EU lurching towards enlargement in crisis

The collapse of talks on the European Union's first constitution leaves the bloc lurching towards a "big bang" enlargement next year with dysfunctional institutions in a mood of crisis and division.

Failure to agree at a weekend summit on a charter designed to ensure the EU can run efficiently after 10 new members join the existing 15 next May means the Union's expansion beyond the old Iron Curtain is likely to be overshadowed by acrimony.

France and Germany, blocked in their bid for more voting power by Spain and Poland, responded by threatening to lead "pioneer groups" of like-minded countries towards closer integration, raising the prospect of a two-speed Europe.

"The first few years of enlargement are going to be a very rocky ride," said Heather Grabbe, deputy director of the Centre for European Reform.

"This was a time when the Union needed to be strong, but it will actually be divided and weak, concentrating on battles over money, jobs and power," she said.

Saturday's breakdown capped a year in which the EU split bitterly over the US-led war in Iraq, its budget rules were bent, Sweden voted against joining the euro and Britain decided not even to put the choice to its sceptical voters.

The defining moment of 2003 may well have been when French President Jacques Chirac chided the EU's east European newcomers in February for siding with the United States over Iraq, saying they had "missed a good opportunity to shut up".

Diplomats said animosity and mutual distrust among leaders, who put their national interest above any sense of a common European goal, was a factor in the collapse of the constitution negotiations and augurs ill for the big challenges of 2004.

Two years' work on a constitution, drafted by a Convention of lawmakers and national representatives led by former French President Valery Giscard d'Estaing, ended in a deadlock that will tarnish the EU's image with its citizens and in the world.

The unresolved struggle over voting rights is bound to become entwined with a looming battle over the next EU budget and will overhang the appointment of a new European Commission and the election of a new European Parliament next year.

After failing to secure more voting power for the EU's most populous state, Chancellor Gerhard Schroeder said Germany wanted the ceiling on the 2007-2013 budget reduced to one per cent of gross national income (GNI), from 1.27 per cent a present.

Although the EU's current €100 billion annual budget only amounts to one per cent of GNI, such a tight corset would leave no extra cash to meet the huge development needs of the less wealthy new member states.

The EU was always likely to face strains digesting 10 new countries that will swell its population from 375 to 450 million and most leaders chose to play down the severity of the crisis they had unleashed on Saturday.

Britain said life would go on and the EU would simply apply the 2000 Nice treaty, which gave Spain and Poland almost as many votes as Germany, with twice their population.

But most experts doubt whether that rulebook, so complex and flawed that EU leaders sought to rewrite it almost before the ink was dry, can keep an enlarged Union moving forward.

"This EU of 25 or 27 cannot really work with the Treaty of Nice," said Daniel Gros, director of the Centre for European Policy Studies in Brussels.

Mr Chirac said "pioneer groups" could move ahead in the fields of economics, defence, crime-fighting and immigration, as they had done to launch the euro single currency and the Schengen border-free area within the EU.

Founders France, Germany, Belgium and Luxembourg are exploring joint initiatives with a core of like-minded states, diplomats say. But many analysts doubt how far this will lead.

"This core Europe stuff is a pipe dream," said Gros, arguing that Paris and Berlin had forfeited much trust as leaders of the European project after they trampled on EU budget rules last month to avoid disciplinary action for their excessive deficits.

The leaders set no date to resume constitution negotiations, leaving a cooling-off period likely to extend beyond a Spanish general election in March and European elections in June.

Mr Schroeder and Mr Chirac may hope the financial leverage of the budget talks will force Spain and Poland to sue for peace on voting rights by 2005, but in such a poisoned atmosphere, that seems far from certain.