The populist tabloid France Soir hailed a new national hero last week. HOW CHIRAC IS DEFENDING FRANCE blazed the headline to an article that presented the French president as a modern-day "Zorro"--battling not the evil governor of 19th-century Spanish California, but European Commission President Jose Manuel Barroso and his push for free-market reforms. After the European Union summit in Brussels on Thursday, le Zorro francais declared victory, having forced Barroso to water down a key proposal to advance Europe's future.

Victory? France finds itself increasingly on the defensive against a solid majority of EU member governments. Last week's rumble in Brussels centered on the EC's proposed "services directive," opening the market in services to intra-EU competition. Claiming the measure will boost growth and create as many as 2.5 million jobs, an alliance of liberalizers (Britain, Ireland, the Netherlands, Scandinavia and the new members of Eastern Europe) backed the commission. Opposing them were France, Germany and Belgium, fighting instead to keep borders closed to protect domestic companies and workers.

What a fundamental, even ironic shift. Together, France and Germany have long been the "locomotive" of European integration and a "borderless Europe." Today they have replaced Britain as the leading Euro-skeptics, fighting tooth and nail to prevent the EU from fully becoming what they once championed. Germany, once not only integrator-in-chief but the Union's guardian of fiscal rectitude, last week joined with France, Italy and other spendthrift nations to dismember the pact that commits Eurozone members to strict limits on national debt and spending. The "Old Europe versus New Europe" debate is no longer geopolitical, pitting new EU members from the east against old-guard West Europeans over relations with America. Now it's economic: stagnating clingers-to-the-past versus more liberal, vital states that see they must embrace change to prosper.

The new divide was thrown into high relief last week, if only by the stridency of the rhetoric. "Ultraliberalism is as great a menace as communism in its day," Chirac reportedly warned his summit colleagues, denouncing Barroso's plans as "unacceptable" and excessively "liberal." German Chancellor Gerhard Schroder described his country as riven by "terror" over the specter of cheap Eastern workers stealing German jobs. Barroso replied in kind, calling critics "Europhobes" and arguing that Europe's real divide is between "modernizers and reactionaries."

Obscured by the charged words was the fundamental issue: that Europe faces a choice between preserving its identity of the last half century--rooted in the classic social-welfare state--and embracing a more dynamic, market-oriented future in which it may not be able to afford all the social protections of the past. At bottom, says Philippe Moreau Defarges at the French Institute for International Relations, "there is great fear of a Europe that is not controlled by France and Germany, that their vision of a social-democratic Europe is ceding to a liberal Europe."

To be sure, the shrillness of the debate owes much to short-term politics, chiefly France's upcoming May 29 referendum on the EU's proposed constitution. A poll released Saturday shows a 55 percent majority against the document--all but compelling Chirac to play tough with Europe now if he wishes to win approval for the treaty in two months. French voters are genuinely wary of further European integration. Just as Brits once worried that Brussels would meddle with their labor and environmental laws, so now do the French fear the EU's focus on economic growth--and the painful measures required to improve it. "Never has Brussels more overtly made reform the No. 1 issue," says Alasdair Murray at the Centre for European Reform in London.

How long can France and Germany stand against this tide? Thanks to enlargement, the new (more liberal) Europe controls a majority of EU votes in Brussels. That means, sooner or later, even the French must come around and grudgingly accept the very policies they so vociferously rejected in Brussels last week. Either that, or bust up their cherished Union. Trouble is, all this will take time--the one thing, given Europe's economic troubles, that the region doesn't really have.

With Tracy McNicoll in Paris

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