IT'S budget time again in Europe. Over the next few weeks most of the EMU hopefuls will line up to present their last budgets before judgment day. At the end of next year, the adjudicators in Brussels will decide who's in and who's out. Now that we've come through the trauma of the heats, with the 1992 currency crisis and last year's strikes in France, this month's efforts will represent a last collective squeeze as the economies try to shape up for Maastricht and monetary union.

Despite the fact that most countries are in the same boat, the financial markets will devote most energy to France - the star of this principal episode. If the imminent French budget fails to convince, the markets will move to speculate against the franc.

To understand why France has come to represent the weak link in the EMU chain, a closer look is needed at political and economic developments there. Last December, the Chirac administration finally accepted the old political chestnut that "to govern is to choose".

By facing down the strikers, albeit following six months of appeasement, the French authorities made their choice. That choice is straightforward and can be divided into two distinct time frames. In the short term, all efforts will be made to achieve the Maastricht criteria. Longer term, the authorities calculate that undertaking much of the necessary domestic budget adjustment in 1996/97, added to increased privatisation and deregulation later on, will, under the protective umbrella of the single currency, enable France to preserve its position as Europe's second largest economic power.

Getting from the short term (the next 18 months) to the longer term (post EMU) without a hitch will be exceedingly difficult. The French government's desired path is blocked by an unholy alliance between the international capital markets on the one side and domestic vested interests on the other.

Since fiscal adjustments typically lead to short term costs, the authorities are caught between a rock and a hard place. The higher the costs, the stronger the case against the wisdom of the policy. Any increase in internal opposition - such as scenes of workers on the streets - will heighten scepticism in the international markets and lead to question marks over the will of the authorities.

The room to manoeuvre has been tightened by the fact that the French economy has failed to perform throughout the 1990s and the prospects are not particularly bright for the rest of the decade. But this is not the unique result of domestic factors. Arguably, at this stage, France's problems are symptomatic of a greater European dilemma regarding free trade, free capital mobility and a general erosion of the western European hegemony.

France is now going through its second phase of a long term adjustment process forced upon it by European and global realities. The first phase in the 1980s was all about keeping up with the Germans. The second phase of the adjustment process - now underway - is designed to restrain the progressively expanding public sector which, it could be argued, resulted from the tightness of the franc fort related monetary policy in the first place.

Having prospered on a system of "Keynes at home and Smith abroad" - where free trade within the EU obscured a managed approach to the domestic economy - the country now has to face up the EU single market and wider global competition.

Unfortunately for France, the road to economic liberalisation entails short term costs, which is why most successful fiscal adjustments have been accompanied by sweeteners - usually significant tax cuts or lower interest rates to cushion the blow. These options are not available to France or most other EU countries. By contrast, the pain of structural adjustment will be exacerbated in the short term by simultaneous tightening of fiscal and monetary policy forced on France by Maastricht.

Given the process of globalisation it is inaccurate to paint the Maastricht brace as the key determinant of France's present malaise. The pain is the result of a global process, not a political imperative. Looking forward, if a single currency is achieved, it will provide France with an umbrella under which to carry on the reforms without the destabilising effects of periodic currency speculations.

For investors there are only two ways in which the drama can play itself out. The first and still most likely case is that the government, Houdini like, manages to jump through all the hoops. Alternatively it will fail and the whole deck of cards will come tumbling down.