This has undoubtedly been a tough year for the EU. It will be remembered more for what went wrong rather than for any positive steps taken. The rejection by France and Holland of the proposed EU Constitution and its aftermath stand out among the lows of the year, although others such as the split on Turkey and the poor handling of the illegal immigration problem also feature prominently.

The EU project as a whole seemed to be engulfed in a cloud of negative sentiment where the onus was more on defending national turf rather than seeking European progress. This was the first full year of an EU of 25. Things were not looking too good and, lurking in the background was the need for an agreement on the next seven-year budget. Always a difficult task at the best of times, many feared that obtaining the required consensus was going to prove to be a case of a bridge too far. Many critics predicted that the EU would grind to a halt. The June fall out between France and the UK on the budget did nothing to allay those fears.

Heading into December it ironically fell to the UK to try and square the circle. The UK Presidency, somewhat derailed by the terrorist acts in London, had done little or nothing noticeable and the sound bites from Blair vis-à-vis giving up the rebate gave little cheer to those hoping for a successful conclusion to the budget negotiation. The Murdoch press made sure their Prime Minister, short of committing political suicide, had very little room for manoeuvre.

On the other side of the fence was the fact that this was a crucial budget for the new Member States including Malta. This was to be the budget that would help the newcomers undertake crucial reforms and carry out important investments in essential areas such as the transport infrastructure and the environment. Just looking at what Malta needs to do in these areas gives a good idea of how important delivering on this budget was. However, beyond the ‘accounts department’ calculations there was also a huge political need for the budget deal to go through. Failure to deliver would give all the wrong signals, not only to the new Member States, but also to the whole of the EU and beyond.

Everyone agreed that for an agreement to be reached something special was needed. And something special must have happened in those final two days of the December summit. The political leadership that seemed to have gone AWOL during the past 11 months suddenly stood up to be counted.

The UK Prime Minister, who has always been pro European at heart, must have seen that the fallout from failure would be just too large. Aided by the negotiating skills of newcomer Angela Merkel he set up a deal which, although not ideal, was good enough for everyone to accept. The decision he took to give up a substantial part of the British rebate in exchange for a commitment to review the budget in 2008 was hailed as a very brave one by the international press. Predictably, back home it was seen as nothing short of a surrender. The echoes of this decision will come back to haunt what is left of his domestic political career, which in all probability will not last till the next election.

The knock on effects of the positive conclusion to the budget negotiation are already very evident. There is a realisation that the ‘old’ way of achieving Europe needs to be revisited, if nothing else to avoid further ‘edge of the precipice’ situations. There is also a renewed enthusiasm to revive the Constitution project with both the Germans and the Portuguese saying that they will actively take this up during their respective Presidencies. The emergence of German Chancellor Angela Merkel could also be an important development. She has already shown that she could indeed be the new leader of this more complex Europe, although one cannot underestimate her difficult domestic situation.

The times ahead are no doubt challenging and some of the same problems which have dogged the EU in 2005 will certainly also be there in 2006. Illegal immigration, Turkey’s membership aspirations, future enlargements, lack of competitiveness – they will all be there and difficult decisions will have to be taken if real progress is to be achieved. The positive conclusion to a difficult 2005 could however provide the right momentum to push Europe significantly forward in 2006. As they say, only time will tell but at least optimism now prevails where previously gloom reigned supreme.