The onset of the financial crisis has given European leaders, particularly Britain's Prime Minister Gordon Brown and French President Nicolas Sarkozy, a chance to take a leadership role in forging an international response. Brown, who was chancellor of the exchequer under former Prime Minister Tony Blair, led his government's intervention into the banking sector in advance of the Bush administration's decision to do the same in the United States. And Sarkozy, whose country currently holds the rotating EU presidency, has prodded his European colleagues to forge a coordinated response to the crisis and pushed George W. Bush to hold a "Bretton Woods II" meeting to develop a new financial architecture to manage global economic challenges.
Bush followed Europe's lead. He adopted a bailout package that resembled the European model and agreed to convene an international summit in Washington on November 14-15. To prepare for that summit, EU leaders met on November 7 and called for greater regulation of the world economy as well as efforts to develop a consensus on a set of guiding principles. Notably, they argued that the International Monetary Fund (IMF) was the body most suited to preventing international crises, and called for providing the IMF with the resources and tools necessary to operate in today's world.
EU leaders suggested that world leaders agree on a 100-day period following the November 14-15 summit in which to draw up plans for implementing the principles they have enunciated. They declared that at the end of that period, they will propose another summit (presumably in Europe) to ensure implementation of the principles agreed to at the November 14-15 summit. This timetable would provide space for the incoming Obama administration to develop its own approach to reform of the international financial architecture.
The financial crisis is both an opportunity and a challenge for the European Union. Clearly, different countries are facing their own credit and housing problems. Hungary is in dire straits, and requires an IMF bailout. Denmark is revisiting its initial decision to stay out of the euro zone given the devaluation of its currency. Countries throughout the region have prepared their own individual bailout packages to shore up their national financial systems, in some instances creating political tensions among EU members.
But the European Union has also shown that it can galvanize the international community into action. Brown's plan to partially nationalize major British banks was initially dismissed in the United States, but then U.S. officials decided they had no choice but to follow suit with a similar plan. Sarkozy pushed Bush to hold the international summit. Now EU leaders have laid down a marker that they expect serious action within one hundred days and will seek to convene another international meeting to ensure follow-up. There has been plenty of bickering, and considerable ambiguity about the merits of national versus EU-wide policy responses. But the crisis has, on balance, demonstrated the need for EU-wide initiatives, and the European Union at least thus far, has met the challenge.
The European Union's coordinated response to the financial crisis represents a much-needed boost for the European project of political and economic integration. The failure of the constitution in 2005 and the more recent Irish rejection of the Lisbon Treaty represent serious setbacks. In combination with EU leadership during the war in Georgia, which included brokering a cease-fire agreement that has so far resulted in a partial pullback of Russian forces from contested territory in Georgia, recent developments augur well for a more coherent and responsible European role in global affairs. It remains unclear whether such coherence will continue after France hands over the EU presidency to the Czech Republic at the beginning of 2009. Not only is the Czech Republic much smaller than France, but like many other countries in Central Europe it has been reluctant to support a more centralized and collective EU.
Greater European coherence and capacity also holds out promise of strengthening transatlantic ties. The Obama administration is likely to turn to Europe for help on many different fronts--from Afghanistan, to Iran, to the global financial crisis. The more willing and able Europe is to team up with Washington on these and other issues, the more likely it is the Atlantic partnership can be repaired and renewed.