Leading Article: Two steps forward, one step back for a hesitant Europe

NATO'S DECISION to start bombing Yugoslavia could not have come at a worse time for the European Union as it sat down in Berlin to attempt to reform itself after the unprecedented resignation of the president of the European Commission, Jacques Santer, and the 19 other commissioners. None the less, the EU did not cover itself in glory.

EU summits are routinely characterised by long-drawn-out sessions of horse-trading. Thursday's all-nighter was a classic example of the methods of Euro-diplomacy. In their need to ensure that none of them lost money, the member states lost sight of the wider purpose of the summit.

The citizens and governments of the EU have yet to accept fully that welcoming in the Czech Republic, Hungary and Poland (sooner) and Slovenia, Slovakia and Cyprus (later) involves sacrifices. The eastward enlargement of the EU is as crucial to the development and stabilisation of Central and Eastern Europe as the post-war Marshall Plan was to the reconstruction of Western Europe. As with that plan, initial outlay will be paid off by growth in the long term. Yet without proper reform of the common agricultural policy this eastward expansion will be cripplingly expensive. The Berlin summit has produced an unsatisfactory compromise that will last for seven years before the issues can (and will have to) be re-examined. Tony Blair has already described it as "disappointing".

The other matter of money of concern to Britain is the pounds 2bn budget rebate wangled by Margaret Thatcher in 1984. In the short term, while sterling remains outside the euro, there are good pragmatic reasons for maintaining the rebate. Tony Blair's failure to protect it now would have been birthday and Christmas combined for the Eurosceptics. However, it is unfeasible that Britain should receive special treatment in the long term. It will have to end once sterling has joined the euro.

But the summit was not all bad. The decision to appoint Romano Prodi, Italy's former prime minister, as President of the Commission was taken with admirable speed. Mr Prodi has been widely praised for his administration of Italy in the difficult times since the collapse of the Christian Democrats' hegemony. He has established his credentials as an economic and institutional reformer. His desire to rejuvenate centre-left politics is shared by the leaders of the UK, France and Germany. And, despite being a lifelong economist and technocrat, his nickname, Mortadella (after the Bolognese sausage), highlights his unstuffy and populist outlook.

The immediate decision facing Mr Prodi is the fate of the 19 resigned commissioners. He may be tempted to take up a plan, put forward by the Benelux nations, under which selected commissioners would be invited to serve until the end of the year, when their term of office is due to expire. This would enable, for example, the UK to renominate Sir Leon Brittan, the vice-president of the commission. But some of the commissioners at the centre of affairs, for example the feisty Edith Cresson, the education and training commissioner, may not allow herself to be tarred with the brush of exclusion. And in the end Mr Prodi would have gained little for the loss of the opportunity to begin his reform of the EU's institutions with his prime obstacles removed. Mr Prodi will have to show whether he has the craft to tackle the difficult state of the EU's bureaucracy, as well as the wisdom to win over the member states.

The European states did better when they put their Nato hats on. Despite the many difficulties involved in the campaign against Serbia, the European members of Nato have realised that they must be united if the alliance is to retain its prestige - one of its most effective weapons. The Italian and Greek governments have raised querulous voices. But bravely they have not prevented the alliance carrying out its policy with anything other than full effectiveness. This support for allied action presents a marked contrast to European behaviour in the much more straightforward conflicts in Croatia and Bosnia. The European states are realising that it is no longer feasible to let the United States sort out the problems of this continent with British and French help.

Although both the EU and Nato are designed to fulfil the economic and defence needs of Western Europe, both organisations have a wider strategic and even - whisper it - ethical purpose. In a muddled way, in a situation fraught with danger, this week has seen the European nations shuffle towards accepting a higher calling than self-interest. It would have been easier for Nato to keep talking fruitlessly to the Serbs and Kosovar Albanians than to enter the arena of war. The EU and Nato have accepted that self- interest cannot be enough to justify their existence.