Just one month after the referendum results in France and the Netherlands on the European constitution the EU has been hit by two significant economic problems.
The mid-June Brussels summit failed to agree on a budget proposal.
At the same time the euro has been sliding in the currency market.
A high-level meeting of bankers and economists called by German finance minister Hans Eichel and Bundesbank president Axel Weber in late May predicted long-term turbulence for the currency, while in early June Roberto Maroni, the Italian welfare minister, talked openly of bringing back the lira.
The result has been a chorus of praise, even in supposedly left-leaning quarters, for the neo-liberal economic agenda proposed for Europe by Tony Blair and Gordon Brown.
The issues of the budget and of the euro are separate but closely linked. It has been known for several years that the negotiations over the 2007-2013 spending plans (EU budgets run for seven year periods) would be difficult.
The fundamental reason is the 2004 enlargement. The new Central European members were admitted on very unfavourable terms at this point.
They did not obtain the full level of Common Agricultural Policy (CAP) aid available to other countries and, more importantly, the regional aid they received was capped at 4 percent of GDP - far lower than that provided to Ireland, Greece, Spain and Portugal when they joined the EU.
The new members agreed to these terms of entry because they reasoned that it would be easier to argue for The German economy is set to grow by just one percent this year, French unemployment remains dramatically high and government budget deficits are ballooning in Greece and funds when they were full members than as prospective entrants.
The tensions within the EU over this have been made worse by the prospect of further enlargement in the near future. Existing members have committed themselves to admitting Romania and Bulgaria in 2007 whether or not they have met specific membership conditions. Turkish entry is extremely controversial in both France and Germany.
At the same time openingup membership to the countries of the Western Balkans, starting with Croatia, is seen as necessary to stabilise the post-war "settlement" in former-Yugoslavia.
Meanwhile, US backed political change in former Soviet republics like Ukraine and Georgia (and possibly Belarus and Moldova before long) has fuelled further demands for eventual accession to the EU.
In this context it Was inevitable that there would be a fierce debate about who should pay for both current and future enlargement. The specific issue of the British 'rebate' is just one small part of this broader argument.
Such budgetary conflicts
not new or the cu: indeed they typified much of the late 1970s and early 1980s. Not so much to laugh about now for Chirac, Schroeder and Blair However, they are much more dangerous for European capitalism than they were during that period because of the role of the euro.
Formally, the EU budget, which represents just one percent or so of the GDP of member countries, should have little or no economic impact on the strength of the currency.
In practice, however, a significant fraction of those who originally initiated the project of monetary union, including the EU Commission president at the time of the Treaty of Maastricht, Jacques Delors, always saw the institutional framework backing up the euro as inherently unstable.
They believe that common monetary policy requires a common fiscal policy, involving large-scale tax-financed redistributive transfers across the EU.
Without such transfers, it is argued, the differential impact of a common monetary policy in particular member states, each with their own specific economic conditions, will create unsustainable tensions and lead to the break-up of the currency
Pou union.
The problem facing European capital is that the depth of the conflicts over the budget, and the loss of the referenda, mean that further progress in developing common fiscal structures is sure to be slow and arduous.
Yet it does not appear that the project of monetary union can afford a delay of this kind. The divergences between the euro-zone countries are becoming sharper at a time when their overall rate of growth is slowing down, particularly in the largest member states.
In March the European Commission predicted that five of the 12 member states would breach the 3 percent of GDP target for government deficits this year.
The most serious problems are currently faced by Italy. Its GDP has shrunk for the last two quarters while between 1999 and 2004 Italian unit labour costs rose each year by 1.3 percent more than the euro-zone average and by 2.5 percent more than Germany.
The result was that the real exchange rate for Italy (an index of competitiveness) rose by 15.6 percent during this period. This is the background to Maroni's comments about leaving the euro. But such step appears impossible without debt repudiation.
A reintroduced lira would fall in value against the euro leaving the Italian government and Italian companies unable to pay the eurodenominated debt they have taken on in recent years.
But Italy is not the only euro-zone member facing problems.
The German economy is set to grow by just one percent this year, French unemployment remains dramatically high and government budget
ocialet democrali que prce deficits are ballooning in Greece and Portugal.
In other countries like Spain, better performance (as in Britain) has been dependent on soaring house prices.
These developments have led to a number of different strategies being proposed by various representatives of European capital. Four in particular seem important.
One is that proposed by German CDU leader Angela Merkel and French rightwing presidential hopeful Nicolas Sarkozy; to halt the process of enlargement and concentrate on imposing a neo-liberal agenda within existing borders.
A second is that of Brown and Blair, in which the euro appears increasingly expendable and further enlargement goes together with market flexibility.
The third is that of sections of European social democracy, following Delors, in which renewed demands for fiscal unity are seen as necessary for saving the euro.
Finally, the current governing council of the European Central Bank (ECB) appears to think that the current framework is viable if a sufficiently large dose of austerity is applied.
None of these are acceptable for socialists. Over the next period, as the difficulties of the European economies become more acute, we need to argue clearly that these difficulties do not arise from 'rigid' or 'inflexible labour markets, or from admitting new countries to membership, but from the inevitable contradictions of trying to construct European unity on a capitalist basis.
The conflicts which are now emerging show that another kind of Europe is not just possible but necessary for economic justice.
page 12 of the scan
G8