If you think the economic news is grim in the US, the UK or Germany, spare a thought for the small Baltic states of Estonia, Latvia and Lithuania. All face the prospect that their gross domestic product will collapse this year by 10 to 12 per cent. Moreover, all operate a so-called currency board regime, or peg, which restricts the movement of their currencies against the euro and prevents them from stimulating economic recovery by means of exchange rate depreciation.

One answer, as the International Monetary Fund pointed out a few weeks ago, would be for the European Union to relax its rules and let the Baltic states swap their currencies for the euro without formally joining the eurozone. This would in principle ease their foreign debt problems and restore confidence among foreign investors. The alternative - severe government austerity programmes, followed by a sharp drop in living standards, social unrest and political instability - seems far too harsh and risky a solution.

But the EU’s authorities, especially the European Central Bank, are dead against unilateral adoption of the euro by any EU member-state. One can see why. If the experiment went wrong, there would be a danger of contagion spreading to the 16-nation eurozone itself. The guardians of European monetary union, a project only 10 years old and one that is central to the notion of ever closer European integration, are simply not prepared to take the risk.

Across central and eastern Europe, however, the voices speaking up in favour of a rapid, unorthodox switch to the euro are getting louder. Today it’s the turn of Ludek Niedermayer, a former deputy governor of the Czech central bank, who writes: “Unilateral adoption of the euro would be extraordinary. But so too is the economic crisis. Tolerating such a move would not reduce, but rather boost, the EU’s credibility.”

What almost no one has bothered to mention so far in this debate is that two places in central and eastern Europe already use the euro without being formal eurozone or even EU members. They are Montenegro and Kosovo, which unilaterally adopted the euro on January 1, 2002, at the same time as France, Germany and other founder-members of the eurozone. This has given Montenegro and Kosovo some protection against the whirlwinds whipped up by the world economic crisis.

Amazingly, though, Montenegro’s authorities - or, at least, the chief economist at its central bank - do not recommend unilateral adoption of the euro by the Baltic states and others. Such a step would risk incurring the wrath of EU policymakers and even the denial of various EU funds and grants, the Montenegrins caution.

To summarise: a country that is outside the EU and outside the eurozone, but uses the euro, is telling countries that are inside the EU but outside the eurozone not to use the euro, while the EU and eurozone let countries that are outside themselves use the euro but won’t extend the privilege to countries inside the EU but outside the eurozone.

There are the makings of a good farce in this - if we weren’t all losing our money.

They say newspapers are the first draft of history. Here I’m on a mission to prove that blogs are the second draft.

The piece of history I have in mind is the European Union summit of March 19-20, when the bloc’s 27 leaders issued a statement pledging €75bn in new EU contributions to the International Monetary Fund to help fight the global economic crisis. This commitment was duly reported in the Financial Times and other newspapers and was the “first version of history”.

Some of us were struck at the time by the fact that the EU’s financial pledge was denominated in euros, not in US dollars. It looked a little odd because, in the discussions preceding the EU summit, all the talk had been about promising an amount between $75bn and $100bn. No one had suggested calculating the figure in euros rather than dollars.

No one, that is, until the morning of Friday March 20 - and now I can reveal the “second version of history”. For it turns out that it was Gordon Brown, the British prime minister, who proposed announcing fresh EU contributions of €75bn rather than $75bn-$100bn. He did so knowing full well that the euro was strong enough against the dollar for the amount, when converted into dollars, to end up being slightly more than $100bn - which was precisely his intention. 

According to one non-British summit participant, Brown’s gambit succeeded brilliantly “because across the whole table there were only three or four other leaders who understood what he was up to”, and they raised no objections.

Ah, well, I haven’t got the bit about the more or less general ignorance of exchange rates among EU leaders verified from other sources. So, for the moment, we’ll have to agree that it sounds good - but doesn’t count as the “third version of history”.

Like the animals that boarded Noah’s Ark, Europe’s leaders are entering their summit conference centre in Brussels today with the world’s economic floodwaters rising around them. According to the Book of Genesis, Noah was almost 600 years old when the rains started. That surely makes him the Old Testament forerunner of Jean-Claude Juncker, Europe’s longest-serving leader. The gaunt-looking Juncker has been prime minister of the Grand Duchy of Luxembourg since 1995 and its finance minister since 1989.

As the leaders climb on board for their two-day European Union summit, it is eerie to hear them, one by one, saying exactly the same thing.  “We don’t need to do a new fiscal stimulus… Any room near the lifeboats over there?”  “We don’t need another fiscal stimulus… I’ll just squeeze in here by the bilge water.”  “Another fiscal stimulus? We don’t need one… Pass me a life jacket, would you?”

The leaders are indignant at people in President Barack Obama’s administration - not the US president himself, it appears - who say Europe isn’t doing enough. Look here, goes the argument, we’ve passed a fiscal stimulus worth €200bn. When you add in the “automatic stabilisers” - unemployment benefits and other social security expenditure triggered by a recession - that takes the total boost to the EU economy to €400bn, or 3.3 per cent of gross domestic product, spread over 2009 and 2010.

Well, over on Mount Ararat stands a Nobel prize-winning economist called Paul Krugman, who totally disagrees. He estimates that the US and EU should each be running stimuluses that peak at 4 per cent of GDP annually - not spread over two years. In reality, he says, the US is “not doing enough to fight the crisis, and Europe is doing a bit less than half as much as the United States”.

I can’t say for sure if Krugman is right. But when I popped into Noah’s Ark just now, I bumped into Paul Taylor, the distinguished Reuters European affairs columnist. He was having a good chuckle about the European argument that the ”automatic stabilisers” provide a healthy boost to the economy. If it were really that simple, he pointed out, Europe might as well sack all its workers - now that would be some stimulus!

Anyone remember the Lisbon Strategy? This was a grand European Union programme, adopted almost exactly nine years ago, to turn the EU into “the most competitive and dynamic knowledge-based economy” in the world by 2010. It set a number of specific targets, such as average annual economic growth of 3 per cent and an overall employment participation rate of 70 per cent.

Given the crisis the world economy now faces, it would be cruel and gratuitous to mock the EU’s lofty ambitions of March 2000. Suffice it to say that a new report prepared by Allianz, the German insurer, and the Lisbon Council, a Brussels-based think-tank, says that Europe’s recession “is so severe that none of the countries surveyed can presently come up to the Lisbon goals”.

Assessing how far each country falls short is by no means a futile exercise, however. Michael Heise, the report’s principal author and Allianz’s chief economist, ranks the EU’s 14 largest economies according to six criteria - economic growth, productivity growth, jobs, human capital, future-oriented investment and sustainable public finances.

His conclusion is that Finland comes top, with strong results in human capital (that famous Finnish education system), public finances, and research and development (allocated an impressive 3.45 per cent of gross domestic product a year). Second comes Poland, which scores well on economic growth and productivity growth but badly on jobs.

Heise estimates that if the recession had not intervened, six countries would have been on track to meet their Lisbon targets by 2010 - Finland, Greece, the Netherlands, Poland, Spain and Sweden. The Spanish performance is a bit of an optical illusion: Spain improved its labour productivity, but only by shedding jobs on a massive scale.

Who’s been doing worst? Very striking is the fall from grace of Ireland, which crashed to 13th in this year’s rankings from fourth in 2008. The Irish performance in economic growth, productivity and public finances makes grim reading.

And bottom of the pack, like last year, is Italy. Italy’s persistent lack of business competitiveness compared to Germany, and its tendency to be the first eurozone country to fall into recession whenever the economic outlook darkens, are an extremely serious long-term concern for Europe’s monetary union.

Who will be the next European Commission president? Until recently, José Manuel Barroso looked comfortably placed to secure reappointment for a second five-year term at a summit of EU leaders in June. Now the picture is not so clear.

French President Nicolas Sarkozy put the cat among the pigeons on Sunday when he refused to reaffirm the support for Barroso’s candidacy that he had offered during France’s spell last year in the European Union’s rotating presidency. “I like Mr Barroso a lot, I’ve enjoyed working with him, I have confidence in him,” Sarkozy said, his words sounding ever more hollow the longer his sentence stretched on.

Sarkozy suggested it might be best to wait until Ireland has held its second referendum on the EU’s Lisbon treaty - perhaps in October - before choosing the next Commission president. For the pro-Barroso camp, this proposal was out of order. EU leaders had decided at a summit last December that they would select the next Commission chief in June.  If every leader went round disregarding things that have already been agreed, where would the EU be?

It’s doubtful that such arguments cut much ice with Sarkozy. His eyes are fixed on June’s European Parliament elections. His socialist and centrist opponents will try to paint him as being in the same “neo-liberal” economic policy camp as Barroso. It’s quite hilarious, really. Viewed from Brussels, Sarkozy looks nothing like a neo-liberal, but rather like a classic French dirigiste.

Be that as it may, Sarkozy doesn’t want to be identified with an economic philosophy that is seen in France as having brought the world economy to its knees. For French electoral purposes, this philosophy is symbolised by Barroso.

Almost certainly, however, there is another reason for Sarkozy’s doubts about Barroso. The French president thinks the world economic turmoil is an epoch-changing event, one that will bury a certain type of capitalism forever, and one that demands the most creative thinking and vigorous action possible in response. He thinks Barroso and the European Commission in general are missing the point and are haplessly fighting yesterday’s battles.

Perhaps Sarkozy has a point. But if so, which European politician does he think has got the vision, dynamism and courage to do the job? Or would he, in fact, prefer a tame Commission president, who meekly took instructions from a certain visionary, dynamic and courageous leader in the Elysée Palace?

According to Czech Prime Minister Mirek Topolanek, the selfish economic nationalism of certain eurozone countries “has deformed the joint project of the euro more than any other imaginable event”. Is Europe’s monetary union at risk as a result of narrow-minded, reckless or incompetent government responses to the financial crisis?

Undeniably, the recent sharp widening in spreads between Germany’s bond yields and those of countries such as Greece, Ireland and Portugal points to unprecedented strains in the 16-nation eurozone. Moreover, the gap in business competitiveness between Germany and many of its partners is a serious long-term concern.

But in an excellent discussion paper, Jacques Cailloux, Silvio Peruzzo and Harvinder Sian of the Royal Bank of Scotland suggest that the question that needs asking is not whether the eurozone will break up but, in fact, just the opposite. They say their “core expectation” is that the crisis will lead to closer economic co-operation in the eurozone. “If the crisis develops further, then we would expect policy shifts that could include increased fiscal co-operation, a larger EU budget, greater oversight of budgets by other countries and a EU contingency fund for sovereigns.”

Such steps would go significantly beyond the type of monetary union EU policymakers drew up in the 1990s. But as Cailloux and his colleagues say, it usually takes a crisis to push the EU into a far-reaching redesign of its institutions. In any case, the point the doomsayers tend to miss is that, if the eurozone really appeared in danger of collapse, then governments, the EU authorities in Brussels and the European Central Bank would not just sit back and helplessly watch it happen.

Still, it looks as if the crisis will have to get noticeably worse before EU policymakers leap into action to tighten eurozone integration. They may not have long to wait. The RBS authors estimate that the eurozone banking sector’s losses over the next three years will total €750bn. The need for bigger rescue plans to support the banking system will increase the funding difficulties facing eurozone governments, some of which already have far too high levels of public debt.

If I have two quibbles with the RBS paper, the first is the absence of any analysis of how German politicians, business people and voters would react to proposals for a more closely integrated eurozone. At present, it is quite clear that German opinion is against anything that smacks of a German bail-out for profligate eurozone countries.

The second point concerns the RBS argument that the only way out of the financial crisis for the eurozone’s “weak periphery” - Greece, Ireland, Portugal, etc - is “fiscal stricture, imposed by new market discipline and severe domestic demand contraction, through a combination of a protracted decline in consumption and private investment”. This sounds rather like a recommendation for an economic slump. Voters surely wouldn’t take that lying down, any more than EU policymakers would if monetary union were in peril.

The European Commission’s spring 2009 Eurobarometer poll on public attitudes towards the European Union should be the most interesting in a long while. No such survey has been conducted with Europe’s financial system in such precarious condition and its economic outlook so grim. Large drops in output are forecast everywhere: a 4.9 per cent contraction of the economy this year in Lithuania, 4 per cent in Ireland, 2.3 per cent in Germany, 2 per cent in Italy.  To some extent, this will surely be reflected in a blacker public mood across the EU.

Yet in their most recent survey, carried out in autumn 2008,  the Commission’s pollsters cautioned that “the division of countries by positive and negative trends does not necessarily reflect the economic outlook in these countries, although some countries show a correlation”. People can have good feelings about the EU, so the argument goes, even if their economies are in recession and they’re losing their jobs.

The autumn 2008 poll did show that, across the 27-nation bloc as a whole, the EU’s positive image had steadily slipped over the previous 18 months. After reaching a peak in spring 2007 of 52 per cent - the highest level of the new millennium - it dropped to 49 per cent in autumn 2007, 48 per cent in spring 2008 and 45 per cent last autumn.

Thirty-six per cent of respondents had a neutral image of the EU last autumn, up from 31 per cent in spring 2007, while 17 per cent had a negative image, up from 15 per cent. Overall, this does not suggest that the EU is suffering from a credibility crisis or that there is a surge of public disillusionment, let alone hostility, towards the bloc and its institutions.

Particularly striking are the results for individual countries. The most positive feelings about the EU were recorded last autumn in Romania (63 per cent), Ireland (59 per cent), Bulgaria and Slovenia (both 58 per cent). Slovenia’s high score probably owes something to the fact that it held the EU’s rotating presidency in the first half of 2008. In Romania and Bulgaria, the main factor was perhaps their relatively recent admission to the EU, which more than compensated for any disappointment at EU criticism of them for corruption and mismanagement of EU funds.

The Irish figure is quite remarkable when you consider it was only last June when Irish voters rejected the EU’s Lisbon treaty in a referendum. It tends to support the view that you can be positive about the EU and negative about the Lisbon treaty at one and the same time.

One poll result that seems unlikely to change is the socio-demographic profile of the typical pro-EU European citizen. A person who is positive about the EU is more likely to be male (50 per cent) than female (42 per cent), to be young (aged 15 to 24: 54 per cent, aged 55 or older: 42 per cent), to have spent longer in education and to have “a good objective knowledge” of EU affairs.

Of course, one could ask the question: What precisely is “objective knowledge” of the EU? But that’s for another time.

The European Union’s much-touted €200bn fiscal stimulus package is looking more and more like one of those trick cigars I remember from years ago. A trick cigar looks like a cigar. It even feels like a cigar. But when you try to smoke it, nothing happens.

In the case of the EU’s fiscal stimulus - an initiative designed to pull Europe out of its deep recession, and approved by EU leaders at last week’s summit in Brussels - one gets the distinct feeling that someone somewhere is trying to pull wool over the general public’s eyes. The €200bn is there on paper, but there is not much evidence of it in the real world.

This is explained very clearly by David Saha and Jakob von Weizsäcker in a freshly published study for the Bruegel think-tank, “Estimating the Size of the European Stimulus Packages for 2009″. They say only one country in the 15-nation eurozone is genuinely applying the classic Keynesian recipe of increased deficit spending to counter a downturn. That country is Spain.

Particularly startling is their analysis of the measures recently unveiled in Italy by Prime Minister Silvio Berlusconi’s government. Officials in Rome portrayed this as an €80bn stimulus, or roughly 5 per cent of Italian gross domestic product. What nonsense. The Bruegel economists conclude that the Italian measures announced since September add up not to a stimulus, but to the opposite - a small fiscal tightening of €0.3bn!

As it happens, there are very good reasons why it would be imprudent for Italy to embark on a spending spree right now. With a public debt higher than its annual economic output, and with financial markets acutely nervous about traditionally profligate borrowers such as the Italian state, Berlusconi and his colleagues need to show great care in navigating their way out of the recession.

As the Italian example suggests, there is rather more support in private around Europe for Germany’s well-known apprehension about the EU-wide fiscal stimulus than is admitted in public. To name just a few countries - in and outside the eurozone - that share Germany’s wariness, think of Lithuania, the Netherlands, Poland and Sweden. And, of course, the European Central Bank is sympathetic to Germany’s position, too.

The bottom line is that, whatever the severity of the recession, Europe’s leaders are loath to do anything that might imperil the euro and the cohesion of the eurozone. For them, this is the multi-national European project that matters. As far as possible, therefore, they will try to stay within the limits set by the Stability and Growth Pact, the EU’s fiscal rulebook. And this means restricting the scope of a European fiscal stimulus.