Dream 747,
Should the engine start surging or stalling but performance still available then that is when you would instead follow the checklist and bring the thrust of #1 (in this case) back slowly, if if was good at 40% N1 and that happens to be above 5 degrees TLA then the FMGC will NOT detect an EO condition unless it goes below idle thrust which would indicate an engine failure as opposed to an EO condition (FCOM SOP-ABN ENG 1(2) FAIL) as you say and you could carry on with your other flight management decisions leaving it where it is. FF + FQ should be engaged and the FMGC will give you accurate predictions for fuel over destination.
I would suggest that it should only be at this point that you would have sufficient information to decide on putting the other one in MCT or not.
But you're correct saying that if you had #2 in MCT and the other one goes above 5 degrees TLA then #2 would now be giving you full MCT, unless by this point the FWC had detected and ENG 1(2) FAIL in which case the moving #1 wouldn't make any further difference.
Does that help?