STORM clouds are gathering. As a country we are going to have to deal with the turbulent times that lie ahead for us in matters affecting relations with our partners in the EU and with the collective enterprise of Europe itself.

The first of the gathering clouds takes the form of the economic instability into which we in this country are plunging as a consequence of the soaring value of the common currency we have adopted, the euro.

The second cloud is the likelihood of an even more divisive debate than the Nice debates over whatever emerges from the Giscard constitutional document in the haggling that will take place over the next 18 months.

A third source of difficulties lies in the confrontation with Spain and Brussels over fisheries. This will, as it must, end in a substantial retreat by the Irish Government, revealing that we ceded the substance of our control over these waters many years ago.

The euro is the most immediate problem . . . but it highlights an unresolved crucial faultline in our relations with the rest of the EU. That is the deep contradiction between what we want to think about the EU and about ourselves as part of the EU and its future, on the one hand, and the harsh realities of where our economic and political self interest lies on the other. This faultline appears in virtually every debate about our relations with the EU and the rest of the world. Iraq provides the latest example of this clash.

On Sunday a senior member of one of the best economics consultancy firms in the country said to me that in his opinion the economic instability into which we have bought with membership of the euro is going to land us back in the kind of economic conditions we last saw in the grim 1980s: 250,000 to 300,000 out of work, a fiscal crisis held at bay by soaring taxes and an economy that will flat-line for two to three years. My own view is that this is a bit alarmist . . . but only a bit.

In part this is because, perhaps naively, I find it hard to see the euro at $1.20 for a sustained period of time. What goes up comes down. But for as long as we have a strong euro we will be in exactly the position we were in during the currency crisis of 1992-93. We will have a seriously over-valued exchange rate in terms of competitiveness, one that is quite simply incompatible with the current level of economic activity in the country unless wage costs fall dramatically (or pigs fly). The plus side is the sharp fall in inflation. The minus side is the woes of exporters.

Corporate Ireland will simply shift off-shore, and jobs and incomes will go with it. The euro gave us an unsustainable boom, and now it is delivering a serious recession. These effects were known to be likely, although the reverse order was expected, when we opted to join without the UK.

Nevertheless, we went ahead, because of the famous faultline in our thinking. What was important was to be with the lads inside the EU and be seen to be on the team. Even the ESRI, asked by the Government to produce a rationale for joining, could not come up with convincing reasons for doing so from an economics perspective.

Our unambiguous economic interest lay in staying out until Britain went in. This uncomfortable fact was dealt with by the favourite trick of an economist faced with one: we simply assumed it away. We assumed that (a) Britain would join soon,and (b) that the sterling exchange rate would be reasonably stable. The latter was clearly daft. The former is receding to the Greek calends, which of course no one will ever see.

Which brings me to the document of M. Valery Giscard d'Estaing and his collaborators. The document is a fudge, and admitted to be so, in that it sought to reconcile two basically irreconcilable positions on four basic issues. Is the EU to be a federal entity? There is no "f-word". But it is proposed to give Brussels further competences in terms of responsibilities for developing and implementing policies while requiring member states to cooperate with these policies.

Are we to cede taxing powers? No . . . but we have to co-operate on macro-economic management and to ensure that our tax systems do not undermine other policy goals of the union. Is Brussels to determine foreign and security policy? No . . . but we are all bound to co-operate loyally with whatever foreign policy is agreed by the member states. We are in a bind here. We need a quasi-federalist structure if EU decision-making is extensive and binding unless we are to allow the larger countries untramelled determination of policy. But if we opt for such a system we must accept that what powers remain to us will by definition be whittled down (including taxation). What would actually be better for us is if the competences of the EU were severely circumscribed. Then it wouldn't matter if the larger countries had a disproportionate say, since that say would be very limited. That, unfortunately, means aligning ourselves with the British. That is where our real interests lie.

But our perception of ourselves and our wishful thinking about the EU require that we place ourselves in opposition to Britain on the development of the EU and in respect of relations with the US.

Britain will have a referendum on the euro, sooner or later. It will, formally or otherwise, be in effect a referendum on Britain's continued involvement in the EU at present levels, especially if the British Government continues to refuse to put the EU constitution to a referendum.

We should now be asking ourselves whether it serves our interests to stay in if Britain secedes.