The EU and Microsoft have jointly announced that the two parties have come to an agreement that will settle the Internet Exploring bundling dispute that began earlier this year.

A mockup of the ballot screen approved by the EU

Under the terms of the agreement, European copies of Windows 7 will automatically download and present a “ballot screen” to users. The screen will give customers the opportunity to choose from browsers other than Internet Explorer, at which point IE will be disabled.

“We welcome today’s announcement by the European Commission [EC] to move forward with formal market testing of Microsoft’s proposal relating to web browser choice in Europe,” said Microsoft General Counsel Brad Smith in a prepared statement.

The fuss over bundling very nearly cost European residents the ability to purchase the significantly cheaper upgrade editions that will soon be available on US shores. Microsoft had planned to withhold upgrade licenses until December so it could validate that upgrades would work if the final OS had no Internet Explorer code.

The bundling issue also prompted Microsoft to promise that Europe would receive so-called Windows 7 E editions which offered no browser at all. However the EU was not altogether pleased with this model.

“Microsoft has apparently decided to supply retail consumers with a version of Windows without a Web browser at all. Rather than more choice, Microsoft seems to have chosen to provide less,” said the EC in a prepared statement.

Today’s announcement of a deal is really something of a formality, however, as Microsoft and the EU reached a tentative agreement in late July. The final terms of the deal take effect immediately and will remain in place for the next five years.

EC Competition Commissioner Neelie Kroes said the agreement was a symbol of Europe’s freedom of competition.

“Without choice, competition will die, and without competition, innovation will die. This case is not just about competition today, it is about competition and innovation tomorrow, next month and next year,” she said.

Full editions of Windows 7 will go on sale in the EU and the UK on October 22, with upgrade editions to follow soon thereafter.