as long as Tony Blair is prime minister, the usually stand-offish British are likely to want to be part of an inner defence core. However, some countries that are members of the single-currency zone but traditionally neutral on defence matters—such as Ireland, Austria and Finland—will probably stay out. Attempts to impose a single economic model on the EU are also likely to stall. The central Europeans are determined to follow the Irish model of low taxes and light regulation and to fend off efforts to impose a Franco-German-inspired “European social model”. Under the current legal and political arrangements, they will probably succeed.

In the short term, a failure to ratify the constitution may actually disrupt the emergence of the multi-tiered European Union described above. In the long run, however, a constitutional crisis would confirm that the emerging European Union is simply too diverse to contain within a single uniform structure. The federalist dream of a “United States of Europe” will slide into irrelevance. A shell of an organisation called the European Union would probably be preserved, but some of its current members might even quit and negotiate new association agreements.

The result would be messy and hard to understand, and might cause new frictions. But it would also have two strong benefits. First, a more diverse EU would allow countries and their citizens to adopt different levels of European integration to suit their national preferences. Second, diversity would allow some useful competition between different economic and social models within Europe.

With peace and prosperity established, the European Union can safely abandon its old aim of an “ever closer union”. The new motto might be vive la différence.