Brussels has a proven track record in moving forward with the 'European Project' regardless of popular will. Time and time again the European elite has overcome setbacks to its plan for a United States on this side of the Atlantic.
The Single European Act, for instance, was drawn up in 1985 to pave the way for the single market. The Danish parliament rejected it in January 1986 - against the wishes of the government. So the government called a referendum the following month, and the Danish people voted in favour of the Act. This was the 'right answer', so Brussels saw no need to rerun this particular plebiscite.
Then on 2 June 1992, the Danish people voted by 50.7% to 49.3% against ratifying the Maastricht Treaty. This, amongst other things, included the blueprint for European Monetary Union. The result was truly a shock. Just two days before the referendum, 60% of those committed said that they would support the treaty. The last minute swing against the government was a protest against 12% unemployment; other voters were unnerved by Jacques Delors' mention of a Franco-German army.
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The feeling of dj vu we get reviewing this farce is compounded by the fact that, just as today, the UK was then about to take over the rotating EU presidency in July 1992. The Tory administration of John Major spent six months trying to rescue Maastricht. Finally, at the Edinburgh summit in December 1992, Denmark's European partners agreed a set of concessions that gave the Danes the right to not participate in monetary union or a joint defence policy.
But Denmark's European partners also made it abundantly clear that a second 'no' verdict would have grave consequences for Denmark's position in the European Community (at it was then known). The carrot and stick approach worked. The Danes comfortably ratified the treaty in a second referendum in May 1993.
Come June 2001, and the Irish people rejected the Nice Treaty by 54% to 46%. This treaty provided the platform for expanding the EU from 15 to 25 members, so once again it was deemed to be the 'wrong answer'. After a national debate - in truth, a massive and expensive government advertising campaign - the Irish duly produced the 'right result' by 63% to 37% in a second referendum in October 2002.
Can you see it? The pattern of these referenda is strikingly similar to the rejection of Europe's new constitution by Holland and France three weeks ago. First, in urging the people to ratify an EU treaty, the politico tell the electorate that the sky will fall in if the treaty is rejected. Thus Mr Chirac claimed that France would 'cease to exist politically'; Gerrit Zalm, the Dutch Finance Minister, said the 'lights would go out'.
But the people then call their bluff; the French rejected the EU constitution by 55% to 45% and the Dutch by 62% to 38%. Where does Europe go from here? If you look at Brussels' track record, the most probable and depressing scenario will be to sneak the EU constitution in through the back door.
Ten member states have already ratified the new constitution. The process could be kept alive by other states continuing to ratify, without recourse to a public vote. This would buy time for the French to dilute some of the economic liberalising measures, such as the services directive, and present an amended constitution for a second vote. But this would be the worst outcome for the people and economies of Europe.
Whether Tony Blair can forge a different outcome will be his defining moment as British Prime Minister. By taking over the presidency of the European Union, he has the opportunity to side with the people...rather than the bureaucrats.
For investors, however, the main concern is that the 'no' votes in Holland and France will act as a brake on economic reform. French politicians have taken the outcome as a rejection of the 'Anglo-Saxon model'. They are now likely to fight even harder to block much needed measures like the services directive, which would enable a more liquid and transparent market across the continent. This move would deepen investor gloom about Europe's economic prospects. Italy is in recession, and unemployment in both France and Germany remains above10%.
Thus the next test for Europe will be the German elections in September. In theory, if Schroeder's Social Democrats are defeated by Merkel's Christian Democrats, this should be welcomed by investors. But Schroeder's government is unpopular because of its attempts to implement a reform programme. If the opposition party gets elected on a promise not to carry out such reforms, then Germany and Europe really are in trouble.
Europe is in danger of being sucked into a death spiral in which economic stagnation makes governments unpopular, and that unpopularity in turn weakens their mandate to carry out essential reforms. As a result, the continent will fall further behind the challenges of a low-cost Asia and a dynamic America. The early manifestation of investor unease has been the fall in the euro to an eight-month low against the dollar.
Much of Europe's problems stem from European Monetary Union. The remit of the European Central Bank is primarily to deliver low inflation. If this has been achieved at the cost of economic growth, it is not its principal concern. But for the very first time the future of the single currency is being questioned. Roberto Maroni, Italy's Welfare Minister, has said that the European Central Bank is not capable of dealing with the slowdown in economic growth, loss of competitiveness and the employment crisis. He thinks Italy should hold a referendum to bring back the lira and pointed to Britain as an example of a growing economy that had maintained its own currency.
Italy's economic predicament is extremely serious. Public debt is 105% of GDP and rising. Sooner or later the markets will demand an ever-increasing premium to lend to Italy. Higher debt interest payments will only make the public deficit worse. Italy has used its membership of the single currency as a substitute for adequate governance from Rome. The Maastricht criteria for entry into the euro, drawn up in 1992, were designed to exclude the likes of Italy's spendthrift politicians. But they were not strictly adhered to, and Italy's waiver was a mistake. When politics override sound economics the whole project suffers.
It is not just Italy that has misgivings about the euro. Two weeks ago came news that Germany's Finance Minister, Hans Eichel, had attended a meeting to discuss the break up of the euro. It was swiftly denied, but that has not killed the idea of a break up. Moreover, the more economic stagnation prevails in Europe, the more hostility towards the euro will grow. At some time in the future it is not inconceivable to imagine a German political party committed to restoring the Deutschemark being swept to power. Polls show that 56% of Germans want a return to the mark. This majority is poised to rise.
The disintegration of the euro is still a long shot, however, because the costs of a distressed member exiting - in the form of higher interest payments - are prohibitive. But the best result of this soul searching about the euro is that it will be more difficult than ever to convince the British people of the merits of abolishing the pound. It may even dawn on Tony Blair that his enthusiasm for the euro was misplaced, although he'd never admit it.
But the bottom line is that a major threat to our prosperity is in retreat...while another is growing. EU member states account for almost 40% of Britain's total exports in services. For every £1 the rest of the world spends on goods made in the UK, the other 24 countries of the European Union spend £1.38.
We need a strong economy in Europe to grow. The risk is we'll get a strong bureaucracy in Brussels instead.
Brian Durrant is investment director of The Fleet Street Letter.
