Tony Blair must be thanking his lucky stars. The British prime minister never wanted to fight a referendum campaign on the European Union constitutional treaty that he stood a good chance of losing.

Now, thanks to the No votes in France and the Netherlands, it looks like he will be spared the ordeal. When, in April 2004, he caved in to demands for a referendum, it looked like a gamble that would take Europe off the agenda in this year's election but potentially destroy his premiership shortly thereafter. Now it looks like a stroke of genius. But even so, Mr Blair, and more importantly Britain, will not escape unscathed from the aftermath of the No votes.

For a start, the constitutional treaty was a triumph of British diplomacy. It put paid to dreams of a federal European superstate, making clear that the EU was and would remain a union of independent nation states that chose to co-operate to varying degrees in different areas where it suited them. It anchored Britain, if not at the heart, at least in the mainstream of European politics, with its relative importance, economic success and defence capabilities offsetting the loss of influence from its non-membership of the euro and its lukewarm attitude towards closer European integration. It made possible greater co-operation in defence and foreign affairs without undermining Nato or circumscribing Britain's ability to pursue its own policies where the EU could not agree a common position. It made big steps towards common EU policies on immigration and asylum but left Britain the right to opt in or out of them. It opened the door to the further enlargement of the EU, thereby spreading stability and prosperity east and south and diluting French and German influence over the EU's direction. It contained significant reforms to make the EU more effective, notably the appointment of a permanent president of the European Council to drive forward the agenda of national governments rather than that of the European Commission. And it would have made the EU more democratic, by giving national parliaments more say over EU legislation and creating a citizens' initiative right.

Britain is likely to suffer from the ensuing crisis in the EU. Jacques Chirac, France's president, has interpreted the French No vote not as a rejection of his stale and bankrupt leadership but as a protest against what is seen as the threat to France's social and economic model from globalisation and the liberalising forces in the EU. And while France may no longer lead in Europe as it once did, it can usually marshal a coalition to block reform.

In March, Mr Chirac had already blocked the EU's proposed services directive, which would finally create a single market in services which account for 70 per cent of the EU economy and boost jobs and growth. Hopes that it might be revived soon have almost certainly been dashed. This is a particular blow for British business, whose advantage in media, law, accountancy and banking meant it had much to gain from liberalisation. Britain will also suffer from the likely stalling of economic reform in France, Germany and elsewhere, which will make the European Central Bank even more reluctant to cut euro interest rates: both will cramp economic growth in the EU, which accounts for over half Britain's exports.

The French No will also make the forthcoming EU budget negotiations even more acrimonious. Britain will come under immense pressure to give up its budget rebate, which will put it at loggerheads with the other 24 members of the EU. At the same time, France's opposition to reforming the Common Agricultural Policy, an important British objective, will harden. And if France and others refuse to agree to CAP reform, prospects for the Doha round of negotiations at the World Trade Organisation look bleak.

Indeed, protectionist pressures in Europe are already rising. Peter Mandelson, the EU's trade commissioner has been forced to threaten restrictions on Chinese textile imports under pressure from Paris.

The French No vote will lead to a prolonged period of stagnation and bitterness that will harm Britain's interests in Europe. It also deprives Mr Blair of the chance of lancing the boil of British euroscepticism. An effective, broad-based Yes campaign could have won a referendum next year, securing Britain's position in Europe and adding to Mr Blair's legacy. The battle not fought may indeed have saved Mr Blair from a humiliating defeat. It has also deprived him of a crowning triumph.

The writer was director of policy at Britain in Europe, the pro-European campaign group and is the author of Open World: The Truth about Globalisation

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