What do you mean, 'No'?

The French and Dutch 'no' votes – at Moneyweek.co.uk - the best of the week's international financial media.

To the delight of Europhobes everywhere, the French electorate has delivered a significant 'Non!' to the European Union constitution, even though it was drafted by one of their own, the congenitally haughty ex-President Valerie Giscard d'Estaing. But, though the various factions of Neocons and Anglo-skeptics are reveling shamelessly in what they see as a major reverse for their Continental 'enemies', we should note that the repudiation of this flawed document may be actually rum out to a decided positive for Europe.

To put the leadership's embarrassment in context, we should tell you that, with what now seems to be a laughable degree of fanfare, a gold-bound copy of the thing was even loaded aboard a recent rocket launch from Kazhakstan, bound for the International Space Station. The cynic in us is tempted to remark that this was perhaps the single best thing that could have be done with this depressingly positivist and relentlessly centralizing tract.

For all that, we would remind the gloaters thatfor good or illthe European Union has been in existence for quite some decades, despite suffering all sorts of intervening upheavals and disputes. We would thus be very surprised indeed if it does not also survive this present difficulty, also, for, so far, we regard it as no more than a setback to one particular vision of its political future. Moreover, it might be well to remember that even that little-referenced curiositythe American Constitutionwas itself introduced amid considerable contention, if not outright chicanery, and that its ratification was no less controversial at the time.

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Indeed, several of the Founding Fathers came to consider its adoption as the point which marked the premature end of that virtuous and wholly voluntary confederation of sovereign states they had sought to enshrine in it. The truth is that Mr. d'Estaing's long-winded, and thoroughly wrong-headed attempt to rewrite the Code Napoleon is not to be mourned too much. Mourned, that is, even supposing it truly is destined for the grave; for the European political class has a nasty knack of heeding its citizens' voices only when they deliver the 'correct' answer to its questions.

Undoubtedly, Geert Wilders of the Dutch opposition was entirely correct to observe that 'when two-thirds of the parliament are for the constitution and two out of three people in this country are against it, then that is a sign that a lot is going wrong." Nor can we fault the Dutch newspaper, Het Nederlands Dagblad', for also noting that the voters made clear their lack of confidence in a political elite "who cook up a bureaucratic brew in their ivory towers and try to force it down the throats of the ordinary people.'

But, despite such ringing condemnations, there is still a prospect that the elite will seek to circumvent this reprehensible failure on the part of the electorate to do as they were supposed to. Although the voters were threatened, during the campaign, that there was 'no Plan B' with which to redeem a No vote. Plan B surely does exist. In one possible resurrection scenario, the Asian Times quotes unnamed 'EU diplomats' to the effect that an obscure annex to the constitution allows that if four-fifths of the member states do ratify it, the whole matter can be referred back to the European Council.

There, it seems, the bulk of the Constitution could still be adopted, either severallyby the individual governments in their respective parliamentsor collectively, by their plenipotentiaries in Brussels. But, if we suppose that the Centrists' choose not to ride roughshod over the popular will in such a fashion, what deeper lessons can we draw from their present predicament? In France, the 'Nons' seemingly respected no party boundaries, but they were rather signaling the deep discontent with the direction of present policies which prevails at all levels of society.

Though such unfocused rage at their masters is not a feeling confined to the French, the voice of the people there was above all an anti-voice: anti-immigrant; anti-globalization; anti-government; even anti-reality. In Bastiat's satirical terms, the referendum developed into a petition by the diverse groups of privileged candle-makers, all united on the day in their attempt to banish the unfair competition emanating from the sun. It was a protest that the outside world is too harsh and that it poses too much of a threat to every Frenchman's presumed right to be pampered by the state, regardless of the costs involved. We should stop to admit that such dreamy uto-pianism is not exclusively a French trait. Nonetheless, it seems certain that M. Chirac's new government will be tempted to lurch even further to the left in response - if it survives long enough to try, that is.

The doubt arises because, with no more in mind than his own survival, M. Chirac has rebuilt his new administration around two very different and highly antagonistic characters Dominique de Villepin and Nikolas Sarkozy. Their mutual dislike introduces a very real source of internal dissent at a time when unity of purpose should have been very much at a premium. Villepin is already suffering 'disastrous' poll ratings, while it did not take long for the local press to start spreading rumors that the intensely ambitious Sarkozy will soon be quitting to further his own campaign to succeed Chirac. Encouragingly, such factors may hamper the unelected Villepin's hackneyed promises of a '100 day programme' in which he intends to launch a new 'job-creation' program as the first of what could be a series of retrograde steps away from open markets and deregulation across the nation.

But if the French vote marked a rejection of what the Left terms 'neo-liberal' policies, in pro-market Holland, the even more resounding 62% 'Nee', seems to have been more a protest against the centralist and anti-democratic drift of the EU itself. We must also be candid and accept that it also gave expression to fears of the perceived threat posed to the Dutch way of life by the high levels of largely Muslim immigration they endure. One immediate upshot of all this has been an intensification of the pressure on the European Central Bank to come over all Fed-like and to cut its already historically low interest rates in a foredoomed effort to boost 'growth'.

Calls have even been heard emanating from the more strident left-wingers for its independence to be curtailed, or its mandate rewritten, so as to allow yet more scope to emulate the Transatlantic ploy of naked inflationism. This is as ironic as its intent is misplaced, since the 'Teuro' - a Germanic pun, pronounced Toy-Ro, which combines the word for 'expensive' with that of the new currency - is still widely blamed for causing misery in the form of the widespread price rises its introduction supposedly unleashed. Indeed, the Dutch broadsheet, 'Het Financieele Dagblad', raised this very point, noting that the Netherlanders' vote 'was an opportunity to express unhappiness about the fast pace of expansion of the EU and the steep price rises that followed the introduction of the euro currency'.

Accordingly, cutting interest rates to boost those prices yet further is hardly a policy consistent with the desires of the people, you might think, but then intellectual consistency and leftist populism are hardly the most natural of bedfellows. In Germany, meanwhile, we have been treated to the charade of a sensationalist story (no doubt, carefully planted in the tabloid press ahead of the inevitable self-righteous denials) which purports to tell us that secret conclaves of German ministers, Bundesbankers, and parliamentarians have all been huddling to discuss the possibilities and practicalities associated with one or other current member doing the unthinkable and withdrawing from the single currency. Indeed, never wishing to be left behind when it comes to wild political imaginings, the Italian Labour Minister Roberto Maroni told la Repubblica that Italy should consider 'temporarily' reintro-ducing the lira as its currency.

'I say that it's a hypothesis that shouldn't be ignored because it's not such a crazy idea [sic]. For three years, the euro - not for its own fault but for the people who have managed the transition to the single currency [code for the ECB] - has shown that it's not up to the task of dealing with a slowdown in economic growth, the loss of competitiveness, and the crisis in employment.'

Calling for a national referendum on whether to reintroduce the lira alongside the euro, Maroni pondered whether it wouldn't be 'better to return, temporarily, to a system of double circulation?' Truly things have now become surreal, for Maroni is a member of Umberto Bossi's Northern League. This is an avowedly separatist party which, in its desire to free its own, more prosperous voters from the welfare burdens associated with supporting the poorer, southern Mezzog-iorno, spent the early 90's clamoring to be allowed to abandon the lira in favor of the deutschemark!

But amid all the Latin fervor, there are calmer counsels to be heard. Among them was Anton Boerner - the president of the 135,000-strong BGA, the association of wholesalers and exporters which employs of some 1.3 million people. As the voice of the Mittelstand, Herr Boemer is the man who, last year, had the front to tell Die Welt 'bluntly that Germans might do better if they actually worked more. '..giving up one week of vacation wouldn't hurt anyone,' was how he put it on that occasion.

In March of this year, Boemer was also venting his ire at the loosening of the Stability Pactthe accord which supposedly limited budget deficits to 3% of GDP and which, all you Anglo-Saxon nay-sayers should be aware, was ditched out of an explicit desire to marry US-style fiscal irresponsibility to UK-style crooked accounting of the public debt.

"Higher debt won't bring about more growth and wealth, but lead to more inflation and higher interest rates in the long term. Our children and grandchildren will foot the bill for politicians being unable to manage responsibly the money they've been entrusted with...The loosening of the Stability Pact is just a meddling with the symptoms instead of dealing with the causes...This bamboozling brings no investments, no productivity, no new jobs. Instead, the decision taken in Brussels has opened Pandora's Box for good. Binding agreements which Germany fought hard for back then are giving way to noncommittal promises and interpretations.'

This week, the straight-shooting Boemer was back on the attack, firstly rebutting ideas that the ECB is somehow at fault for the region's woes and, next, placing the blame squarely where it lies, by making an example of one of the most obvious culprits:

'My expectation is that the ECB won't change interest rates. My recommendation is that it keeps its focus on the stability of the currency instead of granting favours to politicians facing elections. [Ouch!]... In that context, I have to mention [Italian PM] Silvio Berlusconi, whose policies are absolutely counterproductive and do damage to the currency... If you look at the most recent wage agreements; at an economy that's in recession; that has too much bureaucratic overhead; it is hara-kiri to agree on a five percent wage gain for the public sector... From this point of view the ECB has no leeway whatsoever to lower interest rates. That's why we say the stability of the currency must have absolute priority.'

Can you imagine a member of one of the many, whining US manufacturing lobby groups, talking sense in this way, instead of pleading for government favors? Would you expect a member of Britain's CBI to display such disregard of his group's short-term special interests in the pursuit of truth? Hardly! On this accountand however negative the image it always manages to project abroadwe can say that, truly, there is still hope for Europe while such men abide.

As for Herr Boemer himself, he next highlighted what may be the real silver lining to be discerned in all the Continent's lowering cloud masses:

"Early [German] elections in the fall are good news for businesses... We hope that the new government understands what it has to do. It finally has to make fundamental changes. Business conditions have to be changed and I expect that this will happen... I am optimistic because I believe in a clear victory of the Christian Democratic Union, the Christian Social Union, and the Free Democratic Party... I know that the important politicians know what they have to do, that they only have one shot and that they will be swept away if that shot misses. And they know that. I see a grave danger for German democracy in the medium term if they fail.'

Here, Herr Boemer leads us to another delicious irony of European politics. Chancellor Gerhard Schroeder, rocked by heavy losses in regional elections, is trying to engineer a snap general election to keep his own left wingers in check and to avoid having to serve out his term as a lame duck. Schroeder finds himself in this impasse largely because he had the courage to pass a series of tough labor market reforms, known as the Hartz IV packageaimed at making welfare a little less comfortable and at lightening just a few of the crushing regulatory burdens German business routinely has to shoulder.

But, with Schroeder's coalition fragmenting into left and yet more left shards, it is the Opposition which has taken a 10-12 point lead in the opinion polls and this has brought its newly-confirmed leader, Angela Merkel, to the fore of the debate. Merkel, as leader of a predominantly male, socially-conservative party which derives its core support from the Catholic south of the country, is an unusual case. For, defying the stereotypes, Merkel is the twice-married daughter of a Protestant pastor who grew up behind the Wall in East Germany, where she took a doctorate in physics, before turning to politics amid the Wagnerian drama of 1989 itself.

Though we should not underestimate the task that will await her should she indeed triumph over Schroeder's formidable public appeal and electioneering skills, Merkel may just be the woman an ailing country needs. She may not be a Germanic Joan of Arc exactly, but there are signs she may be a Mecklenburg Margaret Thatcher. Merkel herself once told the press:

"For me, three times were immediately clear after reunification: I wanted to get into parliament; I favoured rapid German unity; and I supported a free-market economy... Now, I want to help Germany, the world's third- biggest economy, get back on its feet and start producing more than just unending unemployment statistics.In another interview, she declared:

'We need a 'Work Agenda'. Work needs growth and growth needs freedom. We need to understand that people's opportunities in life depend on freedom and competition... [Only] then we will create more solidarity and justice in our country.'

Whether she will get the chance to try is still not certain, much less whether she will have the mettle to put these fine sounding words into practice. Still, as the Germans put it, the 'Zeitgeist' - the spirit of the moment - may be propitious for one of their leaders to make the attempt. As a recent editorial noted:

'... There is a creeping nostalgia among members of the old Federal Republic for the ever more distant world whose slogan was 'Let's move. with the economy!' - which meant that not only was money being made in Germany but that work places were being created... 'Wealth for everyone' was the slogan ofLudwig Erhard, the CDU Chancellor of the Federal Republic from 1963 to 1966. But this was more than a hollow publicity stunt; it was a lived reality. The Federal Republic was a success story. Decade after decade the majority of the population grew richer every year...'

Time alone will tell, but amongst the wreckage of the centralizers' plans to regiment every aspect of their citizens' lives ever more closely and arbitrarily, Europeans may have finally been shaken from their complacency and despair. Out of this current strife, Europeans may emerge with a new-found resolve to rectify the economic shortcomings which enervate them and to address the democratic deficits which afflict them every bit as much as do the fiscal ones. As evidence of this dawning self-discovery, some in Europe have found the courage to assert their feelings of historic national identity in the face of the multi-culturalists' slanders about 'xenophobia' and their habitual resort to the use of the R'-word.

Some, like the Dutch, have said that the high voter turn-out and clear opinion expressed recently implies referenda should be held on all major policy issues in future. What a horror this must be to the European leadership. Some have questioned the very concept of adopting a monolithic, one-size-fits-all approach to a sprawling political entity which has expanded its borders from Rockall in the west to Riga in the east and from Finland in the north to Finisterre in the south.

For all that the elite may fear that Europe will not now be 'governable'that Henry Kissinger will still not know whom to call when he wants to 'talk to Europe'we should embrace this as a hope, instead. Rather than joining in the politicians' lamentations, we might suggest that a Europe deprived of this particular constitution might actually become more responsive to the differing needs and tempers of its multifarious peoples. So, why not encourage a little healthy competition between a reforming Germany and a recidivist Italy? Why not see which does better for its people: an isolationist France or an internationalist Netherlands? Why not see which is more conducive to wealth creation: backward-looking Greek statism, or an emerging Slav dynamism?

If such a turn of events does take place, then, rather Europeans being constantly subjected to the compromised and illiberal diktats which pour out of Brussels, they might engage in a genuine contest over how best to create jobs and foster individual liberty within each member state, each acting on its own initiative. All this may be too idealistic for serious consideration at present, but certainly, if Europe is to face up to its welfare-state burdens of insupportable public finances and if it is to relax its regulatory strangulation of enterprise, reforms would best be enacted at the lowest level of government conceivable.

In this manner, genuine attempts at resolving their 'difficulties can best be fitted to each community's unique needs and aspirations. In this manner, too, the much greater level of political accountability can help ensure the needed dose of austerity is at last accepted by the patient. Wouldn't it be wonderful if the loss of the Constitution helped Europe become a little less like the Soviet Union and a little more like Switzerland?

Wouldn't it be wonderful if the loss of the Constitution ultimately led to the formation of a loose confederation of co-operative, peaceable, yet individual sovereign states, with borders open to a mutual trade and commerce made all the easier to conduct through the medium of a strong, shared currency?

Wouldn't it be wonderful, in fact, if the Old World ended up being organized into a confederation very much of the kind which Jefferson and his peers tried so valiantly to establish in the New? But, if such imaginings today represent no more than tantalizing vision of pie in the sky, let us conclude on a more practical note. As Klaus Kleinfeld, the chief executive of the giant German engineering group, Siemens, told the Guardian newspaper, this purely political setback will not impede economic progress.

'Politically the current constitution crisis is unhelpful, but the foundation for Europe is a solid one... and when you have time to digest these referendum votes and ask, how is this going to impact on what businesses in Europe are going to do, the answer is very little... The countries in Europe are now so entwined, and in such a sus-tainable way, that relations between them will not only continue, Tout will continue to grow.'

Mr. Kleinfeld voiced his confidence that reforms begun by Chancellor Schroeder (not to mention those implemented by the Dutch and tacitly accepted even by the French) would continue.

'In Germany the politicians now understand that there is no other way to growth and job security than to be competitive on a global scale... The reforms that have been started are on the right track, and I'm sure that independent of which government we are going to have, they will continue.'

Mr. Kleinfeld pointed out that, last July, Siemens agreed a deal with 40,000 of its workers to extend their working hours without the reward of any corresponding pay increase. 'If you go to the sites that were affected by that deal, you wouldn't see or hear any opposition,' Mr. Kleinfeld noted. 'Employees understand the importance of staying globally competitive.'

Indeed, many such deals struck of late between large private firms and their workers support his contention. We have no doubt that the same goes for the small, independent companies and owner-managed firmsthose essential elements of a peaceful, prosperous, bourgeois society where extra endeavor is likely to be an imperative in tough times, not simply a matter for negotiation. It is true that the vocal and often militant trades unions, which represent the legions of tax-eaters in Europe's oversized public sector will still feel cornpelled to resist the inevitable changes through fomenting industrial strife and sowing sodal disruption. It is also completely understandable that European voters will tend to use their franchise to express the fears that prevail in these uncertain times, by voting against both national incumbents and would-be power-mongers in Brussels.

However, the economic reality is that entrepreneurs - the wealth creators - are already beginning to adjust to their circumstances, as they can always be relied upon to do. In this regard, the defeat of the Centrists may mean that power devolves back to the national governments. Let us hope so, for many of these will be less inclined to hinder and all will be less capable of hinderingEurope's necessary adaptation to the needs of the global marketplace.

So we shall not give up on Europeor the eurojust yet, for it may be that this bonfire of Mr. Giscard's vanities is cooking up a broth to nourish us all in future. If so, we might soon all be offered a welcome addition to the menu: one to set against the fiscally reckless and ever inflationary offerings of our no-less overbearing Anglo-American chefs.

By Sean CorrigaFor Sage CapitaFor more, visit: www.sagecapital.com