Jean-Claude Juncker, Prime Minister of Luxembourg and President of the European Council

The European Union is not on its knees, said Jean-Claude Juncker, Prime Minister of Luxembourg and President of the European Council at the recent summit in Washington. Yet, several days earlier, Mr. Juncker declared in Brussels the Continent is in a state of deep crisis over the failure of European leaders to agree on the Union's budget.

Failure to find common economic ground came just weeks after voters in France and the Netherlands dealt, what some observers call, a lethal blow to the Union's proposed new constitution. And they say the first casualty of Europe's latest crisis is EU's further expansion.

For years, European Union's enlargement was viewed as necessary for maintaining stability and prosperity of the Continent. Deeper political integration, promised by the new Constitution, was supposed to strengthen the bloc's coherence.

But many analysts say the process has met with unsustainable expenditures, institutional inefficiencies and an ever-expanding bureaucracy.

John Hulsman of The Heritage Foundation in Washington

John Hulsman of The Heritage Foundation in Washington describes the recent Constitution setback as a vote against the rule of bureaucrats and a continent ordered from the top down. He argues that most Europeans resent turning over ever more aspects of their lives to technocrats who are detached from most people's concerns.

Mr. Hulsman says, "There is a huge democratic deficit in Europe between the rulers and the ruled, both at the national level and the European level. That's become very apparent. The EU will continue to exist, but a notion of some strongly unified Europe, which I think was always a false one, has now been proven to be false. The European emperor is wearing no clothes."

Since the end of World War II, European countries have evolved into advanced welfare states with high taxes and generous vacation, unemployment and retirement benefits. But what many Europeans view as the stability of the system comes with a price.

According to analyst John Hulsman, a stagnating economy, deepening unemployment, cheap immigrant labor, an endangered social welfare system, and mounting competition from globalization are part of that price. He argues that most Europeans resent turning over ever more aspects of their lives to technocrats who are detached from most people's concerns.

He adds there is a feeling among many Europeans that their leaders can no longer guarantee upward mobility and economic security.

According to Mr. Hulsman, "The French, German, Italian core is in economically dire straits with 12% unemployment in Germany, ten percent unemployment in France and Italy with more than 106% of GDP (total market value of all final goods and services produced in a country in a given year) debt. That would discredit any elite that says, don't worry about things and trust us when this is proven not to be very effective in managing economies.

Stephen Szabo, Professor of European Studies at The Johns Hopkins University

But Stephen Szabo, Professor of European Studies at The Johns Hopkins University, recently visited several European capitals and says the EU's current crisis should not be over emphasized.

Professor Szabo says, "I think the European movement will continue to go forward. It is based on very realistic interests, both political and economic. There is really no serious alternative to the European Union. None of these states can really contend anymore on the international stage as nation states. They need weight behind them and the EU provides that sort of weight."

Professor Szabo says the constitution setback may spark a much-needed debate over Europe's future that so far has been lacking. And it might save the EU from an open-ended commitment on expansion that could have been fatal to its own political unity.

In the meantime, a new European core might be forming.

"I do think that Europe has gotten too big," says Professor Szabo. "It really hasn't had a strategic vision about enlargement. It might have to have a much more disciplined view of its interests. We will probably see an inner core around France, Germany maybe Spain, Italy, and possibly Poland, which would form a core for a very serious, smaller, more effective Europe."

And what does the EU crisis hold for US/European relations?

The US has consistently called for a strong, peaceful and democratic Europe that, along with America, would pursue a common global agenda in the war on terrorism, the promotion of freedom and democracy, and the containment of nuclear proliferation, something President Bush reaffirmed at the recent US/EU summit in Washington.

President George W. Bush

President Bush says, "The United States continues to support a strong European Union as a partner in spreading freedom and democracy and security and prosperity throughout the world. My message to these leaders and these friends was that we want Europe strong so we can work together to achieve important objectives and important goals."

Yet many analysts say if Europe's crisis continues, it could shake America's perception of the EU as a reliable partner.

According to John Hulsman of The Heritage Foundation, Europe matters to America. But he doubts whether Brussels can work in tandem with Washington.

Mr. Hulsman says, "Obviously, when the EU is unified on an issue, we will work with them at that level. But I think more and more, we are going to work with them at the state-to-state level, where very rarely do all Europeans agree on much of anything. We will have to get used to living in that much more complicated world."

Professor Szabo adds, "The problem the US is going to face now is that the EU will be so wrapped up with itself over the next ten years in terms of trying to deal with all of its issues."

Stephen Szabo of The Johns Hopkins University predicts a period of stagnation in which the US might view the EU as an ineffective partner. He adds the sooner the EU finds its way, the sooner the world's two richest, most democratic most powerful entities, Europe and the United States, can develop their shared goals.

This report was originally broadcast on VOA News Now's Focus program. For other Focus reports, click here