A bitter dispute over a policy at the heart of Charlie McCreevy's European Commission portfolio threatens to overshadow an EU summit starting in Brussels this evening.
France wants the commission to withdraw a controversial plan to allow service providers to operate under the same rules across the EU, which Paris fears could derail its May referendum on the European constitution.
A number of countries, including Ireland, are determined to back the commission in resisting the French move.
European leaders will also consider proposed changes to the rules governing the single currency, which may trigger a rise in interest rates. The European Central Bank said yesterday it will not hesitate to raise rates if the reforms of the growth and stability pact agreed over the weekend weaken the euro and feed inflation.
The reforms will allow large members states such as Germany borrow more.
Commission president José Manuel Barroso yesterday accused French politicians of failing to explain to voters that the services directive, as the commission's plan is known, has nothing to do with the forthcoming referendum.
"I think we must be clear that the French will not be voting in a referendum on the services directive. You may or may not have a services directive whether you have a constitution or not. That is what French politicians need to explain to their fellow citizens. If there's confusion in French public life about that, it's not the fault of the commission," he said.
The services plan, which Mr McCreevy inherited from his predecessor, Frits Bolkestein, aims to create a single EU market for such services as accountancy, legal services and construction.
Service providers would be able to operate throughout the EU according to rules in force in their home country, a step critics fear would drive down wages and working conditions in richer countries. Mr McCreevy has offered to work with the European Parliament to change the directive, removing sensitive services such as healthcare from its remit and ensuring that the new rules do not lead to social dumping.
As opinion polls show a majority against the constitution in France, however, EU diplomats say that Paris will not be satisfied until the commission withdraws the directive and redrafts it from scratch.
"You can measure it by the day how the French position is hardening on this," a senior EU diplomat said.
A source close to Mr McCreevy told The Irish Times last night that the commissioner was relaxed about the prospect of withdrawing the directive, although it would take up to two years to draw up a revised version. Mr McCreevy regards the directive as poorly drafted and acknowledges the need for major amendments.