Only last month the European Union was celebrating the one year anniversary of its largest and most ambitious enlargement ever - one which was touted as anchoring many of the former Soviet satellite states firmly in the Western camp. After years of ideological upheaval and cold war, finally, just a year shy of the 60th commemoration of WWII, Europe was basking in the glow of political reunification in a democratic and stable environment. A new constitutional treaty, to be ratified by all 25 members, written essentially under the tutelage of a Frenchman, Former President Valéry Giscard d'Estaing, was to be the capstone of this success.

Today we are experiencing a rude wake up call: In France and Holland the referendum on the constitutional treaty was voted down in substantial numbers. Complex local and international factors came into play in both countries. These include: fear of immigrants and immigration (“Polish plumbers” and Muslim citizens); fear of globalization and open markets; anger over not being consulted when the Euro was imposed; and many complex local issues having nothing to do with the Constitution itself.

But regardless of the national issues at stake the impact of such massive rejections raises fundamental questions about the future direction of Europe. A previously scheduled summit meeting of European heads of state in Brussels on June 16th and 17th will have the task of developing an exit strategy for this crisis. And whatever they concoct, it is already apparent that certain things are irrevocably altered. Above all the “democratic deficit” of the union must be addressed. The gap between the citizens and their leaders in Brussels must be narrowed.

When the 25 Heads of State or Government and the 3 candidate countries signed a Treaty establishing a Constitution for Europe, which was unanimously adopted in 2004, few foresaw serious obstacles to its ratification. Accordingly the Treaty can only enter into force when it has been agreed by each of the signatory countries. Numerous options were available for ratification, ranging from parliamentary approval, referendum, or parliamentary approval in addition to a referendum. Historically the general rule concerning referendums is that leaders only call them if they are sure to win. In France for example referendums are relatively common. During the 5th Republic which covers most of the post-War period, the last time a President called a referendum and lost was in 1969. The theme was that of decentralization. The President was General De Gaulle. He resigned.

Following the French constitutional vote a joint declaration on the results was released by the President of the European Parliament Jospep Borrell Fontelles, President of the European Council Jean-Claude Junker and President of the European Commission José Manuel Barroso. The very first sentence claims French voters have “chosen to say no to the ratification of the Constitutional treaty. We take note of this.” This is a far cry from General De Gaulle's historic gesture, although Junker has now announced that he will step down personally if his country does not approve the referendum in July. And with the British poised to take over the Presidency in July when Luxembourg's Junker vacates the rotating six month position, the talk in Brussels now is that, even if the official ratification process continues, there is no future for the treaty.

Technically the European Council is allowed to consider the “best course of action” in the event that after two years, four-fifths (or 20) member states have ratified the document and “one or more” have not. It is still possible therefore there can be an opt-out plan for those who have already rejected the treaty but this will only be valid if the ratification process continues, which it does not look like the British will favor. On the other hand, a deal may still be cut since the EU specializes in “opt outs”. Go to Sweden with Euros in your pocket and take a cab unwittingly from the airport and see how far you get. Recall the French cultural exception.

In practical terms the constitution in its current form is almost certainly dead. How will this impact the EU's identity and role in the world? Does a weakened Europe serve American interests? Israeli interests?

Two salient issues emerge concerning the international positioning of the EU. The enlargement project is the most important. Our analysis is that the two Eastern European countries now waiting in the wings, Romania and Bulgaria, might be forced to be patient a bit longer. Turkish accession talks, which have been controversial from the get go, will certainly slow down. Ukraine and Georgia, both countries seeking better positioning through the New Neighborhood Europe agreements, will also be slighted. Meanwhile NATO is showing signs of increased interest in both of these countries and we should see more solid ties being forged there.

The other major international project which should have been enshrined by the constitution was the creation of a European Foreign Minister and a European Diplomatic Service to be developed as part and parcel of the already existing Common Foreign Security and Defense Policy (CFSP). For many Americans this was to be the major tangible by-product of the Constitutional Treaty. AJC friend and former NATO Secretary-General Javier Solana will keep his job in the foreseeable future as the public face of the European defense world where he continues to reign supreme as the European Union's High Representative for Foreign and Security. And current problems in the transatlantic relationship including the controversy over lifting the Chinese Arms Embargo or the EU-3 Iranian nuclear monitoring are unlikely to be adversely effected by the constitutional mishap.

But a longer term view of transatlantic relations shows that all of the critical problematic issues requiring increased cooperation between the U.S. and Europe including homeland security, terrorism and defense will undoubtedly be negatively impacted by this situation. Today U.S. policy favors the development of a stronger EU. A weaker Europe makes a weaker partner for the U.S. and the Bush II administration is arguing strongly for a need to move ahead internationally in conjunction with its allies. European cooperation in the security realm would have been made simpler if the constitution had stayed on track. The new American Under Secretary Political Affairs, R. Nick Burns has already been to Brussels to share his vision of a more forcefully engaged America seeking to develop better ties to Europe. Coming on the heels of Secretary of State Rice's visit as well as that of President Bush earlier this year, the message from the U.S. to Europe has been clear: we are trying to make amends and work with you more closely.

Thus the timing of the referendum crisis could not be worse. Just as the U.S. was warming up to the EU, the Union is moving into what may prove to be a long period of introspection. How will Europe work with the rest of the world? And what, if any impact will this change have on the Middle East peace process?

We see a real possibility for an opening for Israel in the current situation. The weakening of the traditional Franco-German axis may provide an opportunity for some of the new East and Central Europeans to make their voices heard more clearly. Traditionally more pro-American and stronger supporters of Israel, they may be able to gain influence in the Union as the French in particular are discredited. Since the death of Arafat and the elections in Palestine and Iraq, there are signs that relations between Israel and the EU were warming up a tad anyway. A new alignment of power still to emerge in the coming months could just be more favorable to Israel.

But the critical question remains: will a new balance of power within the EU which better reflects the economically liberal views of the emerging Eastern nations help transform the Union for the better? Or is the entire continent facing a prolonged and dangerous lengthy institutional crisis?

Karen Weisblatt is the former Executive Director of the Transatlantic Institute, Brussels.