EU UNRAVELLING: The more challenges they face, the more its leaders break the law.

Merkel, Draghi and Brussels can bend the rules as much as they like, but their behaviour isn’t playing well anywhere

Enda Kelly is giving the Irish people their vote on Fiscal Union; he’s obviously confident of a ‘Yes’. Certainly, there was no way Brussels was going to give them a say in matters: the last time but one, Ireland gave the wrong answer. Literally, it seems, a case of being politically incorrect. It’s only a matter of time before Kelly starts to get some heat on this one.

But when it comes to the EU this week, things are hotting up all round. The news that the European Investment Bank, the development lender for the 27-member bloc, is getting a similar exemption from Greek debt writedowns to the euro area’s central bank has poured more petrol on the fire lit by Mario Draghi’s blatant rule-changing to avoid losses at the ECB last week.

In Germany, the Constitutional Court in Karlsruhe has made it brutally clear that Angela Merkel and Wolfgang Schauble are starving Bundestag MPs of the information it insisted they must have late last year. It’s also making ominous noises about illegal firewalls.

Chancellor Merkel’s undemocratic side (never that well-hidden, except by her spin-doctors) is now coming to the fore. Her government and the court in Karlsruhe are locked in a power struggle that will soon be a constitutional crisis unless one side or the other backs off. It isn’t going to be Merkel: she already has consitutional changes planned in the pipeline which are, whatever your viewpoint, a pretty blatant attempt to slice Karlsruhe’s balls off. This is setting off alarm bells in some likely, and unlikely, places.

I spoke with The Slog’s Bankfurt Maulwurf within the last hour. He is not a happy bunny.

“Frau Merkel has now ignored the Constitutional Court twice,” he began, “and is to all intents and purposes setting off down a very dangerous road. Schauble has always been slippery, that is not news. But there is being slippery, and there is subverting the constitution. We [Frankfurt bankers] look to the Court to protect Germany from madness. So now they want to cut off its head.”

He was in turn scathing about Mario Draghi’s avoidance of a bond haircut for the ECB over Greece.

“It was a stupid thing to do, quite unacceptable,” he said, “all it does is say to the markets ‘If you buy eurozone sovereign bonds and things go wrong, the Central Bank will cheat’. This is bound to depress future demand for such debt. But above all – as I have told you all along – it simply puts the spotlight back on Germany as the guarantor. I wonder if the politicians in Berlin will ever grasp this.”

But suspicions – and hackles – are also on the rise in Paris. And some fear to go with them.

“I think the President [Sarkozy] was shocked by the Berlin demand for an EU commissioner to take over in Greece,” said a regular source with access to the pulse of the Elysees elite, “And most definitely there is now real concern about the idea of a German leader who doesn’t like votes, argues with the constitutional authorities, and sees technocrats as the answer to everything. It is Berlin out of control again.”

Last year The Slog reported Elysee gossip about Nicolas Sarkozy, screaming as he walked briskly down a corridor following a phone conference with Merkel, “That f**king German bitch is reverting to type”. The Leaden Lady is not doing herself any favours with the French, that’s for sure. And she also has Washington worried.

“It’s safe to say that Geithner is now on the ceiling about the firewall thing,” said one insider there, “and absolutely no-one can read Schauble. If the [Greek] default goes messy, what’s their plan? That’s what worries us.”

It’s worrying pretty much everyone else too – including the UK Treasury, where I’ve been told that plans to deal with an all-out Greek disaster are now set in ink. Says one informed Conservative source, “I think George [Osborne] can’t understand why Berlin keeps showing a bit of leg on boosting the EFSF, and then delaying and delaying. It’s mainly [German] political realities obviously, but the [Treasury] planners are having kittens”.

Others around the EU are simply retaining their doubts about Berlin’s real intentions. Many are still convinced that Wolfgang Schauble set up the Greek restructure to fail, and as I’ve posted in the past, it’s hard to avoid that conclusion.

However, what all the players in this drama need to understand is that the markets are not the citizens, distracted by a thousand other life concerns and generally happy to watch their rights diluted so long as there’s something good on the telly. The markets want their money. And if it looks like every time they claim the money, they get shafted….they will simply turn their backs on the eurozone, the euro, and the EU.