Mood swing puts a spring in the euro's step

Looking back on this busy year, one is struck as much by the change in mood music as by the big decisions

Looking back on this busy year, one is struck as much by the change in mood music as by the big decisions. True, a new treaty was agreed in Amsterdam, and only the other day in Luxembourg the Union set in train its boldest enlargement yet.

In November leaders turned the EU's pious words on jobs into an action plan at their employment summit. In June the Commission set out its stall for the early years of the new millennium in Agenda 2000.

So it was not a year for marking time. But often in politics what matters as much as great events are psychological turning points when abstract projects dogged by uncertainty become realisable and then certain. When did the single currency become so? I don't know if there was a moment. I just have a sense that as spring turned to summer, perhaps earlier, the doubt evaporated. They even stopped talking down Italy's prospects of participating.

In part it was the British election which gave hope to her partners of an end to wars of words, just as it, at last, gave rise to the possibility that the treaty amendment project of the Inter-Governmental Conference (IGC) would be completed.

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In part it was the clear evidence of the upswing in the European economy, the rising tide that would lift Germany and France through the starting gate of their 3 per cent deficit target.

That new confidence has been dented, however, in the last few weeks by the financial turmoil in south-east Asia, although not enough to call the single currency project into question.

The work has gone on steadily putting the last institutional building blocks in place: Dublin's Stability Pact was put into legal form at Amsterdam in June, and at the Luxembourg summit the dispute over the scope of and participation in the controversial Euro-X committee was finally, albeit ambiguously, laid to rest.

Now the countdown to May 1st's listing of the first euro participants is on - and the money, euros of course, is on 11 starters with only four non-runners - Britain, Sweden and Denmark, by choice, and Greece, of necessity. Dublin's summit last December also gave leaders a draft treaty to work on - their challenge, a blueprint for a Union of potentially 26 members within the next decade.

For those who believed that Amsterdam should see a significant deepening of the Union to match its widening, there was bitter disappointment. Instead of pooling more sovereignty by extending majority voting, member-states circumvented the veto problem by providing for the bypassing of those unable or unwilling to keep up with Europe's advance guard. They called it "flexibility", the truly innovative constitutional feature of the Amsterdam Treaty. That the next enlargement will be truly historic is beyond doubt, a reconciliation of the division of Europe since the second World War and the triumph of the western social democratic/Christian democratic model.

But if the political will is there to proceed with this great enlargement enterprise, there is also an acute understanding in the capitals of Europe of its fundamentally new character. Most obviously, that involves the reconciliation in the one market of profound economic inequality at a huge social and economic cost to both sides.

It also involves the radical - and from an Irish point of view, dangerous - reappraisal of both the structure of internal policies, most notably CAP which takes up half the EU budget, and of the Union's institutional structures.

Much of the reform of the latter has been written of by commentators in terms of "efficiency" - the impossibility of reaching decisions by unanimity with 26 members, particularly if one of them is an obstructive Britain. In truth, however, the consideration was not Britain, nor was it a quantitative one, but, qualitative - the Amsterdam Treaty's flexibility provisions are really about creating the possibility of accommodating two types of members, an advance guard of the economically powerful and a group that will for many years into the next century be desperately trying to catch up.

The new treaty provides some guarantees to the second tier, a permanent bridge by which they can join the first, assurances that the hurdles to participation will not be further raised, and generous financial support - £54 billion in the seven years of Agenda 2000.

But if enlargement is provided for, perhaps it is at the price of disappointment in the failure genuinely to deepen EU co-operation by increasing the number of issues which can be determined collectively by qualified majority - courtesy of Chancellor Kohl's surprise veto. The treaty, which will be voted on by referendum in March, did, however, significantly extend the powers of the parliament in co-decision on legislation. And it provided a major extension of the foreign policy capacities of the Union and made possible its first military role through the incorporation of a peacekeeping function, known as Petersberg tasks.

That will be achieved by closer links with the Western European Union, which in turn will borrow military assets on the EU's behalf from NATO.

The treaty strengthened justice and home affairs co-operation, and brought under the ambit of the EU the Schengen Treaty's procedures and provisions on passport-free travel, although with an opt-out for Britain and Ireland. It also included new clauses on citizenship and the environment, and brought Britain into the social policy fold.

The new employment chapter, with its provisions for mutual monitoring of member-states' jobs policies, was seized on by Ireland's Commissioner, Padraig Flynn. His moment of truth. Carpe diem. Here was the opportunity to put teeth into a policy that had until then been merely declaratory.

Having committed themselves to a jobs summit for November, leaders found that instead of assembling to give Mr Flynn his marching orders, he had persuaded the Commission and Presidency to up the ante by presenting them instead with a pre-packaged set of employment guidelines and, most importantly, an annual monitoring mechanism.

And, as Pee would tell you himself, here the process is as important as the content.

Unwilling to be seen to do nothing, the leaders gave Mr Flynn and the Commission what they wanted. And only a week later he confirmed his form with agreement by ministers on a long-blocked ban on cigarette advertising.

The Commission, half way through its term of office, also seems to have been vindicated in its political touch with the publication in June of Agenda 2000. The report sets out an enlargement strategy involving initial formal negotiations from April with five central and eastern European countries - Poland, Hungary, the Czech Republic, Slovenia and Estonia - and Cyprus.

The Luxembourg summit approved the formula but wrapped it up, for the optics, in a more inclusive process involving the other five applicants - Latvia, Lithuania, Romania, Bulgaria, and Slovakia - and, if it is prepared to meet some preconditions, Turkey. Although the summit declined to address the other half of Agenda 2000, the programme for the reform of the Union's internal policies, initial discussions at ministerial level point to broad support for the approach taken, if not yet for the individual figures.

CAP will continue the process of the MacSharry reforms, while structural funds will be more focused. But the budget ceiling on EU spending, despite enlargement, will almost certainly remain at 1.27 per cent of EU GDP. Crucially, Ireland, by virtue of its economic success, will lose its eligibility for top rates of structural funding and its right to pay higher subsidies to business, but has been promised a "soft landing". This is likely to mean a phasing down of its structural funding level to lower rates by 2005. A clampdown on what is seen by our partners as unfair competition in corporate tax by Ireland has also seen the opening of delicate negotiations with the Commission. At stake is how fast we can be forced to bring our general corporate tax rate to the 12.5 per cent rate promised by the Government by 2005.

There's a lot to play for in 1998.