Merkel watches from the sidelines as the EU slowly falls apart

The EU world, at least from Brussels, appears to be falling apart.

The euro, the union’s most successful and binding element, is under constant attack, and all those who are part of it are suffering as a result.

The future of the union is being shaped by default as the devil details of the Lisbon treaty are being filled in in a way that owes more to which institution is strongest at the moment rather than to what Europe in a hostile world needs.

It needs a steady hand on the tiller, with a clear vision and indisputable leadership. But instead all those that should be giving leadership are missing, in action elsewhere.

Germany appears to be having an identity crisis as Angela Merkel struggles with her junior coalition partners and there are signs she would like to focus more on her childhood neighbours to the east, Poland and Russia with talks of closer alliances.

Every decision she has taken so far about the euro has been wrong – or at least she has had to change her mind. Now she has announced austerity measures for next year when everybody believes that enough is being taken out of the eurozone economy – much of it at the behest of Germany. Economists say a robust, spending Germany is needed to improve growth.

At the same time she has sidelined the European Commission and appears to trust nobody expect perhaps the IMF. Commission president Jose Manuel Barroso, whose past actions contributed to his institution being sidelined, now appears ready with his commissioners to take the kind of action that is needed but they are handicapped by growing inter-governmentalism.

His courageous attempt to call a spade a spade when he told a leading German daily that Chancellor Merkel’s response to the economic crisis was naive does not appear to have galvanised a fight-back. It’s a

little like when his predecessor Romano Prodi described the Growth and Stability Pact as the Stupidity Pact – true but beside the point.

France and Germany, together the motor of the EU, are not pulling together either. Chancellor Merkel is pursuing what seems to be a German need for simple, moralistic action with emphasis on punishing the wrongdoer, in this case strong sanctions against anybody breaking euro rules in future.

France is better at smoke and mirrors and in this case has the emphasis on process. It would like a Council of the Eurozone to govern the euro with a secretariat and a head and lots of policy papers. It prefers such bodies, as seen from its attitude to the ECB, not to be too politically independent and could be moulded over time.

Britain favours inter-governmentalism as a way of keeping the EU closer to just a common market.

In the council, president Herman Van Rompuy is trying to take control of the situation. From his perspective he does not want another institution such as the Council of the Eurozone.

In fact the last thing the EU needs is another institution, as is clear from the mammoth External Action Service headed by Catherine Ashton. It is shaping up to be a creature that fits uncomfortably in both the council and commission but is still without a common EU policy to push.

Inter-governmentalism may work, just as a dictatorship can work. But if smaller states, not normally consulted by Berlin or Paris, want to be part of the decision-making process they need to reassert themselves. They need the commission to reinforce the communitaire approach but they had better get their act together soon before the Lisbon treaty has been interpreted to their disadvantage.