"capable of setting up trade agreements and such amongst themselves"
Sure, and when they couldn't they started two world wars (and many others before...)
EU was also born to avoid to transform Europe into a battlefield every thirty years or so. Maybe many of use are young enough and those wars are just an echo of the past, but for our parents and grandparents (and their parents and grandparents) - those who survived, at least - were a dangerous risk that became bloody real.
Don't believe what is happening in East Europe and Middle East couldn't happen in a highly fragmented Europe as well.