How roast turbot helped eurozone leaders swallow their pride on debt

A key aspect was to get bondholders to accept a 50 per cent 'haircut' on their assets

Shortly after 4am, looking exhausted but still impeccably dressed, Nicolas Sarkozy pushed through the closed doors of the European Council meeting room in Brussels to brief the media.

To the small band of journalists who had remained throughout the marathon session of talks, the French President declared that the 17 eurozone leaders had reached an "ambitious and credible response" to the crisis. Then – less reassuringly – he added: "Don't ask me any complicated questions."

Though tired, Mr Sarkozy was in far better spirits than he had been 10 hours earlier when he arrived with other European leaders for their second summit in a week to try to solve Europe's sovereign debt crisis.

At that stage even a limited deal was far from a foregone conclusion and, to make matters worse, before the real business of the evening could begin, he had to sit through an hour-long meeting of all 27 members of the European Council, called at the behest of the British.

In reality this was never going to achieve anything and was only taking place because Mr Cameron didn't want Britain to be seen as marginalised from the real decisions to be taken by eurozone leaders later.

In the event, the only newsworthy moment came when the Italian Prime Minister Silvio Berlusconi was caught on television ogling the bottom of the new Danish Prime Minister Helle Thorning-Schmidt.

Then, cameras and Mr Cameron banished, the 17 eurozone countries got down to business.

During a working dinner of roast turbot with spinach followed by sorbet, a clear problem emerged. A key part of the deal was to get Greek bondholders (mainly banks) to accept a "voluntary" 50 per cent "haircut" on their assets. A meeting between EU officials and representatives of the Institute of International Finance had broken up earlier without resolution, and everyone knew that, unless an agreement could be reached, all other aspects of the deal would fall apart.

So the leaders decided on an unusual course of action. They phoned Charles Dallara, managing director of the IIF, and demanded he come immediately to the Council building. There, shortly after midnight, Mr Sarkozy, Angela Merkel and the Luxembourg Prime Minister Jean-Claude Juncker told him that, unless his members accepted a 50 per cent haircut, they would get nothing at all.

"We really made only one offer," Ms Merkel told reporters. Mr Juncker put it more bluntly: "It was the fiercely delivered wish that if a voluntary agreement was not possible, we wouldn't resist one second to move toward a scenario of the total insolvency of Greece. That would have ruined the banks."

Not surprisingly Mr Dallara agreed, and there followed a further three hours of talks to hammer out the final statement.

During all this Mr Berlusconi found time to do an interview with a late-night TV chat show in which he claimed Ms Merkel had apologised to him for "smirking" with Mr Sarkozy last weekend when asked about their faith in Italy's ability to deliver budget cuts.

But Steffen Seibert, Angela Merkel's spokesman, flatly contradicted him, saying there had been no apology "because there was nothing to apologise for".

And what of Mr Cameron? He was left to dine with the Swedish and Polish leaders to consider how they could avoid being frozen out in any new eurozone structure.

The summit: Winners and losers

The UK

The British Government will be pleased that UK banks have not been called upon to raise any more capital. But there is growing concern among ministers at the degree to which Britain was pushed to the sidelines. As glad as David Cameron is at not being in the single currency, he is worried about being excluded from key decisions. Summit success (out of 5):

Germany

The Bild newspaper proclaimed on its front page yesterday that Chancellor Angela Merkel had emerged triumphant from the summit because Berlin had reached all its objectives. Domestically, her most important achievement was finding a solution that made no attempt to increase the already highly unpopular €211bn contribution made by German taxpayers. But commentators concluded Ms Merkel's triumph would be short-lived. "Which will collapse first? – Greece or Merkel's coalition?" asked another paper. Summit success (out of 5):

France

Nicolas Sarkozy tried to claim the credit yesterday for the rescue package. In truth, he has suffered a string of tactical defeats by Germany, but he has also won an important strategic victory. The main lines of the bailout package were made in Germany and initially opposed by France. However, the decision to move towards a unified economic policy for the eurozone satisfies a French demand which had been steadfastly blocked by Berlin. Summit success (out of 5):

Italy

Silvio Berlusconi bragged yesterday that his economic manifesto had been "welcomed by everyone inside the eurozone". The hastily assembled "letter of intent", in which Italy pledged to raise its general retirement age to 67 by 2026, slash red tape and boost its coffers by flogging state assets, may have calmed the markets, at least for now.

But Mr Berlusconi is one of the week's biggest losers. Look no further than the summons to Brussels where, like a naughty schoolboy, he had to answer to masters Merkel and Sarkozy. Summit success (out of 5):

Greece

Europe's leaders would not have been up until the early hours of yesterday morning, debating the finer points of bank capital and bondholder haircuts, had it not been for Greece. The cuts in public spending, and the consequent loss in jobs, education and retirement security that has been extracted from George Papandreou, are immense. Greece is still the sick man of Europe. The summit has only allowed it to get out of its death bed. Summit success

... and the banks

The banks fought fiercely against haircuts on Greek bonds. They insisted that they would not go beyond the 21 per cent write-down they agreed in July. In the end they have had to accept 50 per cent. The banks will also have to raise more capital. Yet they will get insurance, underwritten by European governments, on the new Greek bonds they receive.