Europe is once again facing a series of existential questions: how to deepen its integration process without limiting its external action; how to reconcile its process-oriented nature with actual foreign-policy results; how to combine a constitutional debate and the implementation of a more coherent security and defence policy? The EU Constitution's precarious ratification process will in all likelihood propel the European Union into an introspective exercise in which Europe's identity and end-state will be the focus of debate rather than its policies. In short, there is a serious danger that Europe becomes ever more inward looking at the very time that an uncertain and fragile international environment demands it play a more responsible and active role in foreign affairs.

Despite this, the European project provides the fundamental basis of the continent's prosperity, and increasingly, of its security. Moreover, huge progress has been made in the realm of security and defence since the launch of the European Security and Defence Policy (ESDP) in the wake of the 1998 St Malo meeting between French President Jacques Chirac and UK Prime Minister Tony Blair. Ironically, in spite of divisions over Iraq, 2003 was the year in which ESDP moved forward most decisively following agreement of a groundbreaking EU-NATO Declaration on ESDP at the end of 2002. It was also the year that the European Union launched both its first peacekeeping operation and its first police missions in the Balkans, paving the way for the European Union to take responsibility from NATO for peacekeeping in Bosnia and Herzegovina at the end of last year. And it witnessed the European Union's first autonomous military operation, in the Democratic Republic of Congo.

In the field of intelligence and counter-terrorism, new efforts towards integrated actions have been launched. In the area of proliferation, the European Union has adopted a clear framework of actions and pressures to strengthen non-proliferation regimes and initiated an unprecedented, coordinated effort vis-à-vis Iran. Most importantly, an EU Security Strategy was formally endorsed in December 2003. In this historic paper, the European Union laid out a foreign-policy framework based on effective multilateralism and preventive engagement to bring stability and prosperity to its neighbourhood, while recognising the necessity of the use of force in certain circumstances. All of this would have been unthinkable just five years ago. In many ways, ESDP has been one of the European Union's greatest recent successes. Indeed, the European soft-power approach to world politics has been praised on both sides of the Atlantic in several recent publications - including books by T.R. Reid, Jeremy Rifkin and Mark Leonard - as the emerging model for international behaviour in the 21st century.

Yet obvious failures and crucial limits tarnish these very optimistic assessments of European influence and power. Firstly, and most fundamentally, although international security challenges demand collective answers, in practice, as both the war in Afghanistan and responses to the Madrid bombings have demonstrated, terrorist attacks are met with national rather than international responses. In times of crisis, nation states, not international institutions, remain the key actors. Moreover, the divide over Iraq, the ghosts of the project to build an autonomous EU military headquarters in Tervuren, the deep mistrust between some EU members and the game of hijacking institutions to protect national interests continue to cast a shadow over the European Union's entire common foreign policy.

Secondly, where foreign-policy coordination is concerned, larger European countries, more often than not, maintain the illusion of acting alone while smaller countries tend to pass the buck to the European Union without providing the necessary resources to enable it properly to undertake these new responsibilities. The current battle over the diplomatic service of the future EU Foreign Minister is emblematic of the recurrent tension between small and large countries and between the Commission and the Council. Vis-à-vis the rest of the world, the need for a common approach is crucial. Yet most members prefer to develop their own special relationships with Washington and other key capitals, even though this undermines their collective impact because it invites the other side to adopt a "divide and conquer" approach.

Thirdly, following the European Union's recent enlargement, formerly distant theatres like Moldova or the Caucasus have become the immediate neighbourhood. While the European Union demonstrated its crisis-management capacity in the case of Ukraine, with significant contributions from Lithuania and Poland, other areas remain beyond European influence. Indeed, even in the Balkans, where the European Union has been engaged for more than a decade, the quest for a long-term solution in Kosovo requires the kind of special effort that Europe is currently unable or unwilling to undertake.

Lastly, the European Union is often long on declaratory principles, but short on action. Worse still, even when member states agree a common approach, they are frequently unable to achieve concrete results, as diplomatic failure in Cyprus, ongoing chaos in the Congo, inaction in Darfur and passivity in the Israeli-Palestinian conflict have shown.

These limitations are also reflected in the European Union's strategic posture. By opposing regime change, the European Union emphasises the pre-eminence of stability over democratisation. By rejecting pre-emption – Germany had the wording of the draft Security Strategy changed to remove this – the European Union looks to diplomacy and preventive engagement to resolve international crises. By stressing effective multilateralism, the European Union relies more on international institutions than on its own capacity for action. In short, Europe, by and large, remains a status quo-oriented power, prompt to emphasise international law and ethics. Commission President José Manuel Barroso said recently: "We [Europeans] are in many ways a superpower. We are a moral power." Maybe, but it is a morality proclaimed by decree, rather than a conviction demonstrated by action.

The real failure of this ill-named, post-modern Europe, however, relates to its incapacity to reform its defence structure. ESDP capabilities continue to lag. The original objective of up to 60,000 troops deployable within 60 days, set at the 1999 Helsinki meeting of the European Council, has not been met. To be fair, a significant number of European troops are deployed all over the world on national, EU, NATO and UN missions. The point, however, was to place at the European Union's disposal a reserve of forces, not simply to add another demand on national forces. Several problems have plagued the Helsinki Headline Goal. First, it was merely a quantitative target set on the basis of the international experience in Bosnia and Herzegovina, and therefore, ill-suited to today's new strategic imperatives. Second, it consisted solely of a catalogue of forces, only a tiny percentage of which were actually rapidly deployable. Third, if deficiencies were identified, there were no real incentives to remedy them. Efforts on capabilities had to shift from the quantitative to the qualitative. Several initiatives have recently taken this necessity into account.

First, the establishment of a European Defence Agency to "support the member states in their effort to improve European defence capabilities in the field of crisis management" was finally agreed last year. The Agency is to promote equipment collaboration, research and technology projects and procurement. All this should bring invaluable synergies and economies of scale to European defence spending. In particular, the Agency should be able to coordinate efforts to fill gaps identified by the European Capabilities Action Plan (ECAP). In order to have a real impact, however, the Agency must be properly funded.

Second, the principle of permanent structured cooperation for defence is now formally recognised in the EU Constitution. The criteria governing this cooperation are stringent, at least on paper. Among other things, member states must have an adequate level of defence expenditure , take concrete measures to enhance the availability, interoperability, flexibility and deployability of their armed forces , and commit resources to address shortfalls identified by the ECAP mechanism. The real novelty lies in the encouragement to coordinate the identification of military needs, to specialise national defence and to pool capabilities. Given the weakness of defence budgets and the chronic under-investment in research and technology, collective procurement and multinational forces are obvious solutions. If implemented, permanent structured cooperation could offer a precious framework in which to change the dynamics of European defence.

Lastly, the European Union endorsed the Battle Group concept last November. This initiative is a direct result of the experience of Operation Artemis in the Democratic Republic of Congo in 2003. The Battle-Group concept is based on a "quick-in, quick-out" capability to restore order, especially in Africa, which would be carried out "explicitly but not exclusively" under a UN Security Council mandate. In the second stage, African or other peacekeepers would be expected to take over.

This strategy of providing a quick fix and then devolving longer-term responsibility for peace-building to others is, however, difficult to put into practice. It is not obvious why Battle Groups would be the adequate force package for such operations. Entry force will not be that quick, especially given the European Union's strategic-lift shortfalls. Exit may be delayed by many months, and the African Union is unlikely to be able to come up with sufficient peacekeepers afterwards. Today in Congo, the UN mission has about 16,000 members, making it the largest of the organisation's peacekeeping operations. Moreover, the political consensus in Europe for the continent to play a greater role in Africa is limited as revealed all too clearly by the indifference towards events in Darfur. Despite this, Battle Groups of 1,500 troops, including support and service-support elements, represent a more flexible force package capable of higher-intensity operations. Deployable within five days, they will be fully manned, equipped and trained, and have adequate strategic-lift assets. Member states have committed to deliver 13 such Battle Groups by 2007, nine of which will be multinational, including a contingent from non-EU Norway. This new target of nearly 20,000 men - a third of the headline goal - appears more achievable, but its real efficiency will depend on the transformation of European forces.

European force transformation only started very recently and in the usual uncoordinated manner. The term itself is notoriously vague. Indeed, this is the case even in the United States where embracing the revolution in military affairs has both produced positive results and revealed serious shortcomings. The strengths and weaknesses of US Defense Secretary Donald Rumsfeld's plan to build light, highly mobile and technologically advanced US Armed Forces have been evident in Afghanistan and Iraq. In both instances, the war-fighting capabilities deployed were impressive, but the post-conflict stabilisation forces were crucially lacking. The assumption that transformation would help reduce the overall size of the armed forces that was one of the driving factors behind the process has turned out to be wrong and led to a reassessment of the US transformation project.

In Europe, US difficulties were quickly seized upon to cast doubt on the need for transformation and to emphasise the actual requirements of peacekeeping. The bulk of the latest EU initiatives in ESDP, including new civilian commitments and the gendarmerie initiative, are focused on the post-stabilisation phase. Yet if one looks at the missions where European peacekeepers are currently deployed, most of them were made possible by the use of hard power. There would have been no peace to keep in the Balkans without NATO intervention.

In Europe, transformation means essentially two things. The first is the end of conscription and the strategic culture of territorial defence. In the wake of the failure to act decisively in Bosnia and Herzegovina, the need for expeditionary forces has been recognised, yet military structures in Europe have not undergone sufficient change. Conscription remains in place in many countries; heavy infantry units are still far too numerous; obsolete equipment is over-abundant; and strategic lift is still lacking. Putting this right demands political will and strategic clarity. For now, however, in a majority of European countries, both are lacking.

The second aspect of transformation is the actual process by which modern war-fighting techniques are introduced into European forces. At present, in any hostile environment, the risk of casualties and the range of acceptable collateral damage remain too high. EU members must speed the modernisation of their capabilities to be able to fight according to criteria demanded by modern democracies. Even if the current focus of possible EU military actions lies in the post-conflict phase or in preventive deployment in failing states, the lack of adequate capabilities severely restricts the room for manoeuvre in the event of any degeneration. Effective C4ISR capabilities, i.e. command, control, communications, computers, intelligence, surveillance, and reconnaissance, are an absolute must in such an event. Currently in Europe, only a handful of countries, notably France and the United Kingdom, have started to introduce network-enabled capabilities in their arsenal. The chief obstacle in this effort is not the availability of European technology, but the level of the defence budget. Transformation is about spending better and more efficiently, but it requires greater expenditure in the short term. This is, nevertheless, in the longer-term interest of European force structures, since they currently suffer from a surplus of redundant capabilities. Yet any increase in defence budget is a political non-starter in most countries.

There are several consequences of this state of affairs. First, medium-sized European countries will probably have to specialise if they want to modernise their forces. This, in turn, must be decided in a coherent manner in a top-down framework rather than the classic bottom-up approach embodied in the ECAP. Yet this is a step that European countries are still reluctant to take. Second, cooperation with NATO remains crucial. Since Europe is likely to focus on network-enabled operations rather than the full spectrum of network-centric warfare, it becomes critical for Europe to be able to plug in to US interoperable C41SR capabilities. If not, the ability to work with Washington will be lost. In that respect, the NATO Response Force and the EU-NATO Working Capability Group are key components of transatlantic cooperation. Lastly, because Europeans have only one pool of forces, efforts in both the ESDP and the NATO frameworks, the Battle Groups and NATO Response Force respectively, must be congruent.

In practice, this is the case. There are, however, two caveats. The first is political. Since the NATO Response Force is essentially made of European troops, Europeans are understandably keen to have a large say in deciding on how it is used. NATO cannot become the cleaning lady for military operations decided only by Washington. But the conditions surrounding decision-making have changed radically in recent years, Since NATO has moved beyond the Euro-Atlantic area, agreement about the basic structure of world order, in particular the use of force, is a necessary precondition for effective Alliance decision-making. Given the increased significance of global issues on the transatlantic relationship, there is an urgent need to assess the extent of the common ground and the nature of differences in a greater number of areas than was once the case. As the question of lifting the arms embargo on China demonstrates, Europe and the United States cannot agree on everything, everywhere, because the factors involved are no longer limited to a specific problem like the Soviet threat. While it is unrealistic to expect complete agreement, it is also unrealistic to refuse common action because of one disagreement on a specific issue. The latter cannot become an obstacle for the former. In this framework, consensus is far more difficult to achieve. Moreover, it is especially demanding since both the Battle Groups and the NATO Response Force are supposed to be deployable at 5 to 30 days' notice. Current efforts for rapid deployment may be jeopardised by still inadequate and protracted decision-making processes.

The second difficulty is more operational. One of the desired results of transformation is both an increase in the size of headquarters and a reduction in the size of the forces on the ground. The new NATO structure with an Allied Command for Operations at Supreme Headquarters Allied Powers Europe (SHAPE) in Mons, Belgium, and an Allied Command for Transformation in Norfolk, Virginia, in the United States, means in effect that SHAPE is at the nexus of both NATO and EU operational planning. If the row over an autonomous EU military headquarters has been settled for now, the long-term question remains: should the large European countries rely indefinitely on the Berlin-Plus framework even after agreeing a broadened framework for ESDP operations and increasingly transforming their military capacity? Conversely, for autonomous EU operations: should small and medium-sized European countries rely on national, that is French, German or UK headquarters, to carry out these missions? Since Europe has only one pool of forces, the more Europe transforms its capabilities, the sooner the question of an EU headquarters will resurface.

Europe has developed a comprehensive approach to security, from police missions to crisis management. Deepening the integration through the ratification process might once again distract the European Union from its geopolitical responsibilities. Fulfilling the less demanding aspects of peacekeeping operations, like the current mission in Bosnia and Herzegovina, must not be allowed to slow the necessary transformation of European forces. On both grounds, the credibility of the European Union as a strategic actor is at stake.