At long last, EU leaders act to defend the euro and the Union - By Theo Sommer

For half a century, the process of unifying Europe has been extremely laborious. Political wits like to compare the EU's modus operandi to the love life of the elephant: everything takes place at a very high level, a lot of dust is raised, and you have to wait years for the result.

But in the current financial crisis, the leaders of the eurozone acted quite out of character. After three months of bickering, hesitation and procrastination, they plucked up courage. In a 12-hour nocturnal session  - a quickie after dinner, as it were - they pushed through a ?750 billion rescue package for their common currency: ?60 billion in emergency loans from the EU as a whole, ?440 billion in credit guarantees from eurozone countries plus an IMF contribution to the tune of ?250 billion.

It was quite a feat. While there is no way of telling whether it will sufficiently impress the markets in the long run, by setting up an enormous euro defense fund, the Europeans have hoisted an unmistakable flag of warning. They have proved that they can fight back - and shown that there are instruments in their toolbox to cope with irrational exuberance, infectious greed and aggressive speculators. They prevented the collapse of the eurozone, if not the relative decline of the euro (which their exporters are not unhappy about anyway). And they gained time.

No European traveling in Asia or America these days can fail to notice the schadenfreude with which the outside world has registered the Union's predicament. The Asians are quietly gloating that the EU finds itself in dire straits. "We are the model now," German politicians and business representatives kept hearing in Singapore last month at their biennial meeting with ASEAN leaders. "It is you who now have to swallow the bitter pills that the IMF forced us to swallow after the Asian financial crisis of 1997/98," they argue. They doubt that the Europeans will evince the same discipline and determination that helped them master their problems a decade ago.

Comments in the United States are no less disparaging. "Where did Europe go?" was the snide question splashed across the cover of Time magazine a few weeks ago. Newsweek, not to be trumped, boisterously proclaimed "the end of the euro." Renowned economists such as Joseph Stiglitz and Paul Krugman chimed in, suggesting that only the establishment of a central European government could prevent the disintegration of the eurozone. All the while, Europe seems to be progressively fading from the radar screen of the Obama administration, reduced at best to a recipient of stern admonitions.

Well, well. As Andrew Jackson might have said: "Let's elevate them guns a little lower." Both the Asian and the American obituaries are based on false assumptions. The euro is not dead, nor is the European Union about to fall apart. The 27-member Brussels-based community, with a population of 500 million and a combined GDP of ?12 trillion, finds itself at yet another critical juncture. But it has overcome numerous crises in the 52 years of its existence and it will weather the current storm, too. Once again, it will emerge from the turbulence stronger, more united, and with renewed optimism about its future.

Europe's leaders know that putting money on the counter is not enough. They realize that they must use the time gained for fundamental reforms. But agreeing on how to fix the system won't be easy. As Petra Pinzler, a financial correspondent for the German weekly Die Zeit, has pointed out, there are three different models: Brussels-Europe, Berlin-Europe and Paris-Europe: the first one centralist, bureaucratic and guided by the Commission; the second stability-oriented, based on rules and regulations and committed to strict saving; the third etatist, interventionist and straining to foist a French-type gouvernement économique on the European Union. So will the crisis provide the impetus to find the common denominator that allows the Union to convalesce and bounce back?

Actually, the chances are not that bad. Faced with the challenge of taming the market forces, reining in spending without choking the economy, stimulating growth and creating mechanisms to prevent future turmoil caused by greedy financiers or profligate politicians, Europe's leaders have begun to think the unthinkable.

They all want to draw a few lines in the sand for reckless speculators. They ruminate about banning naked short-selling (in fact Germany already has in some cases), about limiting the trade in credit default swaps, regulating hedge funds and private equity more closely, about prohibiting certain types of derivatives, even about introducing a bank-crisis tax, a financial transaction tax or at least a financial activity tax. And they all feel the pressure to come up with a plausible plan for tightening the Stability and Growth Pact, the Union's fiscal rulebook.

Not that they see eye to eye on the details yet. But there are initial signs of policy convergence. The Greeks, Spaniards and Portuguese have enacted drastic austerity measures. France is contemplating a debt ceiling similar to that recently inserted into the German constitution. The Berlin government has abandoned the idea of tax reductions in the short term and has moved toward supporting a financial transaction tax.

And none of the governments are overly impressed by the howls of complaint emanating from the financial community. They tend to agree with Wolfgang Schäuble, German minister of finance: "If you want to drain a swamp, you don't ask the frogs for an objective assessment of the situation." This is an attitude, by the way, that might facilitate the definition of a joint European-American strategy.

The exact outcome of the impending debate is still hard to discern. Most probably it will result in a mix of Brussels-Europe, Berlin-Europe and Paris-Europe. This much seems certain though: The euro crisis will trigger another leap forward in the process of European integration. How great a leap? Not to a full-blown economic government; the time is not ripe for that. But a system of joint economic governance, based on closer coordination of fiscal and economic policies, is an attainable goal.

Unless EU leaders botch it completely, Europe will soon be on the move again, tackling the next obstacle on its road to the "ever closer union" outlined in the Maastricht Treaty.