The EU had cause for minor celebration last month. At a meeting in Brussels, finance ministers of the EU's member-states agreed £20 million sterling (€31.85 million) of assistance to the pro-Western government of Montenegro. The decision was modest, but it was an achievement to have agreed on anything.

Despite its importance as the world's biggest trading area and its ambitious plans to nearly double its membership from 15 to 28 countries, the EU is in a state of sclerosis. "Institutional heart failure is threatening the EU. All EU institutions need reform," says Mr Gunter Verheugen, the EU enlargement commissioner.

As bodies such as the European Parliament and the European Commission find it increasingly hard to be decisive, the vacuum is being filled by member-states.

The strains have been growing for some years. But they were brought into special focus by Mr Joschka Fischer's speech in Berlin last month in which Germany's foreign minister mused on the final destination of EU integration. Mr Fischer's vision of a new "lean" federal structure that would reconcile the needs of the member-state and the union was much bolder than the current efforts of member-states to reform the EU. It was based on the idea that what he called the "Monnet method" of EU integration no longer works.

At its simplest, the Monnet method boils down to having the European Commission use its monopoly powers of proposal to initiate common policies. These become law after being amended and agreed by the Council of Ministers, representing the member-states, and by the Parliament. The Commission then has to implement the policies.

The Intergovernmental Conference (IGC) on EU institutional reform has so far been based on the hope that existing institutions can be upgraded to cope with an EU of 27 or more members. Only now, at their forthcoming summit in Feira, Portugal, are member-states preparing to admit this is not feasible, and make it easier for a "vanguard" of member-states to move ahead of others in integration through a process known as reinforced co-operation.

The vanguard idea is an integral part of Mr Fischer's vision. It recognises that the Monnet method of integration has been accorded an increasingly marginal role by governments wanting to do things together outside the EU institutions. Instead, intergovernmental activity has been in the ascendant since 1992, when the Maastricht Treaty establishing economic and monetary union was signed. Recent examples include a multi-year budget strategy agreed last year after being negotiated in Coreper, a committee of EU ambassadors that meets weekly. Another was the recent Lisbon summit on economic and social reform that was a tour de force of Mr Antonio Guterres, the Portuguese prime minister, current holder of the EU's rotating presidency.

The clear loser from this shift in the EU's institutional balance is the Commission under Mr Prodi. Far from initiating ideas for the Lisbon meeting, the Commission's contribution came at a late stage in the preparations, and took the form of a synthesis of the ideas of others, rather than an original proposal.

Diplomats say one problem is that the Commission has found it difficult to operate as a college since Mr Prodi placed individual commissioners in the various outlying departments rather than its headquarters. In addition, the Commission also has little or no control over the main post-Maastricht projects, such as the euro.

Mr Peter Ludlow, founding director of the Brussels-based Centre for European Policy Studies, believes the EU is becoming dangerously dependent on the individual qualities of the member-state leaders who assume the presidency every six months. "

There are reasons to question whether they will be as effective. France, which takes over in July, is entering a pre-election period under "cohabitation", with the left-of-centre government of Mr Lionel Jospin, the prime minister, sitting uneasily alongside Mr Jacques Chirac, the right-of-centre president. Some diplomats have already noted down December's summit in Nice as a potential flashpoint.

A failure by the EU in Nice to agree the reforms needed to enlarge to the east could have an extremely damaging effect. It would cast doubt on the union's ability to meet its target of the end of 2002 for being ready for enlargement.

The EU has managed to maintain progress despite the weakness in several key institutions. But if the Nice summit fails, the questions about whether the Monnet system can survive will become much harder to ignore.