I think the merging of Etihad with Emirates was always going to happen (or at least in the eyes of the AUH family). Etihad was established with a charter to be bigger than Emirates a.s.a.p. Why? Because the 51% offer that was made (how many years ago is it now?) to buy in to Emirates was rejected by the Al Maktoums at the time.
From a seniority perspective, like any such merger, if it happens, it won't be pretty, especially, I think, for the more senior EK pilots. However, if it happens now, in a time of... shall we say 'non-expansion', the more junior pilots' problems in both companies may be somewhat larger!
Given the size of the UAE, the proverbial Blind Freddie has been able to see for years now, (even without the current financial crisis to 'concentrate his mind'), that a single airline serving both cities and operating from a yet to be built terminal at the new airport at Jebel Ali was the only sensible long term option for both cities.
But such a decision would involve someone in each city giving up quite a lot, (if, in the current situation, far moreso in Dubai than in Abu Dhabi), and until now, no one in either city has been willing give up anything. And only someone familiar with local politics in the Gulf - and all that that implies - can understand what a huge step any such move will be for all parties involved.
Whatever happens, people like us will be little more than (very interested) observers and will be told - that's the only word that's appropriate - where our place will be, if we are to have a place, in the merged entity.