EU: Europe plunged into crisis

2005-06-19 07:52

Brussels - Deep disagreements about the future economic management of the 25-nation European Union hung over leaders after the collapse of an acrimonious EU summit this weekend.

The two-day summit disintegrated into finger-pointing in the early hours of Saturday after the gathering failed to agree on financing over the period from 2007-2013, worth about €100bn a year.

European Union leaders had already been forced to set back ratification of their ambitious constitution, plunging Europe into one of its deepest ever crises.

The budget deal was sunk largely by the refusal of Britain and France to settle their differences over London's multi-billion-euro budget rebate and French farm subsidies.

And the constitution was put into deep freeze as a string of EU countries got cold feet over the charter in "domino effect" following the Dutch and French "no" votes against the treaty.

The double-whammy menaced the euro, already on a downward trend amid concern about persistent weakness in the eurozone's three biggest economies, Germany, France and Italy.

From a record high of $1.36 last December, the euro had declined to about $1.22 by Friday.

"Sentiment for the euro has reached very negative levels as economic data has been soft and the EU summit highlighted differences over economic and budget policies," said New York-based Bank of America currency strategist Robert Sinche.

"But the weaker euro this year should help stabilise leading indicators over the summer, and falling expectations for an ECB (European Central Bank) rate cut should help stabilise the euro-dollar (rate)," he said in a report.

The failure of the summit forced some EU leaders to re-think the direction of the bloc.

Opposed views

Many voters in France and the Netherlands who rejected the constitution had said they feared a swing towards Anglo-Saxon style free-market economics, and a perceived threat to cherished social welfare systems.

Luxembourg Prime Minister Jean-Claude Juncker, who holds the rotating EU presidency, said the crisis resulted from two fundamentally opposed views of Europe.

"There are those who want the big market and nothing but the big market, a high level free trade zone, and those that want a politically integrated Europe," he said.

Amid the talk of social and labour market reforms, people also feared for their jobs as the eastward expansion of the EU led to an influx of cheap labour from low-cost countries.

It was precisely such fears that EU leaders should address in the fallout from the summit, British Prime Minister Tony Blair said.

"There are concerns that our citizens are expressing. Let's listen to people and start setting out an agenda for Europe that actually corresponds with them," he said.

Europe must show "what it can do for its people at this time of great pressure and globalisation," Blair said.

- AFP