A euro summit where an SMS could do

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The remark came from Italy's Prime Minister Matteo Renzi, who is chairing the rotating presidency of the EU Council (forum of EU heads of state and government) until the end of this year. He was upset about an ill-prepared EU summit last Thursday. The leaders were called in to decide on some top appointments only to be told, once in Brussels, that no agreement could be reached, and that these and other nominations for the new EU Commission were tabled for the next extraordinary summit on August 30, 2014.

"An SMS could have done the job, saving a lot of public money" is how Mr. Renzi was quoted in Italian and French media. The message was apparently well received in Italy, which is struggling with recession, an unemployment rate of nearly 13 percent and austerity programs to keep the budget deficit down and to stop the growth of its huge public debt of 146 percent of the gross domestic product (GDP).

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Mr. Renzi's ire at Brussels bureaucracy and some of his EU colleagues is emblematic of a continent torn by mistrust, lack of unity and little belief in shared destiny. In addition to enormous economic and political problems at home, he sees that Italy has to deal alone with the plight of unending waves of Africa's desperate "boat people" dying to reach Italian shores. Not a man to mince his words, he told the Italian parliament a week before last Thursday's ill-fated Brussels summit that a Europe that "turns its back when there are dead bodies in the sea cannot call itself civilized."

Fiddling amid drowning and bloodshed

After nearly 400 African migrants drowned in October 2013 near the Italian island of Lampedusa, Rome had set up a search-and-rescue operation "Mare Nostrum" – Latin for "Our Sea" and a Roman name for the Mediterranean – which has so far saved 74,000 lives.

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At the time of this writing (Saturday, July 19, 2014), the message was coming over the newswires that 19 Africans died when an 82 feet (25 meters) wooden boat, carrying between 400 and 600 people, was capsizing some 80 miles (148 km) off the island of Lampedusa.

The commendable humanitarian action "Mare Nostrum" is reported to cost the cash-strapped Italy some 9 million euros per month.

In the middle of all that, and the tragedy currently unfolding in Central Europe, months have to be spent in an all-consuming political infighting for Brussels plum jobs to balance east-west, north-south, left-right and male-female composition of the EU Commission.

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Last Thursday, for example, a mere suggestion that Italy could put forward its own candidate for the post of EU's commissioner for foreign and security policy promptly unleashed a storm of protests from several east European countries, arguing that they had a better qualified person who would also be much tougher on Russia.

Italian Socialists still have a good shot at that position because the center-right parties got the EU Commission's presidency for Jean-Claude Juncker, Luxembourg's former prime minister.

EU's selfie: "tired" and "resigned" image

The long-running divisions about the economic policy are equally sharp.

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As Italy was taking over the EU presidency, Mr. Renzi told the EU Parliament on July 2, 2014 that "if Europe was to take a selfie today, it would be a tired, resigned image," a place "deeply wounded" by the financial crisis and unfit to lead on global issues. And then he came to the key point of his program: Italy wanted the economic "growth to be a fundamental element of European policy."

The incoming president of the EU Commission, Mr. Juncker, appears to be on the same page when he says that he wants a "social market economy" (a paean to Germany) and a "re-industrialization" of Europe with an investment program of 300 billion euros over a three-year period in infrastructure, energy, transports, research and high-speed internet.

But, to reassure Germany, he adds an important rider: This more activist, growth-oriented policy will be conducted in strict observance of the fiscal discipline imposed by the stability pact. There is no question of breaching the limits with respect to budget deficits and public debt.

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These, however, are the limits that Italy and France want to reinterpret in a more flexible manner to open up the possibility of more supportive fiscal policies in their quest for economic growth.

You can be sure that Mr. Juncker – and the German Chancellor Merkel – are unlikely to oblige.

In fact, insisting on a less stringent fiscal adjustment will probably preclude the French candidacy for the EU commissioner of economic and financial affairs. Germany is already publicly on record that it does not favor the former French Finance Minister, Pierre Moscovici, to take that job because France has yet to implement structural reforms and to meet its new, more lenient, budget deficit targets.

Investment thoughts

Mr. Renzi is right. The EU is not a pretty picture. But should investors worry? Not necessarily.

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The fiscal policy remains under close and unforgiving scrutiny of financial markets. That almost makes irrelevant the supervision of the national budget procedures by the EU Commission.

The monetary policy is firmly in the hands of a competent and fully independent European Central Bank (ECB).

But those expecting the EU to play an important role in world affairs will be disappointed. Nation states are not about to be upstaged by people they send to Brussels to keep the score. And, according to a German political scholar, all that really does not matter. Chancellor Merkel's party for her 60th birthday last Thursday (July 17, 2014) was told during a 45-minute lecture by a prominent German historian that neither Europe nor the West will be the center of the future world.

Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia.

Follow the author on Twitter @msiglobal9