EU crisis escalates after referenda

Europe foundered in its bid to contain the damage over a new EU Constitution yesterday as the fate of the euro single currency became increasingly swept up in the crisis engulfing the bloc.

Despite calls for calm after France and the Netherlands rejected the Constitution in referenda this week, the language of European Union leaders turned increasingly edgy.

Luxembourg Prime Minister Jean-Claude Juncker, whose country holds the EU presidency, spoke of a "big European crisis" if EU leaders failed to agree on a long-term Budget this month.

And Italian Welfare Minister Roberto Maroni, a member of the Eurosceptical Northern League party, sparked a flurry on financial markets by suggesting that Italy should hold a referendum on abandoning the euro and returning to the lira.

European Monetary Affairs Commissioner Joaquin Almunia defended the euro in the latest of a string of comments from leaders that have highlighted how far the currency has been caught up in the crisis over the Constitution.

"The euro forms part of our landscape. I think nobody is going to succeed in eliminating an achievement that cost us a lot to bring about and that is bringing us many advantages," he said in an interview with Cadena Ser radio in Spain.

The Constitution was meant to make the EU work more smoothly after its enlargement to 25 states from 15 last year and had nothing to do with the euro set up by 12 members in 1999.

But the rejection of the treaty by two EU founding members has raised questions about how committed European countries are to working together to make the single currency a success, and opened the door for Eurosceptics to question its existence.

Italy's Maroni told the Repubblica daily the euro "has proved inadequate in the face of the economic slowdown, the loss of competitiveness and the job crisis."

The euro, which slipped to eight-month lows against the dollar this week, fell further on Mr Maroni's comments but then recovered to trade at $1.2288, little changed on the day.

Though Mr Maroni's comments did not represent the government as a whole, analysts said they expected more such comments in Italy and elsewhere in the days and weeks ahead.

Germany's chief government spokesman, Bela Anda, echoed others in the European leadership when he said that Germany was not worried about the state of monetary union and that "the euro has proven itself".

But many Europeans blame the euro for an economic slowdown and high unemployment, and - if the referenda in France and the Netherlands are representative - no longer trust their governments to decide what is good for them. Both the French and Dutch governments had campaigned for a yes vote.