The European Central Bank should perhaps mint a celebratory euro coin with Barack Obama's head on it. As the dust settles and the markets cool (perhaps temporarily), details are beginning to emerge of the frantic background negotiations which generated the €750bn plan to save the euro in the early hours of Monday. US officials – but not just US officials – are giving some of the credit to President Obama.
French presidential sources insist that the hero of the hour was Nicolas Sarkozy but that his newly-adopted policy of presidential decorum prevents him from blowing a whole brass section of trumpets, as he would have done a couple of months ago. The whole deal almost collapsed just after midnight, when EU finance ministers had already been meeting for nine hours. The Italian Prime Minister is said to have brokered a telephone compromise between Mr Sarkozy and Germany's Angela Merkel, which allowed an agreement to be announced just as the Tokyo markets were opening at 2am Brussels' time.
There appears to be some truth in all these claims but the most startling – and most pivotal role – may have been played by Barack Obama, according to both American and French officials. He convinced the Europeans that it was time not just to Do Something, but to Do Something Very Big, to rescue the euro and prevent the world from plunging into another financial crisis and recession. Mr Obama made telephone calls on Sunday from Hampton, Virginia, where he was giving a college address.
He spoke first to Chancellor Merkel and then, three hours later, to President Sarkozy.
A senior US official told The New York Times that President Obama warned the Europeans – based on his own experiences early last year – that it was no good playing catch up with the markets. They had "to get out ahead as much as possible" by producing a rescue plan so enormous that market speculation, against the euro, and against heavily indebted EU countries, would be shocked into submission.
Dealing with the markets was like dealing with a military enemy, Mr Obama said. You had to use "overwhelming force". He also offered help from Washington to buy up euros for dollars and ease the pressure on European central banks.
It was after these calls that the headline figure for the EU rescue plan inflated rapidly to €500bn, plus another €250bn from the IMF. A big problem remained, however. Should the European Commission run the new rescue mechanism for heavily indebted, and speculation-menaced Euroland countries? Or should it be a loose system of government-to-government loans and loan guarantees?
This may seem like the kind of angels and pins discussion for which Brussels is renowned. It goes, however, to the centre of the argument which has prevented EU governments from agreeing more than a series of limp promises to help Greece over the last two months. It was the limpness of these promises, Mr Obama had warned, which had got the EU – and potentially the entire world economy – into this mess.
Chancellor Merkel insisted from the beginning of the crisis that there must be no change in the rules of the euro to allow institutional, or automatic, EU or European Central Bank help for struggling countries. Any aid must be given, grudgingly, from government to government. The markets interpreted this as meaning that heavily indebted Euroland countries are, ultimately, defenceless. They are deprived of not just the right to devalue or print money but all the other usual weapons of a national central bank. To bet on Greek default – or Spanish default, or Portuguse default – was therefore a one-way bet: a gamble that could not lose.
Ms Merkel's objections were partly driven by the German domestic opposition and the threat of legal challenges under the German constitution. The basic structure of the final deal was originally put forward by President Sarkozy. There was to be a relatively small facility for the European Commission to raise up to €60bn on financial markets, backed by the EU budget. This would provide fire-fighting funds for struggling member states. There was also to be a much bigger package of potential government-to- government loans and loan guarantees. Paris wanted this new European Monetary Fund, as it has been dubbed, to be controlled by the European Commission so that money could be available rapidly. Germany objected. Thirdly, Mr Sarkozy suggested that the ECB should be ready to buy up the loans, or bonds, of struggling countries. The ECB has always insisted that it could, or would, never do any such thing. To do so would be to abandon its political independence and monetary orthodoxy.
By midnight on Sunday, the 16 Euroland countries and the 11 Non-Euro EU countries (including Britain) had agreed on the €60bn European Commission loan facility. They had also agreed to a whacking €440bn in essentially government-to-government loans and loan guarantees. But the 27 governments could not agree on how this much larger fund should be framed and managed. Would it be a loose series of inter-governmental promises? Or would it have some kind of European institutional backbone?
The finance ministers' meeting had got off to an awkward start when the German minister Wolfgang Schäuble fell ill as his plane arrived in Brussels. A colleague was dispatched to replace him. In any case, by the end of the night, the ministers were merely glove puppets for the real negotiations going on by telephone between chancelleries and palaces.
Germany, Britain and the Netherlands refused a Commission proposal that the big new euro-stabilising fund should be guaranteed by member states but that the purse strings should be firmly held by Brussels. The talks appeared to be about to collapse. "The deal is exploding," said a text message to an increasingly agitated President Sarkozy in Paris.
"By around 10 to 11pm, things started getting very chaotic and frankly very tough," one Brussels official said. "What really focused the minds was the pressure of the Tokyo stock exchange opening at 2am. We had missed New Zealand and Australia already. There was no way we could afford to miss Tokyo."
The deadlock was brokenby a crafty piece of re-drafting and terminological vagueness. Various people are being given credit for the idea of a three-year "special purpose vehicle". Up to €440bn in eurobonds, would be available to struggling euro members. The money would be raised or guaranteed by governments but managed by the Commission and – crucially – the IMF. The Dutch credit a Dutch official. Others say that it was Axel Weber, president of the Bundesbank. The Italian Prime Minister Silvio Berlusconi helped to persuade both Mr Sarkozy (who wanted something less inter-governmental) and Chancellor Merkel (who wanted something even looser) to go along with the idea. To widespread astonishment, the board of the European Central Bank, also threw their hats into the ring. Or rather they ate their hats in public. President Sarkozy's idea that the ECB should buy up the bonds of struggling countries, had always been dismissed by Mr Trichet, the governor, as unthinkable. The ECB said that it would, from Monday morning do just that.
And the lessons of this story are....
* European institutions are messy but cannot be completely replaced by government-to-government deals without great risk.
* The financial markets inadvertently, strengthened the institutions which support the euro.
* France has always wanted a de facto "economic government" to sustain the single currency. Germany has always refused. Berlin was obliged at the weekend – partly by the intervention of a US President – to take a large step in that direction.
Additional reporting by Vanessa Mock
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