(BRUSSELS) - Building Europe's defence capabilities is a centrepiece of France's EU presidency, but the Irish 'no' vote, British doubts and Paris's own budget limitations have cast a shadow over its plans.

On June 17, French President Nicolas Sarkozy vowed that his EU presidency starting Tuesday would be "first step in re-launching European defence for the coming years."

Yet his European affairs minister, Jean-Pierre Jouyet, acknowledged that these ambitions would be "most affected by the Irish 'no' to the Lisbon Treaty" just over two weeks ago.

One of the reasons for its rejection was concern about the future of Ireland's military neutrality.

EU leaders, with France at the helm, are set to examine in October the fallout from the referendum, which has sparked a new malaise concerning the bloc's future direction.

That fact alone makes it unlikely that any European "avant-garde" group can be created to forge ahead on defence issues, as was foreseen under the treaty, which is meant to adapt EU decision-making to its ever-expanding size.

But at Sarkozy's Elysee Palace, officials are playing down the problems.

"European defence is already a reality," with peacekeepers at work in complex places like Bosnia or hotspots like Chad, one official said, on condition of anonymity.

"You should not expect a big bang in the next six months," he said. "What we want is to give things momentum."

And momentum is one thing the EU's military machine has lacked.

Europe's defence ambitions have been dogged by concerns that they would conflict with, or duplicate, work carried out by NATO, the world's biggest and most powerful military alliance.

The official said France has other defence "priorities" that do not depend on the treaty being adopted, like the creation of an officer training school, progress in defence industry, and boosting Europe's ability to deploy forces.

But "in reality, the success or failure of the French presidency will depend in large part on the attitude of Britain," which has reservations about a number of French priorities, said a senior French military officer.

Paris wants London to drop its objections to budgeting of the European Defence Agency, which France sees as essential to harmonising military programmes, identifying security technologies and improving European autonomy.

France also wants Britain to lift its veto on a plan to create a permanent military headquarters in Brussels.

The idea which has been gestating since January 2007, but London sees in it a potential conflict for NATO, which has its headquarters based in the Belgian capital.

That battle is far from being won as long as "there is uncertainty linked to the weakness" of British Prime Minister Gordon Brown, following recent election set backs for his party, a senior French official said.

It all remains a problem despite France's effort to prove its transatlantic credentials by moving to fully reintegrate into NATO's command structure, a step welcomed by Britain.

The move, reversing a step taken by Charles De Gaulle in 1966, has also been applauded by the United States, and that support has had knock on effects, with US ally Poland now more favourable to Europe's defence arm.

Finally, France's European ambitions are in conflict with its very own military budget cutting announced in a new defence white paper this month.

Military spending will remain at 1.7 percent of gross domestic product, even as Paris urges its EU partners -- notably Germany -- to spend more, and NATO continues to call on its members to raise their budgets to 2.0 percent of GDP.

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