Every small country goes to bed at night dreaming that it is big. For a Caribbean island best known for sugar, rum, beaches and the rumba, Cuba has done itself proud by provoking the most serious of recent contretemps between Europe and the United States. At issue is the Helms-Burton law, passed in March, which establishes sanctions for certain foreign businesses and their executives if they do business with the Castro regime. President Clinton's decision this week to postpone for six months the full application of these provisions has brought a temporary respite in the nasty exchanges between Brussels, Washington and other European capitals, but yesterday President of the Board of Trade Ian Lang declared that a stay of execution is not adequate. Pending repeal of the law, he and his European colleagues will continue to study counter-measures against the United States.

Americans find this European hysteria hard to fathom. Contrary to what the Times declared in an editorial two days ago, the legislation would not expose foreign countries to American sanctions for trading with Cuba''. Quite the contrary: investors from Britain or elsewhere are perfectly free to do anything they want in Cuba, except traffic in stolen property. This is a well-established principle of international law, and no longer a controversial issue even in most developing countries, which have come to understand that respect for property rights helps them even more than foreign investors.

Nor, contrary to the impression widespread in Europe, is it true that the number of American properties affected is very large. At present there are just over 100 revolutionary claims in Cuba still outstanding; it just so happens that one of them, relating to Cuba's nickel deposits, has been acquired by Sherritt International, a Canadian firm with important British participation. Another is Cuba's state telephone system, which has excited the appetites of potential investors in both Mexico and Italy. The vast majority of new investments in Cuba, largely in the hotel and tourist industries, are unaffected.

So what is the fuss about? Explaining other countries' motives is always risky, but an American may perhaps be forgiven for thinking that a confrontation with the Helms-Burton law is an easy way of scoring some political and cultural points. Despite the elaborate bureaucracies in place in Brussels and Strasbourg and the fulsome rhetoric that goes with them, people in most European countries, in my observation at least, don't feel very European'' at all. A dust-up with America over trade might be just the way to solidify Europe's fragile sense of common identity.

Americans are already familiar with this sort of thing in the case of Canada, for which Cuba (of all places) has come to serve as a touchstone of national independence and unity both commodities otherwise in short supply there. Americans have likewise learnt to endure the same from Mexico, where solidarity with Castro is the perpetual consolation prize for the increasing surrender of economic policy choices to the International Monetary Fund and the American Treasury. Let's not forget, either, that even Franco's Spain made a point of maintaining cordial relations with Castro; as the arch-anti-communist Caudillo himself used to chortle, it was a delicious revenge for Spain's defeat by the United States in 1898. No doubt these feelings are legitimate, but they are not likely to provoke a significant change in American law.

Cuba today is experiencing a deep economic and social crisis, due partly to the irrationalities of central planning, but even more to the end of Soviet subsidy. Castro's recent decision to sell off confiscated American assets should not be confused with a genuine recognition that his country requires thoroughgoing economic reform. Quite the contrary. The Cuban dictator is acting like the captain of a sinking ship who throws the wooden fittings of the ship into the boiler, hoping to reach the shore before the supply of fuel gives out. One bet, that the Communists would win the Russian elections, has been lost. Another hope, that European, Canadian and Mexican tourism could replace the annual $6 billion from Moscow, is not materialising. Even a major trade dispute between Europe and America is not likely to provide resources for Castro's political survival.

Far from forcing him to become more repressive, the American embargo has introduced new pressures for him to open up the benefits of the free market to Cubans not just to a select group of Europeans and Canadians. Once Cubans are allowed to hire other Cubans (rather than to work for foreign companies, which have to pay their salaries to the Cuban state), the island will genuinely be starting to open up, politically and economically. That is what American policy is intended to promote. Europe ought to be supporting the policy, rather than picking a fight with the United States. In the long run it will be even better for business.