There are tentative signs that the dust is beginning to settle after the last few hyperactive weeks, with signs that world leaders have mounted an effective response to the credit crisis. Inter-bank lending seems to be recovering, stock markets appear more stable and the outline of a global approach is beginning to show, following three weeks of frantic decision-making at national, European and at global levels.

As so often happens, it is the force of this crisis which is driving Europe forward. The EU landscape has changed in many ways in the last three weeks.  Its political position has been strengthened. There is no question that President Bush’s invitation to Presidents Sarkozy and Barroso to dine with him in Washington last weekend and their joint commitment to a series of global summits must mean that the EU can now claim a real voice in international monetary affairs.

The crisis may be labelled “Made in America”, but its repercussions across the world have made a pan-European approach essential.  Never have the implications of globalisation been so clearly demonstrated. Any unilateral country-by-country response, such as the Irish and German proposals on deposit protection, met with a storm of protest.

One curious consequence of the crisis is the transformed relationship between the eurozone and the UK. We used to argue that Britain should adopt the euro lest the UK be excluded from the Eurogroup of countries and so lose influence.  How ironical, then, that Gordon Brown should be invited to attend the euro summit on October 12 and become the hero of the hour, transformed into Flash Gordon with his (or rather Chancellor Darling’s) three point model for underwriting inter-bank lending, recapitalising the banks and protecting savers. Brown even takes his place in the family photo of the 15 eurozone ministers!

You could argue that it was precisely the UK’s independence of the euro which made the UK’s actions possible, but taking these drastic measures if everyone else was doing nothing would have been highly risky for the Brits. Incidentally, I wonder how much liquidity the UK’s major banks have received from the ECB since this crisis began. There’s even more interdependence here than meets the eye.

Of course the eurozone’s response to the Brown plan had to be political rather than legal, relying on common commitments and national measures rather than new EU legislation. It is only national governments which have the resources and the legal power to underpin their banks’ capital base.

The attention must now shift to the legislation to be adopted across various institutions to avoid any repetition of the crisis.

The Commission has already put forward a new proposal to safeguard depositors up to €100,000 per person, replacing the current €20,000 limit. Will this apply in Iceland, I wonder, under EEA rules?  Stronger regulatory measures have been proposed for banks and insurance companies and guidelines on state aid for guaranteeing deposits and bailing out banks have been issued by the Commission. President Barroso is emerging from the crisis with much credit – I would think his place is secure if he wants to serve a second term as Commission President.

The issue of bank regulation will be hotting up. Will central banks be given more responsibility? The British are certainly talking about it in relation to the Bank of England, and the subject will be on the agenda of the coming summit meetings in the context of post-Bretton Woods. For the eurozone, that must mean more responsibility for the ECB.
The crisis has triggered some interesting political developments. Take the Lisbon Treaty, for instance. Brian Cowen, The Irish Taoiseach, is committed to presenting the December EU summit with proposals to reverse Ireland’s rejection of the draft Treaty.

Mr Cowen argues that the EU has saved Ireland from a financial meltdown similar to Iceland’s and hopes that the Irish voters will appreciate this. He says that had his country not been part of the EU and the eurozone and without the support from the European Central Bank (about €70bn apparently) it could never have weathered the storm.

The Irish leader clearly hopes that this experience, plus reassurances on sensitive issues such as abortion and defence, will be enough to obtain a “yes” vote in a second referendum. The pressure is certainly mounting as the June deadline for European elections comes closer.

This will coincide with more straitened economic times as recession bites, public spending rises and jobs are lost across Europe. Things are far from returning to normal, and as someone said, the new normal will not be the old normal.