European Union leaders rushed to the rescue of President Jacques Chirac on Wednesday in a bid to save a knife-edge French referendum on the EU constitution by retreating on a disputed bill to open up the services sector. Their decision to send a draft deregulation law back to the drawing board was a victory for Chirac and other west European critics of unbridled competition from low-cost east European countries, but a setback for bold EU economic reform plans.
At their two-day summit, the 25 leaders also agreed to ease the bloc's battered budget deficit rules and stepped back from ambitious targets to cut greenhouse gas emissions by 2050.
Fierce opposition in France to EU proposals to throw open services from architects to plumbers to cross-border competition has fuelled the "no" camp, which has seized the lead in opinion polls ahead of the crucial May 29 referendum.
The leaders told the executive European Commission to revise its draft to meet the requirements of "the European social model" with high standards of labour and consumer protection.
"France is an essential, indispensable country in Europe. The Europe we want wouldn't exist without France's contribution," Commission President Jose Manuel Barroso said.
If France, a founder member, voted against the charter, it would plunge Europe into political crisis.
Chirac said a defeat for the constitution, intended to streamline EU institutions and provide stronger leadership for the recently enlarged bloc, was unthinkable.
"It is certain that if France blocked the European project, the consequences would not be insignificant and it would lose a large share of its authority, which is necessary, in the Europe of tomorrow," he told a news conference in Brussels.
Even the new east European members, who see opening the services market as their countries' best hope of catching up economically with western Europe, were willing to throw Chirac a lifeline to save the constitution.
"The situation for the new member states can only get better, and not worse, and this is why I am patient," Slovak Prime Minister Mikulas Dzurinda said. "I understand there is a referendum in France in a few weeks."
"The EU does not have a Plan B," noted Polish Prime Minister Marek Belka of the damage that a French "no" to the constitution would cause.
Supporters of economic liberalisation such as Britain resisted more radical efforts by Chirac to tear up the services directive and made clear they regarded the move as a tactical retreat to help France win the referendum, not a surrender.
The European Commission says liberalising services, that account for 70 percent of the EU economy, is the key to boosting anaemic economic growth.
Output in the EU has grown by barely 2 percent in recent years and is expected to do worse this year, despite a far more hearty US rebound, while unemployment is nearly 9 percent.
"It's hardly a crime if President Chirac takes into account his domestic political context," British Foreign Secretary Jack Straw told BBC radio.
But he said countries such as Britain which had achieved higher growth and lower unemployment through open markets had "far less neurosis" about workers coming in from eastern Europe.
Tens of thousands protested in Brussels on Saturday, the bulk of them from France, backed by unions who say former EU Commissioner Frits Bolkestein's proposal would reduce employee rights to the level of the EU country with the lowest standards.
The last two opinion polls suggest a small majority of French voters are leaning against the constitution, partly out of anger at the services bill, but also due to domestic social discontent and fears of Turkey's eventual EU membership.
The constitution, which creates a long-term EU president, a foreign minister and a fairer voting system, must be ratified by all 25 member states for it to come into force.
EU leaders did not say how they would reconcile worker protection and deregulation. Further battles are certain on key issues such as the "country of origin" principle, by which firms could offer services across Europe based on their home laws.
Unions and the political left have warned against "social dumping" - undermining wages, consumer and environmental standards - by an influx of service-providers from low-cost countries such as EU newcomers Poland and Hungary.