BRUSSELS — Finally, it has been a good week for Europe.
After months of bitter debate, European Union finance ministers finally reached two crucial agreements Thursday: They found a compromise to create a single supervisor for their banks – a major step toward lessening the damage struggling lenders can inflict on government finances – and agreed to give Greece desperately needed bailout funds.
As if that weren't enough, earlier on in the week, European leaders also accepted the Nobel Peace Prize – an award that was in equal measure recognition of the peace the union had forged on the once war-torn continent and incentive to solve its intractable financial and political crises.
So upbeat was the mood in Brussels that European Council President Herman Van Rompuy even dared to say the end of the three-year-old crisis over too much debt might be at hand.
"The worst is now behind us," he told European leaders gathered for a summit Thursday to discuss how to build a closer union.
But a meeting over dinner Thursday of the leaders of the 27 countries laid out how much work still needs to be done to strengthen Europe against further financial shocks.
"Much remains to be done, but all the hard work is starting to pay off," Van Rompuy told a press conference early Friday, after the first day of the summit.
The targets laid out included: a new European body with the authority to restructure or close down banks in trouble, a continent-wide deposit guarantee system, a fund that would support countries struggling to make economic reforms and a system that made sure countries stick to their commitments to overhaul their economies.
But the commitments agreed early Friday at the summit were vague – an indication of how many tough fights remain before the EU moves toward closer cooperation. The leaders said they would begin work on the bank resolution authority and deposit schemes next year, with the hope of reaching agreement in 2014.
The measures agreed by the earlier Thursday by the EU finance ministers had been the subject of months of intense haggling.
First, finance ministers from the 27 EU countries negotiated through the night to agree to give the European Central Bank oversight of their banks. That is a key component of what many hope will eventually become a full-fledged banking union – a single rulebook for all banks and coordinated plans for helping lenders in trouble.
Crucially, the single supervisor paves the way for Europe's bailout fund to give money directly to struggling banks, without dragging governments into the mess.
Then, the 17 EU countries that use the euro waved through a total of (EURO)49.1 billion ($64 billion) in bailout funds for Greece, (EURO)34.3 billion of which will be disbursed in the coming days.
The funds are vital because Greece needs the money to stay afloat and avoid a calamitous default. But the deal is also important for the other 16 countries because disagreement over how to handle Greece had raised fears that a default would bring down the entire currency union.
Dealing with the connection between banks and government debt – a toxic loop that has forced several countries to ask for bailouts after they tried to rescue their banks – also addresses a major cause of the region's financial crisis.
"The crisis came by way of the banks and now a tool is in place so that nothing will be like it was before," declared French President Francois Hollande on his way into Thursday's summit.
However, serious challenges remain: The economy across the eurozone is in recession; unemployment is rising; and in recent days, industrial production and retail sales have fallen further than forecast.
And while leaders have reached a couple of significant agreements this week, there are still some tough problems to crack.
In its attempts to strengthen the Europe against future financial crises, the EU has made significant promises about the kinds of powers it's ready to hand over to the central bureaucracy. On Thursday, leaders discussed the possibility of having their countries enter into individual contracts with the EU to ensure they keep their commitments to cut excessive spending and adopt important reforms to make their economies more competitive.
They also talked about creating a budget for the eurozone that could help prop up countries that are struggling under the weight of reforms – as Spain and Greece are now.
The problem leaders face is that they are concentrating so much power in Brussels that they need to make institutions and leaders who are now largely unknown accountable to voters. Some countries that don't use the euro are also beginning to worry about being marginalized in the EU as the countries that do use the currency build up their institutions.
Nonetheless, Hollande said the work of the past days allowed for "a good conclusion to 2012."
"That is, both to fix the problems of the past and to open a new possibility to a deeper economic and monetary union."
Raf Casert, Sylvie Corbet and Robert Wielaard in Brussels, Geir Moulson in Berlin and Elena Becatoros in Athens contributed to this story.