More than a year after the start of the global credit crisis and a month since the financial hurricane blew into Europe, the European Union has finally got its act together with a common response.
Whether the coordinated national measures agreed on Sunday by leaders of the 15-nation euro area and British Prime Minister Gordon Brown mark a turning point in the turmoil remains to be seen. Initial market reaction on Monday was favourable.
But politically, Europe will never be the same again.
French President Nicolas Sarkozy took a calculated risk by forcing his peers, whose initial responses were fragmented and at times undermined each other, to unite around a joint line to rescue banks and revive frozen lending. Sarkozy took the policy script largely from Brown, who was keen for European backing even though his country has remained outside the single currency, and managed to drag a reluctant German Chancellor Angela Merkel to the altar.
"EU policymakers in Paris have risen to the challenge and stolen the limelight from the G7 in Washington," said Marco Annunziata, chief economist of Italian financial group UniCredit.
"We'll always have Paris," he said, citing Humphrey Bogart's consoling line in the classic movie Casablanca.
Sunday's united outcome at the Elysee Palace puts Europe in a strong position to press for an enlarged global summit of major economies sought by Sarkozy to discuss new rules of the road for the international financial system.
The United States and Japan, which holds the chair of the Group of Eight industrialised nations, have been reluctant to agree to such a gathering but may now have to follow the European lead.
TRIPLE WIN
If the European plan does begin to turn the crisis around, Sarkozy will be a triple winner: * he has asserted bold leadership in and beyond Europe; * he has forced the EU to ease its fiscal and competition policies more along French lines; * he has started to provide the "economic governance of the euro zone" for which Paris has long campaigned, but which more free-marketeering members resisted.
Until Sunday, Germany and several other countries had opposed the very idea of creating a euro zone summit as divisive and an attempt to impose French-style "dirigiste" leadership on the informal Eurogroup of finance ministers meant to promote fiscal orthodoxy, free market reforms and deregulation.
"Every crisis has always been a learning experience for the EU," said Austrian Foreign Minister Ursula Plassnik.
This was achieved from an unpromising starting point.
The EU has a puny central budget equivalent to just 1 percent of the 27-nation bloc's combined gross domestic product and has no central financial regulator or banking supervisor.
When the subprime mortgage crisis erupted in the United States, France and Germany at first depicted it as punishment for the excesses of Anglo-Saxon financial capitalism and assured citizens their more regulated model was safe.
After denial came dispersion. EU leaders took emergency national action, in some cases without consulting neighbours or partners, further depleting market confidence.
Ireland legislated in haste to guarantee all deposits in six Irish banks but not in the British banks along the road, causing a sudden leakage of cash to Ireland and irking Brussels.
Germany, angered by French ideas of a pan-European rescue fund, leaked the French proposal and then stamped on it.
BEHIND THE CURVE
To many analysts, Merkel and her outspoken finance minister, Peer Steinbrueck, have seemed behind the curve at each turn.
Diplomats said she did not tell her European G8 partners at an Oct. 2 summit in Paris that she was going to issue a blanket guarantee for German savers the following day and back a costly rescue for stricken mortgage lender Hypo Real Estate.
"She may not have known herself what she was going to have to do the next day," an EU diplomat said.
The European Commission, the guardian of European unity, also seemed deeply reluctant to offer bold proposals for more European financial regulation. Internal Market Commissioner Charlie McCreevy, Europe's reluctant regulator, insisted as recently as last week that little was necessary.
Commission President Jose Manuel Barroso said the "most relevant" member states in finance and economy — a clear reference to Britain and Germany — had warned Brussels against proposing such measures.
But his hand may yet be forced.
Asked about the absence of a single European regulator for banks and financial markets, Sarkozy told Sunday's Paris news conference: "With President Barroso, we will make proposals on Wednesday to the European Council," referring to an EU summit due to take place in Brussels.
