EUROPEAN COMMUNITY: Oui, Mais

Analysis

Although technically approved, a margin of 2.1%, on a turnout of 71.6%, effectively amounts only to a qualified endorsement for the treaty. European leaders, and political leaders in France, who campaigned for a resounding 'yes' vote, in order to put the Maastricht process back onto a more secure footing after the Danish rejection in June and last week's fracturing of the ERM have been denied their prize.

Market reaction. The franc received an initial boost when trading opened today but has subsequently drifted back towards its floor within the ERM. The Paris bourse has retreated on worries over the currency's weakness. Both sterling and the lira, now operating outside the ERM, have drifted lower against the DM, with the UK equity market resuming its strong rally of last week on hopes of an early interest rate cut. The dollar has gained further ground against the weaker European currencies, while slipping back slightly against the DM. Although wild gyrations within the ERM have thus been averted by the 'yes' vote, the pressures within the mechanism -- currently affecting the franc and escudo more than any other participants -- remain considerable.

The French political dimension. At the start of France's referendum campaign, support for the treaty, according to polls, was close on 70% and President Mitterrand's gamble looked to be a fairly safe bet. Thus, after bringing the margin in favour down to just 2%, the disparate 'no' campaign is today claiming something of a moral victory. Prominent political supporters of a 'yes' vote were last night quick to acknowledge the significance of the level of opposition.

Some have domestic political reasons for doing so: former Gaullist prime minister Jacques Chirac, a clear, but at times reluctant 'yes' campaigner, needs, like others in the French conservative camp, to build bridges with the opponents of Maastrict on the right, in order to strengthen their position ahead of legislative elections next spring and presidential elections, possibly within a year (if Mitterrand's illness forces an early retirement from a term not due to expire until 1995).

The prominence of National Front leader Jean-Marie Le Pen in the 'no' campaign presents the mainstream conservative 'yes' campaigners with a challenge, given the size of the 'no' vote. If the impact of Mitterrand's tactic of splitting the right is to be minimised, conservative 'yes' campaigners must now be seen to take up the cause of the 'no' electorate, or risk an attrition of votes to the far right.

Equally, the 'yes' campaigners on the left now need to rebuild support amongst the 'no' electorate. Polling data suggests that within the Socialist Party's core electorate, there was a majority for 'no'. Socialist politicians, anxious to contain the probable scale of defeat for the party in next year's parliamentary election, will now stress the need to respond to the electorates' reservations about Maastricht.

The domestic political need to repair internal damage, on both the right and the left, will ensure that the 'no' arguments are not brushed aside in the continuing French debate.

The European dimension. The relief felt in Community circles today is more that which arises from a catastrophe averted than from a victory achieved. The Maastricht treaty is still not salvaged from the difficulties implanted by the Danish rejection. The narrowness of the French ratification will, if anything, heighten debate in the countries which must still ratify the treaty.

Here, there are a number of significant difficulties:

• Danish ratification via a further referendum is not assured. Opinion within Denmark has not moved in favour in the aftermath of the treaty's rejection in June. The Danish government would have to secure significant changes to the treaty - - or at least a number of distinct protocols -- to be sure of securing ratification in a further vote. The Community has thus still to resolve the 'Danish problem'.
• Public opinion has moved away from endorsement in a number of countries still to ratify, although none is likely to submit the issue to a referendum. Polls in the Netherlands, Germany and the United Kingdom, for example, all show a hardening of opposition in the last month, although a majority against is only registered in the United Kingdom. As a result, parliamentary ratification in these countries will involve governments in confronting significant electoral and internal party opposition. This factor will also ensure that, as in France, political expediency will require both acknowledgement of, and maybe concessions towards, the arguments against ratification.

The Maastricht treaty's objectives are too profound in their significance for it to be acceptable that the ultimate ratification should be seen to be so reluctant. To persevere with the treaty now on a 'one vote is enough' mentality would be to condemn it to at best an uncertain future, and at worst to inoperability. Community leaders and member state governments anxious to see the processes of political and economic union revitalised will thus now seek to massage the treaty in a bid to overcome the scale of popular reservation. Some of this will take the form of more patient explanation, but some is likely to take the form of a gentle backpeddling. Slower progress, and slightly diminished ambition, will be accepted as a better outcome than forcing the pace and risking a wider popular backlash.

Thus the special heads-of-government European Council called by UK Prime Minister John Major, currently in the chair, for October will begin the process of the repackaging of Maastricht. Redrafting of the treaty is not possible, as it would risk invalidating the ratifications ensured to date; rather the process is likely to involve protocols to the treaty, allowing both a longer timetable and further emphasising the concept of subsidiarity (see EUROPEAN COMMUNITY: Subsidiarity - OADB, July 7, 1992, II. ).

Already, the monetary union dimension has changed as a result of last week's fracturing of the ERM (see EUROPEAN COMMUNITY: Fractured ERM - OADB, September 17, 1992, I. ). Although the Italian lira may rejoin the system relatively quickly -- although not tomorrow, as originally planned -- sterling's return is likely to be some way off. Furthermore, the markets' demonstrated ability to break the system, combined with evident unwillingness on the part of central banks to meet their ultimate obligations imposed by the mechanism, already made its restructuring inevitable.

Political union will also now proceed more cautiously, with the Community acknowledging the need to build in greater democratic safeguards and accountability. For the time being, the Community -- in need of a success story to rebuild its international reputation -- will concentrate on the completion of the single market programme. And to restore a sense of momentum, discussions with applicant states will also be speeded up; although their eventual accession will in itself further complicate the process of integration (see EUROPEAN COMMUNITY: France's Verdict - OADB, September 18, 1992, I. ).