Mr Blair should beware cosying up to this Italian president of Europe

Earlier this week, Silvio Berlusconi promised that the Italian presidency of the EU "cannot be just business as usual". At least no one can now accuse Mr Berlusconi of failing to live up to his own billing. His comparison of a senior German MEP to a Nazi camp commandant breaks every rule of acceptable political debate.

At a personal level it is a grotesque and unjust insult. I have worked with Martin Schulz for several years and know him to be a decent man who is squarely within the mainstream of European social democracy. The sole feature he has in common with the Nazis is that he speaks German.

And that brings us to another rule that Berlusconi has broken. The modern Europe is built on the rejection of ethnic stereotypes and a determination to consign to history the national conflicts of the past. In one sentence Berlusconi managed to dredge up both ancient stereotypes and old conflicts to deflect valid, if uncomfortable, questions from himself.

I hope he apologises. He ought to do so out of human decency. He must do so as a political necessity. Europe cannot stand still for the six months of the Italian presidency, but there will be stalemate between president and parliament unless Berlusconi makes peace by withdrawing the insult.

The latest row, though, is only a high-profile expression of a deep-seated problem. Europe now has a president who has exploited his strength in the Italian parliament to protect his vulnerability before the courts. The warning signs were there at the outset. His coalition forces won every single seat in Sicily. As an Italian friend observed to me drily: "That did not happen by accident."

Since returning to power, he has passed four separate measures to obstruct half a dozen separate cases of fraud and corruption against him in the courts. His latest legislative fix was a bill rammed through the Italian parliament in the closing days of June, which exempted Berlusconi from criminal proceedings for his term of office. There was speculation that the majority for the measure reflected consternation at the possibility that the Prime Minister of Italy might conduct the latter half of his European presidency from prison. It is a measure, though, of the extent to which Berlusconi 's allies are out of touch with European political opinion that they imagine they can retain the respect of the rest of the continent by intervening to halt the trial, rather than by requiring their Prime Minister to step down until it has been properly concluded.

The questioning that led to Berlusconi's outburst in the European Parliament, though, arose from the parallel problem of the concentration of media ownership in his hands. The Italians find themselves in the challenging position of having as their Prime Minister a mogul whose national empire rivals Rupert Murdoch's in other countries. If anything, that comparison understates Berlusconi's dominance of the media scene. In the British context, we would need to imagine Rupert Murdoch and Conrad Black job-sharing the role of prime minister to match Berlusconi' s slice of the national media.

This issue is made even more worrying by the extent to which Berlusconi has ruthlessly exploited his position to bring the state TV channel to heel. On Wednesday, its lunchtime bulletins did not even mention the Nazi gaffe.

The embarrassing irony is that the president overseeing the last stages of the enlargement of the Union has created conditions in his country that would probably result in Italy being rejected were it a candidate for membership, on the grounds that it has neither an independent legal system nor a free media.

In the meantime, there are problems in all directions from the debate on Berlusconi's suitability for office being transferred on to the wider European stage. The first is the lost opportunity for Italy itself to demonstrate that it can be a major European player. Whenever I stated the Government's objective as establishing Britain as an equal partner in Europe with Germany and France, I would without fail receive a pained telegram from our ambassador in Rome complaining that his hosts had protested that they were just as important.

They had a point. Statistically Italy is as large as Britain or France in population and GDP, and no further behind Germany than ourselves. However, Italy consistently fails to secure the status it deserves because the instability of Italian politics has prevented the emergence of government figures who stay around for long enough to dominate the European scene. Berlusconi certainly looks set to dominate the European scene, but not in a way that will enhance the status of Italy.

The second problem is for Tony Blair, who must manage the delicate task of maintaining correct relations with the European presidency without allowing them to slide into an uncomfortable closeness. This will be a problem for every head of government, but it is particularly acute for Tony Blair as Berlusconi's enthusiasm for the war in Iraq threw the pair of them closer than Tony Blair might have wished. A visit a year ago to Rome by Tony Blair ended up with the two countries being yoked together by the tag of a new Anglo-Italian axis. To be fair, the phrase was only used by Berlusconi, but it stuck.

But the greatest problem is for Europe. A body as cumbersome as the European Union only works when the president in office has the respect and the impartiality to broker compromise among its diverse membership. It is hard to see Berlusconi taking forward something as sensitive and controversial as the search for consensus on the proposed European constitution, on which no two member states have the same opinion. Even if Berlusconi tries to recover from his disastrous start by adopting a more conciliatory tone, the other heads of government will circle him warily. They will each have been warned by their ambassadors of one of the more celebrated observations of the ineffable Berlusconi: "When I meet a visiting premier or a head of state, it's up to them to try to prove that they're cleverer than I am."

In truth, the concept of a six-month presidency rotating on Buggins' turn is a nonsense. All the serious European projects take years to bring to fruition and the regular advent of a new president under national pressure to dream up a distinctive, short-term agenda simply disrupts the steady delivery of long-term objectives.

Fortunately, one proposal by Valéry Giscard d'Estaing's Constitutional Convention will end this arrangement, which has long been inefficient and has now become an embarrassment. In its place, the convention has adopted a British proposal that a more permanent "President of Council" should be elected, with an initial term of office of two and a half years. This would guarantee continuity and create the opportunity for the president to be chosen on merit rather than rotation. No doubt it was not his intention, but only three days into the Italian presidency, Silvio Berlusconi has given a massive boost to the case for adopting such a reform.