SPEAKING on television earlier this year, Manuel Valls, the French prime minister, declared that his government’s budget would not be written to ‘satisfy Brussels’, adding — “We are a great nation . . . France is a sovereign country.”

I winced when I heard that. It was one of those statements that actually sounds less convincing the more defiantly it is uttered. For the fact is that France is not a sovereign country when it comes to budgetary matters — and nor are the other 17 countries that have adopted the European single currency. In the next few days that truth could become brutally apparent.

France is not alone in struggling with the constraints on its national sovereignty imposed by Europe. Britain too is wrestling with the fact that, under European law, it cannot prevent unlimited immigration from the rest of the EU.

Control of borders and budgets are two of the most traditional powers of the nation. The extent to which France and Britain are chafing against European erosion of their sovereignty, on these issues, risks provoking political crises that could plausibly culminate in the break-up of the euro, or even the EU.

European limits on national sovereignty now risk provoking crises in the EU’s relationship with both Britain and France

France’s moment of truth is fast approaching. It has submitted a national budget to the European Commission that appears to break the EU rules that compel France to make faster progress to reducing its budget deficit to below 3pc of gross domestic product. The commission must rule in the next few days if France is in violation of the law. If so, the commission is legally obliged to reject France’s budget and to force Paris to rewrite it.

Any such humiliation of the French government would be a gift to the far-right in France, whose leader Marine Le Pen rails against the EU and demands that her country leave the euro. Matteo Renzi, the Italian prime minister — whose country also risks having its budget rejected by the EU — says: “I prefer a France with a 4.4pc budget deficit to Marine Le Pen as president next time.”

The EU is, of course, conscious of the political dangers of humbling France and there is talk that a last-minute deal might be in the works. Perhaps Paris might agree a new timetable for structural economic reforms, in return for extra time on the budget? But any suggestion that France is being cut a special deal because it is a ‘great nation’ will go down very badly with smaller EU countries that have made huge efforts to stick to the rules.

It might also stoke euro-scepticism in Germany, where the anti-euro Alternative for Germany party is making strong gains. Angela Merkel, the German chancellor, has to walk a fine line between domestic demands that EU rules are enforced, and the need to avoid a dangerous rupture with France.

Britain opted out of the euro, so it is spared the harsher budgetary controls that apply to France. But a British confrontation with the EU is looming over free movement of people within Europe. Britain signed up to this principle when it joined the bloc in the 1970s and for decades it was relatively uncontroversial. But the expansion of the EU to include much poorer states from central and eastern Europe led to huge inflows of migrants into the UK — including up to 1m from Poland alone.

As complaints about mass immigration from Europe have moved to the centre of British politics, the government has found itself in the awkward position of having to explain that — under current EU rules — there is nothing that it can do to prevent the flows. This situation is a gift to the UK Independence party, which campaigns for Britain’s withdrawal from the EU. For there is nothing that better illustrates what ‘loss of sovereignty’ actually means than an inability to decide who gets to live in your country.

David Cameron faces an acute political dilemma. The UK prime minister knows that many of his voters want him to cut immigration from Europe. But he also knows that ‘free movement of people’ is a fundamental principle of the EU that the other EU members are highly unlikely to compromise on. For months the prime minister has attempted to finesse this problem by promising to clamp down on EU migrants’ access to the British welfare system — rather than on immigration itself. But this tactic has not been enough to close down the debate. So the prime minister is now flirting with demanding controls on the absolute number of EU migrants.

It may be that Mr Cameron is simply ahead of his time. Resentment against immigration and EU rules on free movement is also rising in other key EU states, including France, Italy and the Netherlands. But there is a cost to being the first to break a taboo. If Mr Cameron makes an explicit assault on free movement he risks picking a fight with Europe that he is almost certain to lose. That kind of national humiliation could then lead quite swiftly to a British decision to quit the EU altogether — in the referendum on EU membership that Mr Cameron has promised for 2017.

European limits on national sovereignty now risk provoking crises in the EU’s relationship with both Britain and France. The EU is rightly proud of the idea that it is a community of laws that upholds basic liberal principles. But refusing to compromise on those laws and principles — on the budget and on borders — now threatens to push the EU into a political crisis that could ultimately threaten its very existence.

gideon.rachman@ft.com

Published in Dawn, Economic & Business, October 27th, 2014