Two tightly knotted problems facing EU

PARIS - European Union leaders are bracing for a double whammy this week, when the deepening crisis over the EU's constitution collides with an emerging crisis over spending plans.

Cool nerves, good diplomacy and a generous commitment to the European spirit are needed to prevent their summit in Brussels from worsening the EU's turmoil, but each of these gifts is in short supply.

The meeting is scheduled to take place on Thursday and Friday, but EU insiders believe the haggling will be so bitter that it may over-run by a day.

Two tightly knotted problems need to be unravelled and their strands are sovereignty and national interest - the issues that have always bedevilled the EU.

Priority No. 1 is to make headway on the fiasco of the EU constitution, a proposed charter for the 25-nation union that seeks to overhaul decision-making and provide a visionary document.

By any normal standard, the document has been fatally wounded. It requires all 25 nations to ratify it in order to become law, yet it has already been rejected by France and the Netherlands and Britain has suspended its referendum in the light of the "uncertainty".

Yet, like a zombie defying the laws of medical science, the constitution somehow limps along, its bandaged body riddled with bullets.

Its life support comes from a hard core of European federalists - the European Commission, the European Parliament and Luxembourg, the current EU president but also from France and Germany, which insist that all the EU nations should have a chance of ratifying the constitution.

But there is a growing band of opinion that calls this a silly charade that will damage the EU if it is allowed to continue. Already, opinion polls have shown public support is shifting from "Yes" to "No" in Denmark, Luxembourg, Poland and Portugal, which have yet to vote.

Adding fuel to the fire is what is likely to be the EU's stormiest money debate in more than 20 years. The summit is being asked to set a budget plan for 2007-2013, with spending limits for every year. The European Commission is proposing up to 1 trillion (S1.7 trillion) spread over seven years. It is backed by the poorer EU members, which are looking for a big boost in subsidies to hoist backward regions out of poverty.

Ranged against it are the EU's biggest net contributors - Germany, Britain, the Netherlands, France, Sweden and Austria - which want to peg spending to 815 billion. Except for Britain, all the big economies are running big deficits and have negligible room for putting up more cash.

The political spirit of concession-making is evaporating fast. At normal times, German Chancellor Gerhard Schroeder, Italian Prime Minister Silvio Berlusconi and French President Jacques Chirac would have been cheerful about a compromise.

Now, embattled by the eurosceptics and unpopular with their electorate, they realise their survival lies in hanging tough on the EU budget, refusing national sacrifices and demanding concessions.

The French daily Journal d'Alsace said: "For reasons which are above all domestic, Paris and London have declared war ... This fight is about more than just the budget. For Blair and Chirac it is also a matter of winning over their domestic audience and, for the Briton, is about the definition and the future of Europe."

Berlusconi has already talked of a veto if the deal is too onerous for Italy. Chirac has warned he will not make any concession on subsidies to French farmers. And he had a meeting with Schroeder after which the pair hiked pressure on Britain to give up its 4.6 billion rebate. British Prime Minister Tony Blair has bluntly ruled this out unless there are also cuts in agricultural support.

Blair and Chirac "seem to be spoiling for a fight," the Financial Times observed, warning that the summit could end up a "futile exercise in recrimination".

A touch of nationalist grandstanding in Brussels will heighten the EU's image of chaos and mean the budget deal will probably have to be postponed until 2006.

Britain takes over the six-month EU presidency on July 1, a position that requires compromise and deal-making.

Blair can hardly play honest broker if he also insists on an unyielding line on the rebate.