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Men are from Mars, women are from Venus, is a 1992 book by John Gray which attempted to add insight into the complex world of male-female relationships. If Gray feels like taking up the pen again, he could muse over the similarly complex relationship between the USA and the EU.

The football World Cup offers a good insight into the differences between both regions. When the French and Italian football teams were knocked out prematurely and rather ignominiously, their departure were greeted with a certain amount of glee and schadenfreude by other European countries. The USA on the other hand performed admirably, although it was a combination of belief and determination that got them through rather than skill.

When it came to the G20 summit in Canada over the weekend of June 26th and 27th, there were many similarities with the World Cup. President Obama and US Treasury Secretary Timothy Geithner didn't deviate from their script. They were there beating one drum, which was that the global economy must grow itself out of this problem.

The EU went to Canada with a few different scripts. The Germans are wedded to the idea that tough austerity measures are needed in the short-term to stave off a sovereign-debt crisis across the EU. The French are closer to Washington than Berlin in their outlook. Ironically, the UK which has traditionally between US's closest ally has taken the most fiscally restrictive position of any EU country.

The summit was set for a series of frank and open exchanges. In the event, whatever dust-ups took place, they happened behind closed doors. There was a public show of unity among leaders: there would be a commitment to reduce deficits by 2013 and stabilise debt-to-GDP ratios by 2016. There was also an emphasis on boosting short-term growth.

So who won? Ostensibly, it seems like a fudge. Since none of the commitments were binding pledges, then countries will most likely end up doing what they intended anyway.

The problem with the EU is that it cannot make a coherent representation on the world stage because of the domestic problems besetting the region. German states are carrying worrying deficits which explains Berlin's reluctance to be profligate at a federal level. The spread between Greek bonds and the benchmark German bunds are back up to levels seen prior to the historic €750bn bailout package announced in early May. In other words, the markets are factoring in a default or, at least, a debt restructuring by the Greek government. If that spreads to other euro zone countries, then French and German banks would face sizeable losses which would trigger a banking crisis across the region. The ability of states to orchestrate a bailout on this occasion would be very limited.

Given the way the euro zone is currently configurated, then taking a scalpel to sovereign debt levels is possibly the best way of proceeding.

If Europe is to become a player on the global stage, then it has to sort its house out first. The real problem is leadership. The legislative reforms introduced through the passing of the Lisbon Treaty was supposed to make the EU more coherent and speak with one voice. But for that to happen, what is really needed is a change of mindset. The president of the European Council Herman Van Rompuy doesn't seem to understand the challenges facing the EU. President Sarkozy and Chancellor Merkel resemble bickering, competitive children rather than European statesmen.

What the EU needs is a euro-area bond market, a European Monetary Fund, greater euro-area governance that covers fiscal policy and labour market policy. There also has to be pan-regional reforms to strengthen the banking system which also includes pan-EU financial-market regulation that works.

The countries that have lost competitiveness over the past decade have to implement reforms that will increase competitiveness. European wide research and development, industry, telecommunications, financial services and all components of the real economy have to become characterised by innovation and an ability to compete on a world stage. Otherwise, the region is going to face into terminal decline. Moreover, the debt problems will persist. Unless EU leaders start grappling with these issues, then the prospects for the single currency and the European project over the longer term are bleak.

Ireland is making valiant efforts to restore competitiveness, but much more needs to be done, particularly in terms of getting the cost base under control. But what about the argument that the Government should invest in the infrastructure and other projects that will boost competitiveness in the longer term? And that it should roll out the time frame it has agreed to get the fiscal position under control. Whatever about the merits of this argument, it is impossible for the Government to act in isolation to what is happening at an EU level.

The markets have grouped Ireland in with the PIIGs, so the emphasis has to be on restoring fiscal rectitude. Otherwise, the backlash will far outweigh any attempts to stoke domestic growth.

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