It's stated in the documentation that it's possible:

If you have an App Engine Premier account, you can specify that your new 
application should reside in the European Union rather than the United 
States. For developers that do not have a Premier account, you will need to 
enable billing for applications that should reside in the European Union.
https://developers.google.com/appengine/docs/python/gettingstartedpython27/uploading

But you can't set up billing without creating the application first, and 
when the application is created you can't edit the location, so either 
isn't is possible for non-Premier accounts to create apps in the EU or I 
need a step by step guide on how to activate billing before creating the 
app.

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