Financial Crisis Tests Limits of Unity Within the E.U.

"The smugness is no longer there," Barysch said.

Steinbrueck, who had been particularly acerbic in blaming Washington for allowing U.S. banks to spin out of control, was busy in Berlin trying to keep up with the troubles in his own banks. An initial $49 billion package for Hypo unraveled, as banks that had agreed to come to the rescue complained that its losses were far more than they had been led to believe. Steinbrueck had to round up billions more to prevent a collapse.

Sarkozy, who had called for revamping world financial rules as early as Sept. 25, also stepped out ahead with a call for coordinated action by E.U. countries to douse the flames heating up across the continent. As head of the country that holds the union's rotating presidency, he invited Berlusconi, Chancellor Angela Merkel of Germany and Prime Minister Gordon Brown of Britain to join him last Saturday for an emergency summit in Paris to adopt a common strategy.

Sarkozy's initiative reflected a long-standing propensity to seize leadership, a trait denounced by his opponents as rashness. But it also reflected a belief that because Europe's troubled banks operate across national borders, they would benefit from Europe-wide solutions to their weaknesses. Finally, it responded to the widely shared ideology of a united Europe, the idea that the E.U. is heading toward more integration and should thus confront the financial crisis as a group.

"The financial crisis strains the unity of the 27" E.U. countries, wrote Pierre Rousselin of the Paris newspaper Le Figaro as the leaders of Europe's four major economic powers gathered at the Elysee Palace. "But if Europe wants to exist, now is the time to prove it."

Despite decades of unity rhetoric, Europe has never come together to the point of a government with powers such as those enjoyed by Washington. As a result, Sarkozy's summit produced ringing pledges of coordination but no concrete Europe-wide steps. It was, commentators concluded, every country for itself, to defend its national interests.

Nicolas Véron, an analyst at the Belgian economic research center Bruegel, noted that those calling for specific and coercive E.U. action to dampen the crisis were exaggerating the group's level of integration and the power of its common institutions. Although the union has the European Central Bank to set interest rates in the 15 member nations that use the euro, he noted, it does not have an executive that can make transnational decisions in the way Treasury Secretary Henry M. Paulson Jr. can guide banks in all 50 U.S. states.

"Basically our institutions do what they're designed to do," he said, "but they don't do what they're not designed to do."

In particular, suggestions that the E.U. set up a $400 billion bailout fund based on proportionate national contributions gained automatic interest as a way to restore confidence in the troubled system and confirm European solidarity in the face of difficulty. According to press reports, it was floated by mid-level French officials during preparations for last Saturday's summit. But Steinbrueck swiftly and publicly ruled it out. From London, Brown made his opposition known more quietly. Sarkozy renounced it as unrealistic even before his guests arrived.

Back in Rome, Berlusconi kept pushing for the fund and visited Merkel to try and talk her into supporting it. But the idea that Europe's governments could find that much money in a time of financial crisis was fanciful to begin with, Véron said. And European integration has not advanced to the point where Germany, the union's largest economy, would find it politically palatable to hand over billions of dollars to rescue banks around the continent.

Contracting their ambitions, French officials succeeded Tuesday in getting E.U. finance ministers to agree on a common increase in private deposit guarantees, from about $27,000 to $68,000, to prevent runs on banks by account holders.

That decision had little more than symbolic value. Many countries, including France, had already announced higher guarantees.

"After all, the European Union is made up of 27 sovereign nations," Barysch said.