(For more on Europe’s debt crisis, see EXT4.)
Oct. 28 (Bloomberg) -- The guardians of the euro arrived in Brussels last week knowing their efforts to quell the Greek debt crisis over the past two years had failed to build confidence.
Europe’s image is “disastrous,” Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro finance chiefs, said Oct. 21 as the six-day meeting marathon began.
By the time everyone headed home in the wee hours yesterday, Europe had its revamped plan to prevent a Greek default, safeguard banks and shield Italy from the contagion. In the meantime, tempers flared, threats were made and French President Nicolas Sarkozy’s simmering resentments toward his British and Italian counterparts boiled over.
“We have found a durable solution to the Greece crisis,” said Sarkozy at about 3:55 a.m. yesterday, hustling to the podium to hold the first post-summit press conference.
Even so, the timeline was defined by Germany, where lawmakers demanded the right to ratify the crisis plan, requiring both an Oct. 23 meeting and the gathering that started on Oct. 26.
German Chancellor Angela Merkel, shuttling between lawmakers in Berlin, conference rooms and her hotel in the cobblestoned center of Brussels, set the tone while en route. After receiving a flower bouquet from the women’s caucus of her Christian Democratic party in Wiesbaden, Germany on Oct. 22, she delivered a speech singling out Italy for its debt load, saying investors weren’t wrong to demand higher yields on debt from Prime Minister Silvio Berlusconi’s government.
That evening, she and Berlusconi huddled at a botanic garden outside Brussels, where she pressed the message that he had to do more to cut the EU’s second-highest debt after Greece.
Later that night, Merkel joined Sarkozy for a sitdown with European Central Bank President Jean-Claude Trichet, EU President Herman Van Rompuy, European Commission President Jose Barroso and EU Economic and Monetary Affairs Commissioner Olli Rehn. International Monetary Fund Managing Director Christine Lagarde was also there.
When it was over, Merkel sipped wine with aides including Deputy Finance Minister Joerg Asmussen, one of the negotiators on the Greek debt writedown, and spokesman Steffen Seibert in the bar of the Amigo Hotel past 1 a.m. Xavier Musca, Sarkozy’s chief economic adviser, stopped for a chat without sitting down.
Sarkozy began the next day with a run at 8 a.m. in the city’s Royal Park, texting on his cell phone as he jogged with four bodyguards in tow on the crisp fall Sunday.
French-German togetherness followed as Merkel gave Sarkozy a brown teddy bear by German stuffed-toy maker Margarete Steiff GmbH for Giulia, his newborn daughter. News photos showed Sarkozy talking on his cell phone while unwrapping the gift.
Berlusconi, faced with pressure from investors for budget cuts and from France to remove Lorenzo Bini Smaghi from the executive board of the ECB, wasn’t feeling much love.
The Italian premier, though, had previously declined to name Bini Smaghi to replace Italian Mario Draghi as head of the Bank of Italy.
“What should I do, should I kill him?” Berlusconi said he told Sarkozy when pressed about Bini Smaghi, whom France wants to replace with one of its own on the ECB board. Bini Smaghi must understand he can’t be a “cause of war” with France and will quit by the end of the year, Berlusconi said.
By 5 p.m., Merkel and Sarkozy were having a laugh at Berlusconi’s expense at a Franco-German news conference. Asked by reporters whether the Italian leader reassured them, Sarkozy smiled and looked at Merkel, who broke into a grin. It was a talk “among friends” and she expected Berlusconi to deliver, Merkel said.
The incident was splashed across the front pages of Italian newspapers, with many running color photos of the French and German leaders smirking. The papers’ websites carried links of the video, which was played throughout the day on most of the country’s news programs.
Berlusconi said Merkel had apologized for the laughter at the press conference. Merkel spokesman Seibert denied the contrition and in a Twitter post said there was “no apology from the Chancellor because there was nothing to apologize for.”
Inside the meetings, British Prime Minister David Cameron felt Sarkozy’s wrath after pressing euro-area leaders to finally swat away the crisis. Sarkozy, his voice rising, replied that if the U.K. wanted to be involved it should have joined the euro, said two people familiar with the encounter over lunch.
As policy makers left the building named after 16th-century Flemish philosopher Justus Lipsius with most of their business unfinished, they knew they were coming back on Oct. 26. The reason: Merkel needed lawmakers to approve options agreed to by the 17 euro-area leaders for boosting the effectiveness of the region’s rescue fund. It was part of the new master plan to avoid a Greek default, fortify banks and stop the crisis from engulfing Italy.
Hemmed in by Germany’s constitutional court and with voters fed up with bailouts for weaker euro countries, Merkel has made her concern for domestic sentiment a hallmark of Europe’s crisis response.
With the U.S. and other global partners pressing Europe to contain the debt crisis, Merkel lined up cross-party support for boosting the firepower of the European Financial Stability Facility after persuading the main opposition Social Democrats and Greens to back a motion that caps German guarantees.
“The world is watching Europe and Germany,” she said before lawmakers backed the plan.
Heading back to Brussels on Oct. 26, Seibert posted on Twitter, “it’s going to be a long day.”
He was right.
With the outlines of a deal set, Europe’s leaders summoned bankers at midnight to nail it down. Gathered in Van Rompuy’s office, the bankers, represented by Charles Dallara, managing director of the Institute of International Finance, were given the ultimatum: Take the package that involved a 50 percent writedown of Greek debt or face worse consequences.
The politicians had their answer two hours later.
“It was the fiercely delivered wish by Merkel, Sarkozy, Juncker, that if a voluntary agreement with the banks was not possible, we wouldn’t resist one second to move toward a scenario of the total insolvency of Greece,” Juncker told reporters. That “would have cost states a lot of money and would have ruined the banks.”
When markets in Europe and the U.S. opened a few hours later, leaders got the endorsement they were struggling for, with stocks and the euro soaring.
“We Europeans showed tonight that we reached the right conclusions,” Merkel said.
--With assistance from James G. Neuger, Chiara Vasarri, Stephanie Bodoni and Anabela Reis in Brussels and Patrick Donahue in Berlin. Editors: James Hertling, Anne Swardson
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