Watch on the Rhine.

PARIS 

THE FRENCH woke up on September 21 having commanded all Europe's attention in the fortnight before the referendum on the Maastricht Treaty, 'which would take the European Community further down the road to monetary and political union. But with a spread of just a few thousand votes between the ayes and the nays, and with chaos in the European currency markets, they were not sure they had commanded this attention for the right reasons.

Indeed, they were not even sure who had won. President Mitterrand, whose only coherent program for his second term is the construction of a Frenchled European union, and who had demanded a massive Yes? The leaders of the No vote, who in June, when the referendum was announced, had not dared dream of getting 40 per cent? Jacques Chirac and Valery Giscard d'Estaing, who argued that the victory-by-a-hair signified Yes to Europe and No to the Socialists and who said the campaign for the legislative elections of March 1993 was already under way?

Or what had won. Was union right because. it is good for France economically? Or because it was the surest way to keep Germany firmly anchored in the Western liberal democratic camp? Was it right because Europe will become increasingly liberal? Or because only through "more Europe" does the welfare state have a future?

The European movement started as a scheme to prevent a fourth war between France and Germany. But throughout the Seventies and Eighties the driving force of the EC was protected and regulated economic growth. The 1985 Single Act and the energy of Sir Leon Brittan gave some substance to the idea that liberal economics was taking over from politics as the raison d'etre of the Community: a big free market without restrictions on movements of capital, people, and goods, and willing to work with the U.S. toward global free trade. There is no question that a great many people-- among them more than a few Eurocrats and politicians fought for this direction. But the protectionists kept the upper hand two-thirds or more of the EC budget subsidizes agriculture; and regulations, often under the cover of environmentalism, have been creating what one anti-Maastricht French politician called "a uniform market" rather than a "single [free] market." Nevertheless, with the collapse of the socialist idea it seemed as if the freemarketeers had a pretty good shot at it, which is why liberals in Germany and even Great Britain gave somewhat grudging support to continued progress toward European union.

The competition between the two visions of Europe might have remained relatively undramatic, with bureaucratic politics in Brussels occasionally interrupted when public opinion forced some national leader to represent their grievances. This is what apparently happened last year when Euroskeptics pushed Britain's John Major into demanding modifications and exemptions to Maastricht. But by then the Soviet collapse and German unification had changed the nature of the game. Throughout the summer of '92 partisans and opponents of Maastricht in France referred to the threat of East European anarchy and German power. Partisans argued that, now more than ever, the need to control Germany, if necessary through outright political union, was self-evident. Opponents argued that France would lose its ability to defend itself, economically, politically, you-name-it, if it lost its freedom of action.

In the week before the referendum, the currency markets' skepticism was clearer than the voters'. There was a run on the lira, which led to a run on the pound. By September 23 the pound and the lira were both out of the European Exchange-Rate Mechanism (ERM). After the vote, the currency markets became not more stable, but less. There was a run on several ERM currencies, notably the peseta and the French .franc. Spain, Portugal, and Ireland found it necessary to reintroduce currency controls. (On January 1, 1993, all restrictions on the movement of capital within the EC are supposed to be lifted.) And the French franc came under severe pressure.

The day after the French results were in, President Mitterrand met in Paris with Chancellor Kohl. Immediately after this meeting, the Bundesbank came in to save the Gallic currency. Here was the independent German central bank acting politically--arguably at some cost to German taxpayers--to save the ERM, at least for the Franco-German currency relationship. Nor did the pro-Maastrichters deny it; by the end of the week European Commission President Jacques Delors was speaking of a "two-track" Europe, with Germany, France, and Benelux at the center, and Britain, Denmark, and the rest consigned to the periphery. Karl Otto Pohl, former president of the Bundesbank, suggested revising the Maastricht Treaty to allow for immediate monetary and currency union between France, Germany, and Benelux.

When the run on the franc began just after the referendum, it was not because of the ambiguity of this vote. Indeed, the attacks might have been even stronger had the margin been bigger for what they signified was not a fear of the No, but a fear of the Yes. Yes to union means Yes indeed to the Deutsche Mark eating everybody up, while waiting for the ecu. The French were clearly unenthusiastic. But should the Germans have been any happier?

The German central bank, established in 2948, is by law required to protect the Mark. Under the ERM, established in 1979, it is also responsible for maintaining the Mark within the regulated band of currencies. But it is difficult to look at the bank's different levels of intervention without thinking the bankers were acting in deference to Kohl's views. Lowering interest rates is one thing; spending a lot of money to buy francs and incurring the risk of future inflation is another.

But the bankers may have seen their neighbors' currency difficulties as an opportunity to solve one of theirs. Absorbing the eastern Lander had an inflationary impact to which the Bundesbank responded with very high interest rates. This put pressure on the currencies of Germany's neighbors. The Deutsche Mark found itself, as the dollar has been at other times, damned if it did and damned if it didn't. This is why the bank seemed satisfied with the strategy chosen at the end: explode, perhaps permanently, the ERM, keeping the links between the German and French (and Benelux) currencies, and liberating the Mark from what had become onerous responsibility for the others.

The anti-Kohl movement, both in public opinion and in the Bundestag, and indeed in the chancellor's own party, the CDU, suggests that his unambiguous and forceful engagement for the French Yes was about as astute, politically, as was John Major's (or indeed Felipe Gonzalez's or Giuliano Amato's). If you put it to them calmly, many Germans (in my experience, most Germans born since about 1950) agree there is merit to the idea of a French-German fusion, with or without the disguise of European union. But in the heat of the moment, when the issue is whether they will have to pay for this, especially after the shock (not yet over) of the bill for East Germany, they have understandable second thoughts.

The French campaign also showed that the reservations expressed by the Danes in June--and scoffed at by sophisticated opinion--ran much deeper than expected. The Left throughout Europe, while mainly supporting the Treaty, has tried to channel the public's unhappiness by saying that Europe is suffering from a "democratic deficit." Elisabeth Guigou, France's Minister for European Affairs, followed her president's lead in deploring Brussels centralization ("there is too much bureaucracy and not enough democracy"). The German political class, united in favor of the Treaty, have made the same kinds of verbal gestures. The oddity here is that no one has demonstrated that voters want "more democracy"; what they are complaining about is centralizing regulations, high taxes, and (in France no less then elsewhere) precisely the sort of technocratic, elitist approach to politics that Mine Guigou represents. After all, all these people live in functioning democracies. Is there really a call for yet another layer of democracy, such as the Treaty suggests when it says the European Parliament's powers will be strengthened?

The Maastricht Treaty was presented by its partisans throughout Europe as an advance toward a broader, more liberal Europe, open to the new democracies of the continent's eastern marches, friendly to the hungry neighbors on the Mediterranean's southern littoral, a fair and forceful competitor to the Atlantic and Pacific partners. No doubt there are elements in the Treaty, as in the European movement, that stand for this vision. The disorders of the past few weeks, however, were revealing, and most revealing of all was the German willingness to close ranks with the French. Whether the consumers--most people--in either country will be the long-term beneficiaries of overvalued currencies is uncertain, but the significance of the deed is dear enough: in the end it is the idea of a union on the Rhine which is the strongest political current in Western Europe--just. For forty years this idea was pushed forward on France's terms. Now it will be on Germany' s.