As Tony Blair’s chances of becoming the European Union’s first full-time president fade, so the chances go up that David Miliband will be the EU’s next foreign policy supremo.  This is the picture emerging on the second day of the EU summit in Brussels.

The killer blow to Blair’s prospects was delivered by Angela Merkel, Germany’s chancellor, who let it be known that she would prefer the EU’s first permanent president to come from one of the EU’s smaller states.  By definition, this rules out Blair.

German officials say she has nothing against Blair personally.  But in this matter Merkel’s voice is perhaps the most important among all the 27 leaders present.  Germany is not putting forward a candidate either for the presidency or for the foreign policy post.  It is, however, the EU’s biggest country and its paymaster.  Merkel is therefore the honest broker, the swing vote, the kingmaker - however you want to put it.

Meanwhile, Blair has lost the support of José Sócrates, Portugal’s prime minister, and of José Luis Rodríguez Zapatero, Spain’s prime minister.  Both are socialists and both think Europe’s centre-left should focus not on getting the presidency but the foreign policy job.

That is why the summit chatter about Miliband is getting ever more excited.  Looking around Europe, one does not see too many foreign policy stars on the centre-left side of the political firmament.  And check out this editorial in Thursday’s Le Monde on Miliband.  It describes him as “the young and brilliant foreign secretary” and praises his commitment to the EU, contrasting it with the views of William Hague, the Tory shadow foreign secretary, whom it accuses of “an almost pathological europhobia”.

With Le Monde on your side, how can you lose?

As European Union leaders gather for their two-day summit in Brussels, the word is that the British government’s effort to have Tony Blair selected as the EU’s first full-time president is running into trouble.

Prime Minister Gordon Brown has just finished a round of afternoon discussions with other European socialist leaders, trying to persuade them that Blair deserves the job.  The talks did not go well.

Martin Schulz, chairman of the European Parliament’s socialist group, made it plain that he and many other Continental socialists didn’t want the EU presidency to go to a Briton.  The reason?  The UK is semi-detached from Europe, not in the euro area, not in the Schengen zone permitting border-free travel around the EU, etc, etc.

Moreover, the socialists think they have a better chance of getting in one of their own people as the EU’s next foreign policy high representative than as the first full-time president.  With 20 or so of the EU’s 27 governments controlled by the centre-right, they reason, national leaders are bound to pick someone from their own political family for the EU presidency.

Of course, you could argue that some centre-right leaders - Italy’s Silvio Berlusconi comes to mind - are perfectly happy to see Blair in the job.

But maybe not in France and Germany.  French President Nicolas Sarkozy and German Chancellor Angel Merkel met for dinner in Paris on Wednesday night, and word is reaching reporters in Brussels that the two leaders were lukewarm about Blair’s candidacy.  If true, that would come close to polishing him off - or, rather, it would enable him to say he had never been a candidate in the first place.

The fuss over who will be the European Union’s first full-time president is obscuring the less sexy but potentially more important question of who will get the two or three most powerful jobs in the next European Commission.  A good many governments would prefer to see one of their nationals in a truly influential economic policymaking role in the Commission than occupying the EU presidency, which may turn out to be a more hollow job than once foreseen.

Commission president José Manuel Barroso says he will not nominate his new team until EU leaders have chosen their new head of foreign policy, a post that entitles its holder to a Commission seat.  Any country wanting a big economic portfolio at the Commission will therefore steer clear of putting forward a candidacy for the foreign policy job, because there is only one Commission seat for each nation.

Does this explain why the German government has proposed Günther Oettinger, prime minister of the state of Baden-Württemberg, as its next commissioner?  He doesn’t have obvious foreign policy credentials, so  the German idea is almost certainly to slot him into a top economic job.

Three portfolios in the outgoing Commission - competition commissioner, internal market commissioner and trade commissioner - stand out from the rest, because they bestow real power on their occupants.  They are the policy areas where Europe is most effective at speaking with one voice and exerting worldwide influence.  It would make sense for Germany, which was disappointed by the performance of its outgoing representative, Günter Verheugen, as industry commissioner, to want one of these jobs.

If the internal market portfolio is rejigged, perhaps in order to put a stronger focus on Europe’s response to the financial crisis, it is easy to imagine a scramble among the bigger EU countries to be put in charge of financial regulation.  France is said to be keen on getting something meaty like this (Michel Barnier, or perhaps Christine Lagarde?).  Of course, this would rule out the foreign policy position for a Frenchman - but Paris, better than most national capitals, knows which jobs in Brussels contain the beef and which the onions.

What about the UK?  The intriguing point here is that it would be extremely simple for Prime Minister Gordon Brown to quash the rumours that David Miliband, his foreign secretary, is manoeuvring to be the EU’s next foreign policy supremo.  All Brown would need to do is to announce that Catherine Ashton, the British EU trade commissioner, was being renominated to Barroso’s team.  Or Brown could name someone else.  Either way, it would instantly rule out Miliband as the head of EU foreign policy.

But Brown hasn’t done that.   It is anyone’s guess why.  But one explanation is that, with Tony Blair’s undeclared EU presidential bid far from certain of success, Brown needs other cards to play.  If Blair is the British government’s queen of hearts, Miliband is, you might say, the knave of spades.

There can be few presidential campaigns that have kicked off with the declaration “I am not a dwarf”.  But this is what Le Monde quotes Jean-Claude Juncker today as saying in the interview in which Luxembourg’s prime minister reveals he would consider being a candidate for the European Union’s presidency “if the call came”.

I have interviewed Juncker and seen him in action more than a few times over the years, and I can confirm that he is not a dwarf - though I have heard other disparaging terms applied to him that need not concern us here.  What most interests me is the enormous gulf in perceptions of Juncker’s potential candidacy between the UK and certain mainland European countries.

In UK government circles, Juncker is seen as a non-starter for two reasons.  First, the president’s job will be to represent the EU on the world stage, especially - according to one view - when sudden crises flare up, such as the August 2008 war between Russia and Georgia.  During that conflict, President Nicolas Sarkozy of France represented the EU as the holder of the bloc’s rotating presidency, and even he - one of the EU’s true big hitters - found his negotiations with the Russians extremely tough going.  Juncker, as the leader of the EU’s 26th biggest country (population 500,000 out of a EU total of 500m), would in the British view just not be taken seriously enough as the EU’s voice in such a crisis.

Secondly, Luxembourg represents a country with a profound commitment to deep European integration, something that is anathema to the British.  It is the same objection that caused the UK to reject the candidacy of Guy Verhoftstadt, the former Belgian premier, for the European Commission presidency in 2004.

On the Continent, especially in some of the EU’s western European member-states and in certain smaller countries, Juncker is seen as an entirely credible candidate.  Members of the German Bundestag and foreign policy establishment admire him, though it is open to question whether that view is shared by Chancellor Angela Merkel.  In the end, she is the only person in Berlin whose opinion matters, since she will make Germany’s choice.

As was pointed out by Le Monde’s interviewer, Juncker appears to have fallen in Sarkozy’s estimation over the past year because of the Luxembourger’s alleged inability to rise to the occasion when the global financial crisis struck Europe.  Accurate or not, this observation prompted a smooth reply from Juncker on Sarkozy’s brilliance as the EU’s president from July to December 2008: ”Europe has never been led with such perspicacity as under the French presidency.”

I feel pretty sure that such compliments won’t ever make Sarkozy support Juncker as the EU’s first full-time president, since the French head of state’s own six months in charge of the EU gave a good idea of the kind of dynamic leadership that he thinks Europe needs.

But that probably won’t upset Juncker, since he is a canny politician whose instincts surely told him long ago that he would never get the job and that the most he could hope for would be to sabotage Tony Blair’s candidacy.

Twenty years ago, on October 19, 1989, I found myself in East Berlin reporting on a crisis that was to lead (though very few experts predicted it at the time) to the fall of the Berlin Wall only three weeks later.  I have been asked many times since then if this was the ”best” story I’ve ever covered, in the dual sense of “biggest” and “most enjoyable”.  I have usually answered Yes in the first sense of the question, but No in the second sense.

For the truth is that it wasn’t an enjoyable experience at all.  From early morning to late at night, I spent the day attached to a clunky word processor in a grim, East German government-supervised press centre in Mohrenstrasse, very close to the Wall.  There I churned out thousands upon thousands of words about the accelerating disintegration of the regime for my pitilessly news-driven employers, the Reuters news agency.

Sometimes I would go out to watch a street protest  - I once got talking with Günter Schabowski, a Politburo member, who was trying without much luck to reason with the demonstrators.  Or I would catch up with opposition activists at the Gethsemane church in the Prenzlauer Berg district.  But before long, it was back to the merciless office grind.  I couldn’t go to the big anti-communist protests in Leipzig and other provincial cities, because my East German visa restricted me to East Berlin.

At night I would drive from Mohrenstrasse to an apartment rented by Reuters on Schönhauserallee.  This is today one of Berlin’s busiest shopping streets.  But in late 1989 East Berlin at night was a city as dark and silent as a corner of hell.  On the ground floor below the apartment was a Kneipe, a pub.  After the Wall fell, it emerged that the Stasi secret police used the pub as a base to monitor the goings-on in my apartment.  How they must have enjoyed hearing me swear at the top of my voice about the iniquities of a) East German communism and b) Reuters.

During the entire three weeks, I only made it once across the Wall to West Berlin for a night out.  And it is this little episode, not the dramatic events of November 9, that is most vivid in my memory now.  For as I returned to Checkpoint Charlie just before midnight and handed in my passport for inspection, I detected something extraordinary - the flicker of a smile on the face of the uniformed East German border guard in his booth.

Comparing my features with the photo in my passport, taken several years earlier, he had clearly observed that I had lost a considerable amount of hair.  He peered at me behind his thin-rimmed glasses, sighed and said, “Das ist der Lauf der Zeit” - which, loosely translated, means “That’s what the passage of time does to you.”

It was almost a human touch - but, like everything in the German Democratic Republic, only almost.

Buried in this month’s “Annual Report on the Euro Area 2009″ from the European Commission is some absorbing material on competitiveness in the eurozone.  Some countries, above all Germany, Europe’s export champion, have consistently outshone others in terms of business competitiveness since the euro’s launch in 1999.  The result has been the accumulation of large current account deficits in countries such as Cyprus, Greece, Portugal and Spain - but also in Ireland, Malta, Slovakia and Slovenia.

As the Commission says, in impeccably understated language: “The build-up of large external liabilities has increased exposure to financial shocks…  In the current downturn, financial markets have become more responsive to the net external financial asset position for the euro area countries.  Even if to a large extent the net external position is related to the private sector, the public sector can be affected by private sector debt in the form of potential bail-outs and other fiscal implications.”

Put simply, the Commission is warning that the gap between Germany and other strong performers - such as Austria, Finland and the Netherlands - and the group of laggards poses a bigger risk to the eurozone’s stability than it did before the financial crisis.  If you are one of the laggards in competitiveness and your financial sector is in trouble, then the financial markets will start taking a close look at how sustainable your public finances are.  And because you share a common currency with 15 other countries, your problem is unavoidably their problem, too.

There is some evidence that the laggards are cutting their current account deficits.  Spain’s, for example, is projected to fall to 5 per cent of gross domestic product next year from 9 per cent this year.  But in general the countries that need to improve competitiveness most urgently are also those with the worst rigidities in labour and product markets.  As a result, unit labour costs in the laggard countries have risen by 2.5 per cent or more every year since 1999, whereas Germany’s unit labour costs have stayed more or less unchanged.

This problem clearly needs addressing before the strains on European monetary union (EMU) become intolerable.  What is to be done?  The Commission’s report is masterfully vague, saying: “Competitiveness developments warrant broader surveillance…  Effective functioning of EMU calls for an early detection of these external imbalances in order to prompt an adequate and timely policy response.”

Germany’s response, I reckon, would be more blunt.  The Germans would tell the laggards: “Put your houses in order, like we did after being hit with the gigantic cost of our country’s reunification in 1990.  Regain competitiveness.  If it means your citizens have to put up with stagnant living standards for a number of years, so be it.  Eurozone membership is not a free ride.”

The only thing is, I’m not sure this is what the laggards want to hear.

Even before he was elected as president of France in 2007, Nicolas Sarkozy made it crystal-clear that he didn’t want Turkey to join the European Union - ever.  Now concerns are growing in Brussels that Sarkozy is contemplating a formal Franco-German initiative next year to offer Turkey a “privileged partnership” instead of, as now, the long-term prospect of full EU membership.

The idea of a “privileged partnership” has been around for a good few years.  Sarkozy likes it, and so does Germany’s ruling Christian Democratic party.  It also appeals to Angela Merkel, the CDU chancellor.  However, Merkel has up to now taken a nuanced approach, recognising that Germany, along with other EU countries, recognised Turkey as an official candidate for membership in 1999.  A responsible country cannot just wriggle out of agreements made in good faith, Merkel believes. 

The difference now is that, after last month’s German election, the Social Democrats - more sympathetic to Turkey’s aspirations - are out of government and have been replaced by the Free Democrats, whose position on Turkey is more ambiguous.  The balance of opinion in Berlin is changing.  Sarkozy may try to seize the opportunity to line up the new German government behind the concept of the ”privileged partnership”, according to EU policymakers.

Needless to say, Turkey would dismiss an offer along these lines as an insult.  There is no legal foundation for a “privileged partnership”, says Egemen Bagis, Turkey’s chief negotiator on EU matters.   You are either in the EU or not in the EU.  You cannot be half-pregnant, Bagis once told me.

The US would undoubtedly dislike such an initiative, too.  Ignoring criticism that it’s none of their business, both Democratic and Republican administrations have always encouraged the EU to accept Turkey as a full member.

Alas, Turkey’s EU membership bid is in serious trouble, anyway.  The European Commission tried to put a brave face on matters this week in its annual report on Turkey.  But the inescapable truth is that out of the 35 negotiation chapters, or policy areas, that a country needs to complete in order to join the EU, Turkey has opened 11, of which only one has been provisionally closed.  Another 12 chapters have been either formally frozen by the EU, or informally blocked by France with support from others opposed to Turkey’s bid.  The entire process risks grinding to a halt.

In December EU leaders will discuss Turkey’s failure to heed their calls to open its ports and airports to ships and aircraft from the Greek Cypriot-controlled government of Cyprus.  In theory they could take a harsh line and more or less abandon Turkey’s EU entry talks.

I doubt this will happen - Sweden, which holds the EU’s rotating presidency until December 31, is friendly towards Turkey, and many other countries think it would be crazy to adopt such a position just when negotiations on a Cyprus settlement are reaching a critical moment.

But towards the end of the first half of 2010, the picture may well look different.  April is the key month.  If the Cyprus talks are deadlocked by the time of next April’s Turkish Cypriot presidential election, and if he can get Germany on board, Sarkozy may be tempted to unveil his “privileged partnership” proposal.

Ask a minister in a European Union government what post their country hopes to get in the next European Commission, and the response is the same every time - something important to do with the economy.  Well, you can’t blame people for not hurrying to step into the shoes of Leonard Orban, the Romanian commissioner for multilingualism.

On the other hand, there aren’t enough top economic jobs for Commission president José Manuel Barroso to satisfy everyone.  Truth to tell, the Commission looks too big with 27 members.  But that’s the way it is, and that’s the way it will stay under the EU’s Lisbon treaty.  A guaranteed seat on the Commission seems a simple, visible way of making a country’s citizens feel connected to the EU.

The main four economic portfolios in Barroso’s outgoing Commission have been - in no particular order - competition, the internal market, trade, and economic and monetary affairs.  These have been occupied by the Netherlands, Ireland, Britain and Spain respectively.  By contrast, France has held two lesser posts (first transport, then justice, freedom and security), and Germany has dropped almost completely out of sight in the post of enterprise and industry.

As Barroso puts together his new team, France and Germany are in the hunt for really big jobs and feel no doubt that they deserve them because of their relatively diminished status in the outgoing Commission.  The French and Germans want to play a much more direct role in shaping the EU’s economic and financial policies as the EU struggles to emerge from recession, rewrites its rules on financial regulation and defends its industries in world markets.  France is said to desire the internal market job on the Commission, and Germany would like something equally prominent.

All this is causing some nervousness in Britain and a few like-minded countries that the next Commission will be less free market-oriented than its predecessor.  In response I would make two points.  First, this is the spirit of the age - you can expect nothing less after the recent near-meltdown of the western world’s financial system and the associated regulatory failures.

But secondly, it just does not follow that to give a top economic dossier to France or Germany means that the Commission will be wrenched in the direction of some manically illiberal étatisme and fiendishly pro-Volkswagen industrial policy.  To take one excellent example, Pascal Lamy, the Frenchman who served as trade commissioner from 1999 to 2004, was a robust defender of free trade and now is head of the World Trade Organisation.  The same would be true if the next French commissioner were someone like Christine Lagarde, who at present is President Nicolas Sarkozy’s finance minister (she is still a possible choice, some think, even though it looks as if Sarkozy is going for Michel Barnier).

EU commissioners, at their best, are like US Supreme Court justices.  When a president picks a judge to sit on America’s highest court, everyone’s first thought is, “Here we go, a blatant political appointment designed to push the Court in a certain ideological direction”.  Then, more often than not, the nominee causes a surprise by putting the court’s interests first and acting independently.  So it can be at the Commission, where the institutional culture of independence from political pressure is stronger than many on the outside assume.