Wracked by its worst ever crisis of confidence in almost 60 years, the European Union received a surprise boost to its self-esteem when it won the Nobel peace prize.

In a decision that many saw as paradoxical given the multiple frictions and disputes afflicting the union as it struggles to save its single currency, the Nobel committee in Oslo took the bigger and longer view, citing the EU's long record of generating reconciliation between historical foes and helping to restore democracy and peace to the erstwhile dictatorships of southern Europe and the former communist regimes of the old Soviet bloc.

The award brought a rapturous reaction at EU headquarters in Brussels, as well as sour and embittered criticism from europhobes and Eurosceptics, principally British.

"The EU is the biggest peacemaking institution ever created in human history," said Herman Van Rompuy, the president of the European council who chairs EU summits. The award was "the strongest possible recognition of the deep political motives behind our union".

José Manuel Barroso, head of the European commission, said the prize had been awarded to all 500 million EU citizens.

Politicians and officials from Scandinavia to the Mediterranean used the unexpected award to point out what they saw as at stake in Europe's current existential crisis, triggered by ballooning debt levels, bailouts, austerity and deep divisions over how to regenerate the EU and save the single currency, the euro.

"A timely reminder to the EU of its strengths at this time of crisis," said Rebecca Harms, a Green leader in the European parliament.

The generosity inspired by the award did not extend to British anti-EU campaigners.

"This goes to show that the Norwegians really do have a sense of humour. The EU may be getting the booby prize for peace because it sure hasn't created prosperity. The EU has created poverty and unemployment for millions," complained Nigel Farage, leader of Ukip, which exists to try to get Britain out of the EU.

Martin Callanan, the Tories' leader in the European parliament, said: "The Nobel peace prize was devalued when it was given to newly elected Barack Obama. By giving the prize to the EU the Nobel committee has undermined the excellent work of the other deserving winners of this prize. Twenty years ago this prize would have been sycophantic but maybe more justified. Today it is downright out of touch."

Rather than dwelling on the crisis of the past three years, the Nobel committee looked back two generations to the founding of what was to become the modern EU as a political and economic instrument above all aimed at halting the historical rivalries and enmities between Germany and France that saw the two countries fight three wars in the century before the EU was established.

The committee said the EU's powers of healing were being brought to bear on the Balkans, the scene of bloodbaths only 20 years ago, through a policy of integration towards former Yugoslavia. Slovenia is already a member and Croatia is slated to become the EU's 28th member next year.

The praise for the Balkan policy came despite the EU's failures to stop the bloodshed in Bosnia in 1992-95.

In a further paradox given the emphasis on the EU's prowess at reconciliation, the current six-month presidency is held by Cyprus, a country whose intractable conflict and partition has defied decades of mediation and has contributed hugely to the freeze in Turkey's negotiations to join the EU.