Commentary: The EU: One Pricey Constitution

To win support for it, states may shelve reform

Could Europe pay too high an economic price for a new constitution? That's a question worth pondering as France prepares for a May 29 referendum on the European Union's draft constitution. With the latest polls showing a majority of French voters prepared to send the charter to an early grave, politicians are scrambling to appease them.

That was painfully clear on Mar. 23, when European leaders shelved an EU directive to deregulate Europe's service sector. The plan would have swept away protectionist rules that make it tough for individuals and companies to sell their services -- everything from accounting to plumbing -- outside their home markets. With services accounting for more than half of Europe's economy and more than 70% of jobs, the plan would have been a giant step toward economic integration. The EU estimates it would have created 600,000 jobs.

France and Germany have long criticized the services directive, arguing that their comparatively well-paid labor forces would be threatened by service workers from lower-wage countries. But what finally got EU leaders to cave was France's warning that the plan had become a rallying cry for opponents of the constitution, even though there is no connection between the two.

Certainly, a French non would doom the constitution. Theoretically, it must be approved unanimously by the 25 EU members, most of whom will submit it to their Parliaments for a vote. Without France's approval, the EU will be left to muddle along with its current awkward governing arrangements, such as a six-month rotating presidency.

That wouldn't be good -- but it wouldn't be as bad as giving away the store in order to win passage. In backing off the services plan, European politicians are only abetting opponents of economic reform. Within days of the decision, French interest groups were demanding still more concessions in exchange for backing the constitution. The government quickly agreed to provide subsidized summer vacations to farmers. Now tobacco shops want tax breaks to protect them from cross-border competition. "It's Santa Claus at Easter!" read a recent editorial in the daily Ouest-France. But it's no joke. Such measures only add to the rigidity that is crimping growth across Europe.

Supporters of services deregulation hope the initiative can be revived once the French referendum is over. "What matters is winning, and [European leaders] are right to try and do what they can to win," says Charles Grant, director of the London-based Center for European Reform. But the EU's backpedaling has only strengthened opposition to deregulation in France and Germany.

It's time for Europe's leaders to stop using economic reform as a bargaining chip. After all, it is low growth and high unemployment -- and the feeling of vulnerability they engender -- that have turned so many voters against the constitution. Yes, there's a risk that dealing forthrightly with the economic malaise will antagonize voters enough to kill the constitution. But even more than streamlining its political institutions, Europe needs to get its economy humming if it wants to ensure its future as a global power.

By Carol Matlack

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