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How many lessons do European Union policymakers need before they rid themselves of the illusion that Europe’s economy and financial system are to a considerable extent “decoupled” from those of the US?

In six EU countries - the Benelux trio, Denmark, Germany and the UK - we have seen emergency state intervention over the past few days to rescue or nationalise collapsing banks and mortgage lenders. In each case, the action would not have been necessary had it not been for the financial upheavals in the US.

Yet for most of September, EU finance ministers and other high-ranking officials were at pains to assure us that Europe would be only mildly exposed to any financial contagion emanating from the US.

It wasn’t true then, and it certainly isn’t true now. According to the International monetary Fund, European banks’ aggregate exposure to US subprime mortgages is roughly 73 per cent of the exposure of US banks. Moreover many European banks have become highly leveraged in recent years, leaving themselves with few escape routes when credit conditions tighten and they face unexpected losses and writedowns.

But this is not the first example of European complacency. Last January and February, EU policymakers - such as Jean-Claude Juncker,  head of the eurozone’s finance ministers’ group, and Joaquín Almunia, the EU monetary affairs commissioner - loftily dismissed suggestions that Europe’s economy might fall into serious trouble as a result of the US downturn. Europe was more self-sufficient, pursued better balanced policies and was more resilient, was the message.

Less than a year later, the major European economies - France, Germany, Italy, Spain and the UK - are all either in recession or on the brink. Between April and June, the eurozone suffered its first quarter-on-quarter contraction of GDP since the euro’s launch in 1999.

One can sympathise with the yearning of European policymakers to be “decoupled” from the US, in an economic sense. They see it as an affirmation of independence and the basis for a firmer European identity in the future. Some policymakers even seem to speak quite deliberately in terms that put political goals first and economic reality second.

But now reality is hitting the EU hard on the head. The attractions of wishful thinking have never seemed less persuasive.

The August war in Georgia, and Russia’s recognition of the breakaway enclaves of Abkhazia and South Ossetia, have plunged relations between Moscow and the European Union into their iciest condition since the Soviet Union’s demise in 1991. But if it plays its cards right, it is the EU, rather than Russia, that in the long run will gain something from the crisis.

One month after the Kremlin embarked on the path of dismembering Georgia by recognising Abkhazia and South Ossetia as independent states, what is most striking is how negatively the rest of the world has reacted. As far as I can tell, only Nicaragua has followed Moscow’s lead to the point of full recognition. Even Belarus, the former Soviet republic closest to Moscow, has held back.

Elsewhere, sympathy for the Russian position has come from Azerbaijan’s Armenian-controlled enclave of Nagorno-Karabakh, Turkish-occupied Northern Cyprus and Hamas in the Gaza Strip. All things considered, not a very impressive collection of supporters.

The most important expression of displeasure at Russia’s action, though carefully coded, came from China. For Beijing, the formal recognition of Abkhazia and South Ossetia was an attack on the principles of territorial integrity and non-interference in other states’ domestic affairs that the Chinese regard as sacrosanct.

As Bobo Lo, an expert at the Centre for European Reform think-tank, puts it: “The analogy that matters is not Tibet or Xinjiang - long under de facto as well as de jure control - but Taiwan… Moscow’s recognition of Abkhazia and South Ossetia establishes a dangerous precedent, whereby de facto control supported by a dominant external power can introduce new realities.”

Russia has not merely isolated itself but left itself “more friendless than at any time in the past 60 years”, Bobo Lo argues.

This presents opportunities for the EU. European leaders worry about their over-reliance on Russian energy supplies, and about Russia’s meddling in its former sphere of control in eastern Europe. But doesn’t China’s anger at Moscow’s attempted partition of Georgia create an opening for the EU to develop a closer strategic relationship with Beijing?

In a sense, such a move would replay Richard Nixon and Henry Kissinger’s use of “the China card” in the early 1970s. Of course, it would get nowhere without the support of the British, French and German - the EU’s dominant foreign policy players. But, as it happens, one or two European government ministers are already thinking along these lines.

Who, I wonder, will be Europe’s Nixon?

Remember Declan Ganley? He’s the British-born businessman who played a big part in Ireland’s rejection in a referendum last June of the European Union’s Lisbon treaty. Ganley often seemed a strange ally for the Irish nationalists, conservative Catholics and leftists who made up the No camp. But I saw him in action in Dublin and there’s no doubt in my mind that he was a formidable campaigner, fatally underestimated by the Irish political establishment.

Thanks to some good reporting by the Irish Times and the Czech newspaper Lidové Noviny, we now know a little more about Ganley. The Czech paper discovered that Ganley had paid a visit to Prague in late July and met President Václav Klaus, the Czech head of state. Klaus is a notorious eurosceptic who, immediately after the Irish vote, declared the Lisbon treaty dead - something not even President Lech Kaczynski of Poland or Gordon Brown, the UK premier, dared do.

As you’d expect, Klaus and Ganley got on like a house on fire. But when the Irish Times asked Ganley for his impressions of Klaus, this was his reply: “He has an amazing background of standing up to the Soviets and is a national hero in the Czech Republic.”

Ah-hem, not quite, Declan. Klaus was a young economist during the Prague Spring, which was crushed by Soviet tanks in August 1968. He worked at the Czechoslovak State Bank from 1971 to 1986, during the long dreary years of repression under Gustáv Husák, the Communist party leader installed after the Soviet-led invasion.

Klaus was certainly no party hack, but to talk of his “amazing” resistance to the Soviet Union is  farcical, as any Czech will tell you. As for his being a “national hero” - dozens of Czechs are drowning in laughter in their beer as I write.

All of which goes to show that running an effective political campaign is not the same as knowing your history.

Something unsatisfactory hangs over the summit that the leaders of the European Union and India will hold in Marseilles on September 29. These are two of the world’s most important power centres, and they share much in common, such a commitment to democracy and respect for a rules-based international order. But their partnership, though friendly, lacks real substance. It is marked by misunderstandings and friction as much as enthusiastic co-operation.

When the EU published its first ever Security Strategy in 2003, it identified the US as its closest ally and and five other powers with which it sought ”strategic partnerships” - Canada, China, India, Japan and Russia. Among those five, ties with Russia are under the greatest strain. But it is with India that the EU has its most under-developed relationship.

True, bilateral trade has more than doubled since 2003 and totalled more than €55bn last year. But the EU-Indian negotiations on a free trade agreement, which started in June 2007, are making slow progress and will not be concluded by the end of this year, as once hoped.

The EU frequently complains about India’s restrictive trade barriers and regulatory regime and say access to important sectors such as aviation, banking, insurance and telecommunications is difficult for foreign investors. India, for its part, rejects both the EU’s demands for more cuts in industrial tariffs and the EU’s stance on global climate change, saying it is a developing country that is under no obligation to slow its modernisation.

Wider strategic co-operation between India and the EU is affected by India’s view of itself as an emerging power that aspires to a bigger global role. The EU says it welcomes this, but when India lays claim to a seat on the UN Security Council - a perfectly reasonable request - it rapidly falls victim to the subtle national rivalries at play on this issue in the EU between France, Germany, Italy, Spain and the UK.

That issue aside, however, there ought be more intense co-operation between the EU and India on issues ranging from counter-terrorism and weapons of mass destruction to food security and failed or failing states. On Afghanistan, Iran, Pakistan and China, there is much the EU and India can and should do together. Where there’s a will, there’s a way.

Brussels would certainly be a duller place without the sparkling wit of Jean-Claude Juncker. As guest speaker at a think-tank breakfast on Wednesday, the Luxembourg leader was challenged by an over-excited British questioner to admit that the eurozone economy was in a complete mess. Lest matters grew even worse, the questioner asked,  shouldn’t Juncker and his colleagues immediately start arranging the “orderly” break-up of the single currency area?

As the European Union’s longest-serving prime minister and chairman of the ‘eurogroup’, which unites the eurozone’s 15 finance ministers, you would hardly have expected Juncker to answer this question in the affirmative. And indeed, he replied: “No … Something in my heart is telling me that the British will be happy [one day] to join the single currency.”

On the substance of the question, however, Juncker made the point that the disruptions to the individual national economies of the eurozone would surely have been far greater over the past 10 years if there had been no euro.

He listed the decade’s seismic events: 9/11, the Iraq war (which deeply divided European governments), the French and Dutch rejections of the EU’s constitutional treaty in 2005, the global financial market upheavals of the past 13 months. He even mentioned the increasingly worrying political paralysis in Belgium.

“Do you really think the European economy would be in better shape if we had had national currencies?” he asked. Would national central banks in Europe have been able to produce a better co-ordinated response than the European Central Bank and Jean-Claude Trichet, its president, had done during the market turmoil of recent months?

Then came Juncker’s masterstroke. “Would 15 or 16 Trichets be outperforming one Trichet? I don’t think so. Personally, I really think one Trichet is enough, by the way.”

European Union leaders are on course to approve a French-inspired pact on immigration policy at a summit in Brussels next month. The text of the pact may undergo changes before the October 15-16 meeting. But for now it looks as if this document will mark a subtle shift in power to national governments from the EU’s policymaking institutions.

That may surprise people who suspect the European Commission, European Parliament and European Court of Justice of constantly finding new ways to grab control of sensitive policy areas. And it is true that ever since 1999, when the EU’s Amsterdam treaty came into force, the pressure in Brussels for a supranational approach to migration, asylum and border management policies has become increasingly strong.

But the French-designed pact, whilst acknowledging the supranational ideal, at certain points just skips right over it. For example, it declares that “it is for each member-state to decide on the conditions of admission of legal migrants to its territory and, where necessary, to set their number”. Taken literally, this statement would make it virtually impossible to have common immigration rules.

Another example concerns the right of immigrants to have family members join them in EU countries. The French pact talks of regulating family reunification ”more effectively” - i.e., more strictly - and appears to ignore a 2006 ECJ ruling that confirmed the EU’s powers in this area.

A report by Sergio Carrera and Elspeth Guild for the Centre for European Policy Studies, a Brussels think-tank, says the French pact “is in fact guided by the principles of nationalism and intergovernmentalism. These principles are difficult to reconcile with the building of a common European policy on migration, borders and asylum.”

That seems accurate enough. But it is hard to avoid the impression that, when it comes to immigration, Nicolas Sarkozy and his ministers in Paris have their fingers on the pulse of public opinion. Brice Hortefeux, France’s minister for immigration, integration, national identity and the development of social solidarity (a revealing job title in itself!), says he wants a Europe that “will not be a fortress, but equally not a sieve letting through everything … organising legal immigration and putting a stop to illegal immigration”.

Even the European Commission admits there are up to 8m illegal immigrants in the EU. Except that these days the use of the word “illegal” is discouraged, in favour of terms such as “irregular” or “undocumented” migrants.

Significantly, the French pact, at least in its latest draft, prefers the word “illegal”.

The less often a country appears in the news headlines, the more likely that it is a peaceful, happy sort of place. But is this true of Kosovo? Its declaration of independence from Serbia in February, and its subsequent recognition by the US and 20 of the European Union’s 27 member-states, were big news at the time. Now Kosovo gets less attention, driven from our TV screens and newspapers by other events in Georgia, or Afghanistan, or Sudan.

An authoritative report by the Organisation for Security and Co-operation in Europe (OSCE) makes clear that Kosovo since February has had its fair share of good news as well as bad news. On the plus side, in spite of two outbreaks of politically motivated violence in northern Kosovo in the month after the February 17 declaration of independence, the overall security situation has “remained remarkably stable”, the report says.

Moreover, Kosovo’s ethnic Serb minority has not fled the breakaway province since independence. That suggests fears of severe discrimination, or worse, at the hands of the Albanian majority were overdone. Meanwhile, democratic elections have been successfully held for a Kosovo-wide assembly as well as for municipal assemblies and mayors.

On the other hand, corruption, human trafficking and shortcomings in the judicial system are serious problems. Above all, the Serbs of northern Kosovo are in some ways even less integrated into Kosovo’s life than they were before independence. “The separation of the Kosovo Serbs increased through the establishment of parallel political institutions and the strengthening of parallel social institutions such as education, health care, social welfare and pensions,” the OSCE says. 

In other words, the Serbs are doing pretty much what the Kosovar Albanians used to do when they were under the thumb of Slobodan Milosevic, the deceased Serbian autocrat, in the late 1980s and 1990s. Of course, Milosevic treated the Albanians far worse than the Albanians are treating the Kosovo Serbs. And this time round, the Serbs of northern Kosovo are receiving encouragement from neighbouring Serbia to make little or no effort to integrate with the majority population.

But this cannot disguise the fact that the construction of “parallel institutions” among ethnic groups that see themselves under threat is a well-established practice in Kosovo - as in Bosnia-Herzegovina and other places in what used to be communist Yugoslavia.

Northern Kosovo, in fact, appears at risk of turning into Europe’s next “frozen conflict” - or, to put it less felicitously, a “pre-frozen conflict”, since at least there have not been any serious clashes there since March. It is good that a degree of calm has settled on Kosovo over the past six months, but no one should be under any illusions that it will stay that way indefinitely.

August 7 was some day in European history. In Georgia, a war broke out. In Strasbourg, the ceiling of the main chamber of the European Parliament fell down.

Unlike in Georgia, there were no casualties in Strasbourg. No one was even in the chamber at the time - a not unusual sight. Only 12 times a year do hundreds of Brussels-based parliamentarians, aides, lobbyists and media people make the 430km trip to Strasbourg for a monthly plenary session of the legislature. The rest of the time, their base is the Belgian capital.

With the ceiling in ruins, parliament officials were obliged last week to hold the first plenary meeting of the new political season in Brussels. The next session, from September 22 to September 25, will also be staged in Brussels.

Dare one suggest that this arrangement should be made permanent? After all, the cost of decamping to Alsace once a month is estimated at €200m a year - not to mention all the extra CO2 emissions from the travel.

Some surveys suggest that more than 80 per cent of parliamentarians want one permanent home for their assembly, and that a similar majority want it to be Brussels. “As long as we have to travel to Strasbourg, people will rightly say that the EU is wasting money,” says Gary Titley, leader of the UK Labour party group.

But it isn’t going to happen, is it? No French government will give up the prestige and influence perceived to come from playing host to the legislature. From a French point of view, the beauty of Strasbourg as a location for a major EU institution is that the city not only symbolises Franco-German reconciliation but, nowadays, is emphatically French territory.

Besides which, the present arrangements for the parliament are written in EU treaty law and cannot be changed without the approval of all 27 member-states. Apparently, it’s not just the ceiling in Strasbourg that needs some repair work.

How much will it cost the European Union to fight global climate change? Clearly, the answer depends on what your target is, how you propose to get there, and the size of the EU’s contribution compared with those of the US, China and so on. But a new report from the Centre for European Policy Studies thinktank offers some useful estimates.

The report assesses six recent studies, ranging from the Stern Review and a World Bank analysis to research prepared by Vattenfall, the Swedish energy company. In these reports, the average annual global costs for mitigating and adapting to climate change are put at anything from €230bn to €614bn, based on 2006 data.

The EU is not, these days, one of the world’s great polluters. In 2004, the global economy emitted about 49bn tons of greenhouse gases (measured in CO2 equivalent). The share of the 27-nation bloc was only 5.2bn tons, or 10.6 per cent.

However, as western Europe is one of the world’s richest areas, and as Europe has historical responsibility for the CO2 emissions of its industrial heyday, the EU will surely have to pay more than 10.6 per cent of the global costs of fighting climate change.

According to the CEPS study, the smallest bill the EU could expect to pick up is €24.4bn a year, while the biggest is €194.3bn. The thinktank’s own estimate, based on what it calls “the limited likelihood of a global burden-sharing according to current emissions”, is that the EU will face annual costs of at least €60bn.

This figure is close to the forecast provided by the European Commission last January, when it published its all-encompassing proposals on energy and climate change policy. At the time, the Commission said €60bn - or about 0.5 per cent of the EU’s annual GDP - might seem a lot of money, but the cost of doing nothing would be even higher.

Has the message got through, I wonder, to Germany’s car manufacturers and their friends in the European Parliament? This week the legislature’s industry committee tried to weaken a Commission proposal for capping CO2 emissions from new cars.

Rather than imposing a target of 130 grams per kilometre on all new cars by 2012, the committee voted to apply it to only 60 per cent of new cars and to delay full introduction of the target until 2015. The vote was unmistakeably aimed at helping German carmakers, whose models are bigger and less “green” than those of France and Italy.

This is, of course, hardly the last word on the subject. The parliamentary committee’s vote isn’t binding. But when it comes to converting the EU’s high-sounding principles on climate change into concrete legislation, the devil is always in the detail.

In Cold War times it was a rule of thumb that, whenever the Soviet Union’s behaviour was particularly bullying, the US and western Europe would put aside their differences and close ranks in reaction. Conversely, when Moscow was less threatening, there was less pressure for complete unity in the western alliance. France (Charles de Gaulle), West Germany (Willy Brandt) and the US (Richard Nixon) each sought benefits for their own countries from closer contacts with the Soviet leadership.

For all the European Union’s show of unity on Monday at its emergency summit in Brussels, the crisis over Russia’s destruction of Georgia’s territorial integrity clearly hasn’t reached the point at which all the Europeans are with each other in heart and soul. The explanation isn’t hard to find.

Today’s 27-nation EU is a very different creature from the European Community of the 1970s and 1980s, which started with six members and still had only 12, all in western Europe, by the end of the Cold War. It is the inclusion of Austria, Finland and Sweden in the 1990s and, above all, of 10 former communist bloc countries since 2004 that has made the difference.

Take the remarks made at Monday’s summit by the leaders of Poland and Austria. In what was a clear reference to the Germans, Italians and others, Donald Tusk, Poland’s prime minister, complained: “There are politicians, even in Europe, who would prefer empty conclusions because of their intensive bilateral relations with Russia.”

By contrast, Alfred Gusenbauer, Austria’s chancellor, was adamant: “I’m against any kind of escalation.” Russia and the EU, he said, have “strategic reasons for reasonable co-operation”.

The summit saw a gap between countries such as the Czech Republic, Estonia, Latvia, Lithuania and Poland - all former Soviet satellites - and France, Germany and Italy. The former group sympathises strongly with Georgia, whereas the latter trio is highly critical of Mikheil Saakashvili, the Georgian leader, and enjoy flourishing trade and investment relationships with Russia that they have no wish no jeopardise.

However, it would be wrong to assume that the eastern Europeans are hotheads pressing for some kind of showdown with Moscow. Not at all. Geographically, they are on the frontline. They are, for the most part, small states. Two are extremely small and have restive Russian minorities. Open confrontation is even less in their interests than it is in those of France or Germany.

Rather, the eastern Europeans are drawing on their experience of Soviet behaviour to alert their western European partners to the need to respond firmly when Russia crosses the line, as all EU countries say it has done in Georgia. Their alarm is understandable because Georgia is part of the same former sphere of Russian control to which they once belonged. “Who will be next?” they are thinking.

However, economic or even tough diplomatic sanctions against Russia were never going to be announced at the summit. The EU is not a military alliance or even a regional policeman for Europe. Its common foreign and security policy is a work in progress, not a solid fact. Negotiation, partnership and a knack for fashioning ingenious compromises out of nothing are the EU’s very spirit and life force.

The only problem is that Russia, in its present mood, may not be especially susceptible to this type of approach.