"This is an important step towards democratic rule in the country. The EU hopes that the formation of the new government will lead to an immediate end to political violence and intimidation… and the stabilisation and recovery of Zimbabwe," the EU said in a statement.
In a separate statement, EU Development Commissioner Louis Michel said the new power-sharing government "has a heavy responsibility to ensure positive change for its citizens".
"All parties within this power-sharing government must now work, without delay, to immediately improve the social and economic conditions for the people of Zimbabwe," he said.
Zimbabwe’s journey towards recovery "will be long and difficult", he added.
EU foreign ministers last month tightened sanctions on Zimbabwe which ban Mugabe, his family and allies from entering Europe.
The 27-nation bloc has indicated that the sanctions will remain until the government shows progress in improving respect for human rights.
"We are ready to support the economic and social recovery of Zimbabwe once the new government shows tangible signs of respect for human rights, the rule of law, and macro-economic stabilisation," the EU statement said.
"The EU is deeply concerned that political prisoners, detained on unsubstantiated charges, still remain detained in Zimbabwe’s prisons," it added.
The EU also reiterated its support for humanitarian assistance in Zimbabwe, where more than half the population needs food aid and a cholera epidemic has hit nearly 70 000 people since August.
The EU Commission is the biggest donor to the most vulnerable in Zimbabwe and has provided €572m in humanitarian and development aid since 2002.
Zimbabwe’s opposition leader Morgan Tsvangirai was sworn in as prime minister on Wednesday after months of wrangling with President Robert Mugabe over a power-sharing deal aimed at rescuing the ruined country.
The historic event came 10 years after his party was formed to oppose the rule of Robert Mugabe, who has led Zimbabwe to ruin in his 29 years in power.
In a marquee in front of State House, the tight-lipped and ageing president – who will be 85 next week – administered the oath of office in gravelly tones.
"I, Morgan Richard Tsvangirai do swear that I will well and truly serve Zimbabwe in the office of prime minister of the republic of Zimbabwe, so help me God," he declared.
A tight-lipped Mr Mugabe – who was accompanied by his wife Grace, in a lurid leopardskin-print dress and matching yellow hat – watched his new prime minister intently as he signed the oath, before the two men exchanged a double-handed, albeit perfunctory, handshake.
In contrast when Mr Mugabe swore in Arthur Mutambara, the leader of a smaller MDC faction, as deputy prime minister the two men smiled broadly at each other.
The pact agreed in September raised hopes a new leadership could ease widespread hardships, but mistrust and continued quarrels between the old foes have put doubts over whether they can work together to ensure aid and investment flow in.
Tsvangirai, 56, was sworn in by Mugabe, 84, who has ruled with his ZANU-PF party since independence from Britain in 1980. Tsvangirai gave a little smile as he finished taking the oath in front of his old enemy, who appeared confident.
"I want to assure you that this is the only workable arrangement and I can assure you that I and my party will give it our utmost," said Tsvangirai, who cut his political teeth in the labour movement as a mine foreman.
Tsvangirai won a first round presidential poll against Mugabe last year but boycotted a subsequent run-off over violence, leading to deadlock that has worsened a crisis marked by hyper-inflation, food shortages and a cholera epidemic.
Mugabe said the parties should build on the deal "by turning our swords into ploughshares".
That may not be easy.
Implementation of the power-sharing deal only came after increased pressure from southern African countries, fearing a total meltdown in once-prosperous Zimbabwe.
Tsvangirai is a former trade union leader known for fiery speeches who gained respect at home and abroad by fighting graft and rights abuses. But his leadership skills in government remain untested.
Critics within his Movement for Democratic Change (MDC) accuse Tsvangirai of dictatorial tendencies and surrounding himself with a "kitchen cabinet" that makes important decisions at the expense of the party.
Zimbabweans hope the new government will bring policies to revive a country suffering unemployment above 90 percent, where prices double every day, half the 12 million population need food aid and a cholera epidemic has killed nearly 3,500 people.
But analysts say Tsvangirai and Mugabe have chosen political allies, rather than technocrats with international respect, for their cabinet teams, running the risk of further mismanagement that could worsen the economic decline.
Zimbabwe’s fate depends heavily on foreign investors and Western donors, who have made clear money will come only when a new democratic government is formed and bold economic reforms are taken — such as reversing nationalisation policies.
"Zimbabwe’s journey towards recovery will be long and difficult," said EU development commissioner Louis Michel.
Mike Davies, Middle East and Africa analyst at Eurasia Group, doubted the new government would be able to fully overturn a decade of economic decay.
"The Western countries would be looking to unlock the investment and the aid required to really represent a turnaround is something which is going to take a longer period of time than just the fact that Tsvangirai has now been sworn in," he said.
While critics blame Mugabe for Zimbabwe’s economic collapse, former trade union leader Tsvangirai has not spelled out clear plans to salvage the economy.
South Africa’s ruling ANC, which had called for tough action to ease Zimbabwe’s political deadlock, called the inauguration a historic occasion and urged all parties to work together.
Millions of Zimbabweans, many of them with the education and skills needed to help rebuild their once prosperous country, have fled the misery for neighbouring countries. So Tsvangirai will need to reverse a crippling brain drain.
Refugees at a shelter in Johannesburg, who rank among more than 3 million Zimbabweans living in South Africa, were sceptical about a quick recovery and in no hurry to head home.
"You can’t talk about a unity government today and see it work tomorrow," Peter Dzingayi said at the Johannesburg Central Methodist church, where thousands of Zimbabweans cram into halls to sleep, spilling on to the street outside.
"Right now we do not have any hope."