The European Union (EU) is going through difficult times. The recent 'No' voteson the Constitutional Treaty in France and The Netherlands and the failure to agree on the Union’s medium-term finances are forcing us to ask ourselves some tough questions about what ‘Europe’ means and where it is going. Such questions are all the more important when we consider that collectively, Europe is the world’s biggest aid donor. For many developing countries, the EU is the largest trading partner. And last month, all EU Member States agreed a timetable to meet the 0.7 percent aid target needed to meet the Millennium development goals for reducing poverty by 2015. By default, this makes Europe a big player in any effort to tackle world poverty. This leads us to ask whether the‘collateral damage’ caused by the ‘No’ votes will affect the EU’s ability to advance development?

The votes have important, albeit indirect, consequences that have already started to manifest themselves in Brussels, most recently during last Friday's Summit. Questions are being raised that may dent the confidence of proponents of Europe as an international player. One big and perennial question is whether Brussels is the right place to make decisions on important issues; consensus on most issues is a rarity. On top of this, the going gets tough when money is at stake, as was illustrated by the summit. How much Europe will spend between 2007 and 2013, including on development, depends largely on the outcome of the current battle over spending. The Dutch are the biggest ‘net’ contributors to the EU budget, a factor that clearly influenced the referendum in that country. After the two no-votes, the Commission’s position against the six ’net payers’ is considerably weaker. Backed mostly by Eastern and Southern European member states, the Commission wants spending to rise. The ‘net payers’ want a maximum of 1%. The ‘No’ votes make it likely the payers will have their way. To complicate matters further, the UK is digging in its heels on the rebate, much contested by most other EU member states, who insist the UK rebate is based on the economic situation of the 1980s and will be ditched in its present form once the EU-25kicks in. And many – across the EU – argue that agricultural spending has to be reduced; the EU still has a lot to do in this regard. The UK government apparently wants to use rebate question as leverage for changes in the agricultural policy. Some European partners regard this as blackmail, as the acrid news coverage in a number of European countries shows.

This ongoing struggle will more than likely affect development aid. If overall external spending diminishes or remains at current levels, EC development resources might come under pressure from the Common Foreign and Security Policy (CFSP). Much of the ongoing reform is aimed at making the EU a more effective international actor. Its foreign policy is chronically under-funded and has already begun to encroach on development funds. Additionally, many interpret the diverse combination of reasons for no-votes on the Constitution as an expression of unease with globalisation. This might tempt European governments to toughen their stances in international trade negotiations, not least at the WTO Hong Kongmeeting in December 2005. This could jeopardise the Doha Development Round, whose failure could have serious repercussions on the economies of some developing countries.

Given its position as world’s largest aid donor and biggest market for developing country exports, the last thing the EU should do now is turn inwards and forget the rest of the world. As the UK takes up the EU presidencyon 1st July it has the unenviable of steering a sizeable ship through choppy and uneasy waters. The UK’s strong position on the rebate makes its role as chair all the more difficult – it is seen as party to the dispute and will have difficulties becoming accepted as the ‘honest broker for Europe’. Overcoming the deadlock will take good diplomatic skills. And it will need the courage to negotiate a workable compromise with trade offs for many EU countries, including the UK. The developing world should be worth these concessions.