During the first stage, EU members addressed the crisis on their own. Since late September, EU countries have taken various economic measures depending on their individual situations. For example, Belgium, Holland and Luxemburg announced on September 28 that they would spend $6.8 billion, $5.9 billion and $3.7 billion, respectively, to hold 49 percent shares of Fortis divisions in each of their countries. Meanwhile, the British Government partially nationalized Bradford & Bingley.

Ultimately, however, as a regional organization whose members have close financial and economic ties, the EU relies on teamwork. On October 4, Merkel, Nicolas Sarkozy, Gordon Brown and Silvio Berlusconi, along with European Commission President Jose Manuel Barroso, European Central Bank President Jean-Claude Trichet and Eurogroup President Jean-Claude Juncker, held an emergency summit in Paris, hoping to combat the financial crisis together. Before the summit, Sarkozy proposed a plan to set up a 300 billion euro ($415 billion) fund to help troubled European financial institutions. The summit ended with an agreement on several shared principles instead of any concrete bailout measures, and Sarkozy's plan was vetoed by Britain and Germany.

Far from coordinating their efforts, EU members clashed with each other over their bailout strategies. For example, Ireland was the first EU member state to guarantee national bank deposits, which drew protests from British bankers as customers moved their savings to Irish banks. Finland criticized the Paris summit for excluding smaller countries. During the first stage of the crisis, the EU was in a state of disunity as stock markets kept falling and the situation grew worse. Now, however, EU members have realized the importance of coordinated action.

The second stage is a joint bailout process. The turning point came on October 15, when leaders from all 27 EU member states gathered in Brussels for a two-day summit. Brown, whose country has not yet joined the Eurozone, also participated in the summit together with Barroso. The leaders agreed on a plan to stabilize financial markets by purchasing stock in financial institutions and providing temporary finance guarantees. On October 16, Germany, France and Britain issued their massive bailout plans, valued at 500 billion euros (about $637.7 billion), 360 billion euros (about $459 billion) and 500 billion pounds (about $808 billion), respectively. By October 20, all the bailout plans of the EU and its member states totaled as much as 2 trillion euros (about $2.65 trillion), marking the biggest bailout action in European history.

The EU also planned to establish an informal early warning system to boost communication among its members and monitor financial sectors. In addition, the EU decided to change accounting rules so banks are less exposed to sudden declines in the value of their assets.

Now the EU is focused on reforming the international financial system to avoid another crisis in the future. European leaders said the global financial crisis stems from a broken international financial system and called for a complete overhaul. Sarkozy and Barroso also paid a special visit to Washington to lobby Bush for a global summit on financial reform, which will be held in mid November.

Where to go from here

The joint bailout demonstrates EU members' commitment to fighting the crisis, contributing to a rebound in investor confidence. But recent fluctuations in European stock markets hint that investors are still unsure about the plan's implementation and effects.

Judging by U.S. stock market activity since Congress approved the bailout, it is quite possible that the European financial crisis will not ease up any time soon and may even get worse. Because EU countries have different laws and accounting practices, transparency in financial markets also varies. Some financial institutions may have yet to fully reveal their losses. Moreover, as the U.S. financial crisis spreads worldwide, its impact on Europe may not be over.

Although the EU's bailout action is a strong effort to stabilize financial markets, it contains risks as well. In 2001, when the dot-com bubble burst, the U.S. Government issued long-term, low-interest loans to stimulate the economy. That policy in turn created a housing bubble that led directly to the current financial crisis. Therefore, Europe needs to be alert to the negative effects the bailout might have on future economic stability.

It is still hard to say when Europe will emerge from the financial crisis, but it is certain that the financial crisis will lead to a credit crunch, economic slowdown and possible recession, which are all bad for the world economy. The EU is China's top trading partner and its economic slowdown will put pressure on China's export enterprises, which underlines two faults in the Chinese economy: insufficient domestic demand and over reliance on the world market.

The author is a researcher with the Institute of European Studies, China Institutes for Contemporary International Relations