‘Oui’ or ‘Non’? That’s the question French voters will face on May 29 in a referendum on a constitution that would encompass the 25 countries of the European Union. When French officials scheduled the referendum — part of a lengthy ratification process involving all nations of the EU — they expected that a majority of voters would be inclined to cast ‘Yes’ ballots, since France has been a leader in the decades-old movement toward closer political and economic integration in Europe.

But since March, French President Jacques Chirac and other members of the EU elite have been left reeling by a slew of opinion polls consistently showing that a slight majority of French citizens — nearly 52% — say they will vote against ratification. The polls prompted Chirac to appear in a televised debate with young people to plead for a Yes vote — a performance that some critics say flopped. German Chancellor Gerhard Schroeder tried to lend a hand, appearing in public with Chirac and urging French voters to approve the constitution. A worried Romano Prodi, former president of the European Commission, the EU’s executive arm, went so far as to warn that rejection could mean the “fall of Europe.” Jacques Delors, another former EC president, said he foresaw “political cataclysm” if rejection occurs. More recent polls, released over the weekend of April 30, showed growing support for a Yes vote, but nervousness has not dissipated in Paris or in the corridors of the EU’s headquarters in Brussels.

Since the constitution will not take effect unless all EU members ratify it, were Prodi and Delors right in sounding alarms? Or should a No vote, if it occurs, be greeted by politicians and business leaders alike with something of a shrug? Faculty members at Wharton and observers in Europe say the truth lies between the two extremes. Rejection would indeed disrupt and slow down the process of integration, strike a blow to the European psyche, and force EU officials to figure out what to do next. Rejection also would be a slap in the face for Chirac and other supporters of the constitution — a 400-plus-page tome that would, among other things, create the offices of an EU president and foreign minister and streamline a cumbersome decision-making process.

Rejection also would call to attention, for people who do not follow the goings-on in Europe, the political, economic and demographic undercurrents that are stirring worries among many Europeans, not just the French. But rejection would not derail the integration process entirely — things are too far along for that — and would have minimal impact on financial markets and how business is conducted, according to the faculty members.

Not Catastrophic

“I don’t think a No vote would be a particularly catastrophic event,” says Bruce Kogut, a former management professor at Wharton who now teaches at INSEAD, near Paris. “But it would be a big thing for the role of France. The French have always been one of the ‘pillars of Europe,’ to use de Gaulle’s phrase.  It would put Chirac and France in very great embarrassment.”

Rejection would have “some importance in its own right, but its symbolic effects would be much greater,” agrees Richard J. Herring, finance professor and director of Wharton’s Joseph H. Lauder Institute of Management and International Studies.

Veteran business executive Sir Paul Judge, chairman of the Royal Society of Arts and president of the Chartered Management Institute in Britain, predicts that rejection would be a major blow to further integration. As someone who opposes Britain’s ratification of the constitution, he says he understands why many French voters have reservations about voting Yes.

Judge says the referendum “is very important indeed, especially for all the people who have been involved in the EU — the parliament, the commission and the key governments as well. Many of the founders of the European Economic Community, as it was first called in the 1950s, saw it as a step toward a closer union, and it has inexorably moved in that direction. The regulations and everything else have become much stronger. Sixty percent of the laws now passed in Britain are inspired by EU laws or regulations. Many people don’t want that ever-closer union, really. They want to keep their own national identities and their own say in what they do. The European countries are very different in their language, cultures and approaches to business, so it gets difficult when you try to pull things together.”

Judge adds that a No vote on May 29 would “be a huge shock to the system for all those who saw [the push for a constitution] as a simple process. It will show that it’s reached the stage where people don’t want to be pushed together anymore. If the French vote No, there’s a very good chance the Dutch will vote No [in a referendum three days later] and that would be very devastating for all.”

Hungary, Italy, Lithuania, Slovenia and Spain have ratified the constitution so far. Spain is one of 10 EU countries that opted to hold a popular vote on the matter. Each EU country has the option of putting the constitution to a vote by its citizens or by its elected representatives in parliament.

Effect on Financial Markets

Herring and Kogut say a potential No vote in France, which has been a hot topic in the European news media for weeks, has not unsettled financial markets up to now. And because markets often react to potential bad news before it actually comes to pass, rejection of the constitution probably will not have much impact on markets if it occurs.

“My sense is there will be no immediate effect,” agrees Antonio Fatas, economics professor and dean of the MBA program at INSEAD. “If you look at the history of EU integration, there have been a lot of bumps on the road.” Fatas recalls that the French almost failed to ratify the 1992 Maastricht Treaty, which strengthened integration and led to the creation of the euro and the European Union. “Markets are used to that. They understand there’s a lot of noise behind the political process.”

Finance professor Richard Marston, director of Wharton’s Weiss Center for International Financial Research, says that even if a No vote does unsettle financial markets, it will not last long. “Soon people will realize that the French are central to Europe. If the French people are not happy, then perhaps Europe should make some changes in its practices in order to entice the French to support the constitution. My view is that Europe has gone too far to backtrack to truly independent economies. Its economies are too tied together now.”

Marston does recall, however, that uncertainty over how the French were going to vote on the Maastricht Treaty in September 1992 caused financial turbulence. “In the summer of that year, polls showed the French evenly split. They eventually voted narrowly for the treaty, but this was unknown in August. This uncertainty about one of the key countries in the proposed union encouraged speculators to attack currencies. The notion was that if the treaty were voted down, there would be an opportunity for speculators to topple weak currencies. This was the basis for the attack on the lira and the pound in mid-September. George Soros’s hedge fund gained $1 billion during this episode.”

Could something like this happen today as a result of a possible No vote in France? “I believe the answer is No,” Marston says. “The EU is like a lobster trap — once in, it’s hard to get out. What is a country going to do, announce they can’t abide by the discipline of the euro and opt out? Who would buy their new currency?”

Reasons for Opposition

The faculty and experts say a variety of factors have led many French citizens to oppose the constitution. Some feel that concentrating more power in the hands of Brussels makes decision-makers less accountable to voters and more arrogant. Kogut notes that EU members who have adopted the euro as their currency have agreed to run tight fiscal ships and hold budget deficits to within certain limits. Yet France and Germany routinely run up annual deficits in violation of those limits and bend the rules to suit themselves.

Others feel that the EU, rather than working to protect European jobs and provide a strong social safety net, is moving further toward the freewheeling Anglo-Saxon economic model. Some contend that further integration will lead to an influx of low-wage workers from Eastern Europe. Still others, like voters the world over, may use the referendum simply to express unhappiness with a host of purely local issues, such as France’s high unemployment and sluggish economy.

“The voters are spread over many reasons,” according to Fatas. “One reason is to make sure that Turkey doesn’t come into the European Union. Of course, the constitution does not say that, but voters see it as part of the process. The other reasons are completely different: to avoid the dangers of globalization or to penalize the current government.  You have a complex document in front of a population who might have read it and might have not. It’s easy to find one thing you’re not happy with.”

Moreover, Fatas continues, some political parties are taking advantage of the referendum to recruit supporters. “The extreme right and extreme left are against the constitution. The extreme right says, ‘If you say Yes to the constitution, it means Turkey would invade Europe.’ The extreme left talks about economics: ‘Voting Yes is one step toward globalization. France will lose power, and jobs will move to Eastern Europe.'”

A Waiter’s Opinion

Kogut has a similar view. A waiter at one of his favorite cafes told Kogut he plans to vote No because he feels that the constitution favors Eastern European workers and does not build on the decades-old socialist legacy guaranteeing jobs, long vacations, healthcare and the like. Voters on the right side of the political spectrum do not like the constitution because it would mean that France would lose a certain amount of autonomy as one of a group of 25 countries, and hence relinquish power and influence. “Neither the left nor the right likes this idea an awful lot,” Kogut says. “You need someone in the middle to sell it.”

In trying to sell the constitution during his TV debate, Chirac took the low road by focusing on the negative implications of a No vote rather than on the positive outcomes associated with ratification, according to Kogut. “He appealed to people on the basis of their fears. He didn’t talk about the referendum as being part of a great project. He came across as tired.”

Over time, these reasons and others have taken a collective toll on citizen support for the EU. A recent analysis piece in the Financial Times by George Parker and John Thornhill asserted that the EU’s “ability to enthrall its people has been waning for years.” The authors noted that Eurobarometer, the EU polling organization, has tracked declining support for European integration for years. In December 2003, the number of Europeans polled who thought that the EU is “a good thing” dropped below 50% for the first time.

If French voters reject the constitution, it is not clear what would happen next. France could schedule another vote and hope a majority of voters change their minds. Chirac has ruled that option out, but it is not clear if he meant what he said or if his statement was a way to apply pressure on voters to vote Yes. If France does not hold another referendum, the Wharton and INSEAD faculty members say the EU is likely to stumble on and reach some kind of accommodation as a “two-speed” Europe, in which enthusiastic supporters of integration go in one direction, and lukewarm EU members like Britain (which has yet to schedule a referendum on the constitution but whose voters would surprise no one by rejecting it) go down a different economic and political path — all the while remaining partners in the EU.

Says Herring: “You can imagine a regrouping of a two-speed Europe where a core of committed countries with the same views on social policies and defense go to a deeper level of integration, and a second tier of countries which, because they couldn’t achieve that level of integration, like the British, would be associated [with one another]. You’d have to work out the details of what that means, but retain the common market aspects of it.”

Over the very long term, though, a sense of what it means to be European as opposed to French or Italian or Belgian will only grow, according to Wharton management professor John Kimberly, who recently spent 10 days at INSEAD.

“One thing striking to me is if you ask young people who they are or where they are from, they respond ‘I’m a European’ — not ‘I’m Belgian’ or ‘I’m Italian.’ I think that potentially is a huge factor [in contributing to further European integration]. If you don’t have people believing they are part of something larger, all this other stuff about the constitution will face much tougher sledding. . . .  If [the French vote No], I think that vote will be split along age lines. People over 45 will be more likely to vote No than people under 45. What you have is a generational [issue] going on there.”