05/17/2010 05:34 PM

'We Only Have One Shot'

How the Euro Rescue Package Came Together

Within a single weekend, European leaders agreed to a massive and historically unique 750 billion euro rescue package for Europe's beleaguered currency. SPIEGEL has reconstructed the dramatic events, which saw traditional rivalries emerge between EU leaders, who ultimately found a compromise. By SPIEGEL Staff.


Berlin, Chancellery, 9:30 a.m.

By all indications, it promises to be a quiet day. In the morning the German parliament, the Bundestag, is scheduled to ratify a bill approving Germany's share of the Greek bailout package, which will provide the battered countries with loan guarantees, and in the afternoon the chancellor is expected to appear at a campaign event in Düsseldorf, where an important state election is taking place in North Rhine-Westphalia. Nevertheless, the markets are strangely nervous. The yield on 10-year Greek government bonds rises within a short period of time, and the EURIBOR, the rate at which banks lend money to each other, is also starting to climb.

Jens Weidmann, the chancellor's senior economic advisor, is paying close attention to the rate changes. Like everyone who watches the markets closely, Weidmann knows that the rate fluctuations are a sign of more serious problems to come. He writes a short memo and sends it to the chancellor.

Berlin, the federal parliament, the Bundestag, 10 a.m.

The debate over financial assistance for Greece is scheduled to begin in three hours, but it is clear to everyone that rejecting the legislation is not an option. "We must defend the common European currency in its entirety," says Finance Minister Wolfgang Schäuble, speaking for the government. "In doing so, we are also defending the European project."

His words are met with enthusiastic applause. Afterwards, Chancellor Angela Merkel says privately that Schäuble's speech demonstrated to her, once again, how important it is to support him as finance minister, despite his health problems. The Bundestag ratifies the bill in a vote of 391 to 72, and the members, pleased with their achievement, say their goodbyes for the weekend.

Frankfurt, the German central bank, the Bundesbank, in the morning

A memorandum titled "Current Market Developments," which has provided senior officials at Germany's central bank, the Bundesbank, with daily updates on market conditions since the Greek debt crisis began, notes: "Substantial gains in federal bonds due to ongoing flight into safe investments. Losses in European stock markets due to growing concerns about the periphery of the euro."

Brussels, European Commission, in the morning

European Commission President José Manuel Barroso calls Merkel to discuss a "worrisome development in the markets" that he has noticed. Barroso and Merkel agree that the solution that was put together for Greece will apparently not be enough to bring lasting calm to the markets. The two politicians agree to discuss more extensive proposals at a summit meeting in Brussels scheduled for that evening. At this point, no one has mentioned any concrete amounts or timetables yet.

Berlin, Finance Ministry, 2 p.m.

At the request of United States Treasury Secretary Timothy Geithner, the finance ministers of the seven largest industrialized nations agree to hold a teleconference. Schäuble joins the meeting from his office in Berlin. Geithner also reports that the markets are becoming more and more nervous, and he urges his European counterparts to do whatever they can to support the euro. A day earlier, the Dow Jones suddenly dropped by 1,000 points, supposedly the result of a glitch caused by transposed numbers, but the causes are still unclear.

When Schäuble briefs Merkel after the meeting, the chancellor has just spoken with Italian Prime Minister Silvio Berlusconi and EU Council President Herman Van Rompuy. "Things are coming to a head," says the chancellor. Merkel's flight is rescheduled to depart an hour earlier than planned, now that the chancellor is in a bigger hurry to get to Brussels.

Brussels, Justus Lipsius Building, headquarters of the Council of the European Union, 3 p.m.

French President Nicolas Sarkozy is the first head of state to arrive in the Belgian capital for the special meeting. After having attended a memorial service in Neuilly-sur-Seine for police officers killed in the line of duty that morning, Sarkozy quickly changes his suit before heading to the office of the French delegation to prepare for the crisis summit.

Sarkozy takes advantage of the time he has left before Merkel's plane lands to engage in a quick round of shuttle diplomacy. He meets privately with Portuguese Prime Minister José Sócrates, Berlusconi and Spanish Prime Minister José Luis Rodríguez Zapatero, one after the other, to tell them about the "French plan," which he intends to present to the larger group that evening. The Frenchman has long fought for a uniform European financial and economic policy that would finally put an end to the competition among countries when it comes to taxation and social security contributions. Only a few weeks ago, French Finance Minister Christine Lagarde accused Germany of being too competitive, arguing that this competitiveness comes at the expense of weaker member nations, but her comments were met with little more than amusement in Berlin.

The euro crisis now gives Sarkozy an opportunity to push forward with his agenda. The French plan calls for the issuance of a European bond, for which all euro countries would be liable. The introduction of Euro bonds would mean that there would no longer be any differences in interest rates in the euro zone and, therefore, no penalties for countries that investors believe are less responsible in running their economies.

'The Euro Zone Is Experiencing the Worst Crisis Since its Establishment'

Brussels, Justus Lipsius Building, 6 p.m.

The politicians' arrival ritual at summit meetings is referred to as "doorstep." Merkel steps out of her limousine, takes a few steps on the red carpet, stops in front of the cameras, says a few words for the evening news and then hurries on into the tall concrete building. Seen from the outside, the conference seems routine enough. Two hours are set aside for consultations, and then, during a dinner, sometime between the asparagus appetizer and chocolate desert, the assembled guests reach a final agreement on the billions in assistance for Greece.

Before the chancellor joins the other European leaders, she sits down for a brief chat with Sarkozy. The French president proposes using money from the EU budget to establish a bailout fund, and various numbers are thrown around the room -- anywhere from €35 to 70 billion. Sarkozy says that time is of the essence and that it's important to convey the impression of decisiveness.

Merkel has some objections. She believes that such a hastily assembled package is not the right way to reinforce confidence in the euro, and she also has lingering questions about the legal consequences. The initial figures have already made her suspicious. Who will decide on the disbursement of the funds, and how will the money be paid out?

Brussels, Justus Lipsius Building, 7th floor, 9 p.m.

The asparagus was served, and so was the turbot main course, but otherwise nothing is proceeding as planned at the dinner in the restaurant in the building where the meeting is being held. Jean-Claude Trichet, president of the European Central Bank, is sitting in front, and behind him are wall charts depicting interest rate curves for the past few days. Some of the heads of states in attendance look surprised. They are only now learning that the topic of the meeting has changed, and that it is no longer just about Greece.

Trichet leaves no doubt as to how serious he believes the situation is. Interbank trading has come to a virtual standstill, he says, and panic is spreading through the markets. If nothing happens now, a new financial crisis could erupt, perhaps even worse than the one that followed the failure of Lehman Brothers.

"The euro zone is experiencing the worst crisis since its establishment," says Sarkozy, after Trichet has completed his presentation. "We must find a systemic response," says Merkel. The chancellor proposes using the weekend to find a solution, and points out that the response must be carefully considered, because the leaders will have "only one shot." A meeting of all the finance ministers is scheduled for Sunday. No one pays much attention to the dessert.

Brussels, Justus Lipsius Building, lobby, 12:30 a.m.

"Euro group summit ends -- Stake out Chancellor Merkel in front of VIP interior entrance -- NOW," the press speaker of the German EU delegation, Martin Kotthaus, texts to the journalists dozing in the press center. Merkel, tired and sullen, says three quick sentences, hurries to her car and is gone.

The chancellor, short on time and knowing that she will appear before the press the next day when she hosts the Canadian prime minister, has decided to dispense with a press conference. Sarkozy, on the other hand, has all the journalists left in the building rounded up for a press conference. His statement on the "rescue umbrella" for the euro, "95 percent" of which bears the handwriting of the French, sets the tone for the weekend's reporting.

Berlusconi, smiling and cheerful, also speaks to the press. He talks about an "exceptional situation" and says: "When a house is burning, it doesn't matter where the water comes from. I am very pleased with this evening. France and Italy have prevailed." No one says it, but it's clear that the fire hoses will be connected primarily to German hydrants.


Moscow, 6 p.m.

After a campaign appearance in Bielefeld in northwestern Germany, the German chancellor is soon far away from home, in Moscow, where Russia's victory over Nazi Germany will be celebrated on Red Square the next day. The event comes at an inopportune time. Sarkozy and Berlusconi, who were also invited, cancelled at the last minute, but the Chancellery feels that the Germans could not possibly have followed suit. The Russians would have perceived it as an affront, especially after having been repeatedly assured that the German chancellor would be attending the victory celebration.

During the ceremony, Merkel is sitting in a high-profile seat in the front row, between Russian Prime Minister Vladimir Putin and Chinese leader Hu Jintao. Hu uses the opportunity to ask Merkel about the efforts to save the euro, and notes that the Chinese are also concerned. Merkel assures him that the Europeans will do everything possible to get things under control.

A Lot More Money at Stake than Originally Planned


Frankfurt am Main, Bundesbank, 12 noon

Bundesbank President Axel Weber updates his colleagues on the German central bank's executive board on the status of the negotiations. He has had his driver bring him to office. The others are still at home, participating in the meeting via telephone.

There isn't much Weber can say, expect that there is a lot more money at stake than originally planned. The German government has asked the central bank to calculate the southern countries' liquidity requirements for the next two years. Some €500 billion in debt will mature and have be restructured during this period alone.

The question for the monetary watchdogs now is whether the funds should be provided in the form of loan guarantees or as real loans to distressed countries, but Weber doesn't have an answer. Everyone is painfully aware that by now the Bundesbank executive board is merely an onlooker to the struggle over the future of the euro.

Brussels, Berlaymont Building, 1 p.m.

Before the finance ministers of the euro nations come together for their special meeting in Brussels, the European Commission sets the tone by releasing a draft proposal for the meeting. Under the proposal, the involvement of the International Monetary Fund (IMF) would be ruled out in the future, there is no time limitation on aid, the consent of all member states is not required for approval, the loans are to be financially backed by all member states, and a European bond is envisioned. The document reads as if it had been written at the Elysée Palace. For the German representatives at the meeting, it is now clear that the goal is to force them up against a wall.

Brussels, Justus Lipsius Building, 3 p.m.

Finance Minister Schäuble reaches the building where the meeting will be held in Brussels' European District via the underground parking garage. While the other finance ministers face a forest of microphones in front of the building, Schäuble is taken directly to a medical emergency room, where a paramedic is already waiting for him. He suddenly felt ill on the drive from the airport. When his condition doesn't improve, an ambulance is called and the minister exits the building as quietly as he arrived in it. He is driven to the nearby Cliniques Universitaires Saint-Luc and immediately admitted to the intensive care unit. In the large conference room where the finance minister have now gathered, State Secretary Jörg Asmussen takes the seat reserved for Schäuble. Speaking somewhat awkwardly and even stuttering at times, EU Economic and Monetary Affairs Commissioner Olli Rehn presents the Commission's plan. He points out that Europe must provide a "decisive response before the markets open again."

Dresden, 4 p.m.

German Interior Minister Thomas de Maizière is walking in the woods when one of his bodyguards hands him a mobile phone with a call from the chancellor. Merkel tells him that Schäuble has been admitted to the hospital and asks him to take over the negotiations. While de Maizière is hurrying home, an official aircraft is already being rerouted to Dresden. By 6:15 p.m., the interior minister is en route to Brussels.

Berlin, Chancellery, 4:15 p.m.

German pollster Infratest's initial predictions on the outcome of the state election in North Rhine-Westphalia arrive at the Chancellery. According to the voter survey, Merkel's conservative Christian Democratic Union (CDU) and the center-left Social Democratic Party (SPD) are running almost neck-and-neck, and the Greens are doing almost twice as well as the liberal Free Democratic Party (FDP). Based on these results, it is clear that the CDU/FDP coalition government led by Governor Jürgen Rüttgers is finished. This means Merkel's federal government coalition will also lose its majority in the Bundesrat, Germany's important upper legislative chamber, which represents the interests of states. But the group gathered in Merkel's office remains calm as the results come in. The predicted outcome is no longer much of a surprise, given that in-house predictions have been trending downward for weeks.

The biggest risk now is a discussion over the leadership of the CDU and its Bavarian sister party, the Christian Social Union (CSU), but the euro crisis, which is still unknown to the public, is politically helpful in this respect. Starting on Monday, the news about the new bailout package will overshadow everything else, including the election debacle in Düsseldorf.

Obama Stresses Importance of a 'Decisive Response'

Berlin, Washington, White House, in the afternoon

Merkel updates US President Barack Obama on the progress of the negotiations. Obama stresses the importance of a "decisive response" on the part of the Europeans. For Obama, "decisive" means big enough to impress the markets and deter speculators.

The chancellor promises to make a proposal by the evening that substantially exceeds the €60 billion scope of the bailout program until consideration until now. In return, she asks for the president's support in bringing in the IMF again. After the telephone call, the Chancellery informs the Elysée Palace that the German government is inclined to increase the euro countries' portion of the bailout fund to €440 billion.

Brussels, Justus Lipsius Building, 8:30 p.m.

De Maizière has finally arrived to head the negotiations for the Germans. Asmussen has passed the time by addressing questions of protocol. Now the finance ministers have only a few hours left to find a convincing solution to the euro crisis before the markets open in Sydney. "That's the deadline we have to make," says French Finance Minister Christine Lagarde. After that, the speculators will be back in the game.

De Maizière immediately makes it clear that he cannot accept the European Commission's proposal to set up a European bond, for which all member states would be liable, partly for constitutional reasons. "This solution is completely out of the question," he says. A heated discussion ensues, before the idea is eventually discarded. It is 10 p.m., within only two-and-and-half hours left before a signal has to be sent to Sydney.

Berlin, Chancellery, 9:30 p.m.

Economics Minister Rainer Brüderle, Foreign Minister Guido Westerwelle and Justice Minister Sabine Leutheusser-Schnarrenberger arrive at the Chancellery for the crisis meeting. No one there has thought of inviting the transportation minister or the consumer protection minister, both members of the CSU, to attend the meeting. As a result, the CSU is not at the table when Merkel reports on the status of the negotiations, which becomes a source of great displeasure in Munich the next day.

The chancellor is concerned that the billions in aid for the euro could be unconstitutional. The group is in agreement that everything will now depend on the exact wording of the draft bill submitted to the Bundestag.

Frankfurt am Main, Bundesbank, 10:30 p.m.

Bundesbank President Weber updates his fellow executive board members with the latest news from Berlin and Brussels. He reports that the European Central Bank has decided to buy up the bonds of countries needing credit, possibly by as early as Monday. There is a moment of shocked silence, because everyone participating in the conversation knows what this means: It invalidates the Maastricht Treaty, the euro zone is now jointly and severally liable for all member states, and the European Central Bank is losing its independence by yielding to political pressure and getting into the business of the monetary financing of countries.

One of the Bundesbank executive board members asks Weber whether he has made the chancellor aware of the consequences. Weber answers that he voted against the purchase of government bonds in the governing council of the European Central Bank, but that he was outvoted. In addition to Weber, ECB chief economist Jürgen Stark and Nout Wellink, president of the Dutch central bank, are also against the idea.

But nothing can happen completely without the approval of the Bundesbank executive board members. Germany has pledged to purchase bonds worth €8 billion, which now requires a decision by the Bundesbank executive board. It is a formality, but an important one at this juncture. The board members discuss whether to withhold their consent. They believe that the resolution is invalid, because it violates a Bundesbank rule that bars the financing of entire governments. After a short discussion, the board, unwilling to oppose the ECB and a resolution that all other central banks have approved, decides to cooperate.

Brussels, Justus Lipsius Building, 11 p.m.

"Waiting for new wording," a finance minister texts to his staff, which has set up camp a few floors down. A few minutes later, a new compromise proposal is released, encompassing 10 paragraphs on one-and-a-half pages.

The negotiations have reached an impasse over the question of whether bilateral assistance programs, under which a single country could rush to the aid of a country in crisis, would make more sense than euro bonds. Germany has, for such cases, the KfW government-owned development bank, which provides government-backed loans, but the Italians quickly object, noting that because Rome lacks a similar bank, direct aid to a foreign country would require ratification by the Italian parliament, which could take a long time. The ministers from several smaller countries nod in agreement. "This is not a strong signal," says French Finance Minister Lagarde. "We need guarantees for the markets." Only a few minutes remain before it is time to send a signal to Sydney. Things are not looking good.

Lagarde, who has clearly assumed the role of moderator, suggests: "Let's forget about Sydney, concentrate on Tokyo and take a break." The Tokyo markets open at 2 a.m., giving the finance ministers an additional hour-and-a-half. The delegations get up and withdraw into small groups.

Austrian Finance Minister Josef Pröll takes aside his counterparts from Slovakia and Slovenia, and they are then joined by Belgian Finance Minister Didier Reynders. At some point the Austrian, a militant non-smoker, retires into the glass-enclosed smoking room with Luxembourg Prime Minister Jean-Claude Juncker, both men holding the European Commission document and a pen in their hands -- as far as anyone can tell, looking through the thick cloud of smoke.

In a corner at the other end of the conference room, Spanish Economics and Finance Minister Elena Salgado and her Portuguese counterpart Fernando Teixeira dos Santos are looking for allies in their fight against austerity requirements. The Spaniards do not want to be mentioned in the communiqué as a highly indebted country that is being required to reduce its deficit in 2010 by 1.5 percent and in 2011 by 2.5 percent. And they succeed, in the end, when the finance ministers agree on a "pledge" in the closing statement, "to pursue substantial additional consolidation measures."

Unexpected opposition comes from British Chancellor of the Exchequer Alistair Darling, whose last official trip has taken him to Brussels once again. He demands guarantees that the British will not be held liable for the defaults of euro countries, now or in the future.

"Completely unrealistic," Swedish Finance Minister Anders Borg snaps back, pointing out that London will be the first to feel the effects of further problems in the euro zone. There are now apparently three classes of nations in Europe, Jean-Pierre Jouyet, head of the French financial markets regulator, quips: the euro countries, those that understand the euro, like Sweden and Poland -- "and then you have the English."

The delegation work feverishly to draft a new statement by 1:45, 15 minutes before the market opens in Tokyo. The euro bonds are out, as is the bilateral assistance option, but the plan now includes a new institution backed by the member states. At the last minute, de Maizière insists on imposing a three-year time limit on the bailout package. Everyone looks at everyone else, realizing that they have completed their task, and then Finnish Finance Minister Jyrki Katainen takes the floor.

He says that he has only a few items to add, only three sentences that must be included in the text of the agreement, and he pulls a paper from his briefcase. Among other things, Katainen wants to introduce a tax on financial transactions. He insists that the group cannot end the meeting without imposing tighter controls on the financial markets.

De Maizière, looking exhausted, shakes his head. His party's government coalition partner back in Berlin, the FDP, roundly rejects such a tax. The interior minister asks that financial market controls remain at the auditing level. In the end, the document includes a nebulous statement that the EU intends to "examine the possibility of a global transaction tax." It is the last change to the text of the resolution, in which Europe has agreed to approve a loan program worth €500 billion to save its common currency.

Brussels, 2:09 a.m.

A member of the French delegation receives a succinct text message from the Elysée: "Bravo."

Brussels, 2:36 a.m.

Before allowing her staff to turn in for the night, Merkel holds one last teleconference: with Ronald Pofalla, her chief of staff at the Chancellery, economic advisor Weidmann and government spokesman Ulrich Wilhelm in Berlin, and with Asmussen and de Maizière in Brussels. Merkel thanks everyone for their hard work, and says: "We have achieved our main demands."


Translated from the German by Christopher Sultan


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