EU finally gets its act together on credit crisis

By Paul Taylor, European Affairs Editor - Analysis

BRUSSELS (Reuters) - 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 favorable.

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 industrialized 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.