I can see MO'L making this month HELL for EI and the privatisation process; he will try everything to make the process as uncomfortable as possible and to sow doubt about the airline's future prospects; it wouldn't surprise me if he put out the possibility of "bringing forward" plans to go on long haul routes, since this is clearly where EI's best prospects are. (It wouldn't have to be true - just as long as he destabilises the process - if he can do that and scupper EI's chances of raising funds for long haul development, he'd probably view it as a start).
I agree with you totally that EI has to be aggressive, although not in the same, in your face manner as MO'L; it needs to be best where it matters - a good quality, friendly and efficient service - as stress free as possible, without the meanness of FR. I tend to believe that A321s will play a larger role in the EI fleet, because a 220 seat 321 is about the only narrowbody which will have equivalent seat-mile costs to, or better than, the FR 738s. It can also improve utilisation by offering overnight services to places like ATH, LCA, IST, DME etc.
If EI can start new routes 4-5 weekly (not just 1-2 wkly, that's just asking for it) with A321s and do so in such a way that it would not make commercial sense for FR to take them on, then it has a way forward; EI could also allege predatory practices, bearing in mind that there must be lots of much weaker EU flag carriers FR could pick on rather than targeting EI, which already has margins second only to FR - higher even than EZY and much higher than the likes of AZ, IB, LH, SK etc. Go pick on them!
From the govt's perspective, if it wants this process to work, it needs to take a tough line with the EU on the whole Open Skies nonsense; either it will get the green light (which - according to correspondence I've received from the EU - it is entitled to) or it will go ahead on this basis; the greater the threat FR poses on short haul, the more urgent it becomes to get long haul working.