That call was part of what a senior Treasury Department official called “one long conversation” with European leaders, who over an extraordinary weekend of late nights and early mornings overcame German resistance and agreed to a wholesale expansion of the bloc’s political and financial mission. Bending the rules, they backed the stability of all 16 countries that use the euro with loan guarantees adding up to nearly $1 trillion.
In the process, the European Union, under crisis conditions, moved fitfully toward more centralization, toward a French vision of an economic government for the region. It is a role not totally unlike the one that the federal government in the United States played during the early stages of the financial crisis in 2008.
But to get there involved intense bargaining among leaders, especially the French president, Nicolas Sarkozy, and Mrs. Merkel but also the Italian prime minister, Silvio Berlusconi; Group of 7 finance ministers; the Japanese; and the Americans, according to interviews with numerous participants in the talks in Europe and the United States.
The deal also required a contentious telephone vote by the members of the board of the European Central Bank, who agreed, though not unanimously, to do what the bank said last week it had not even considered — buying up the sovereign debt of the weakest members of the euro zone, those nations using the euro currency, effectively guaranteeing their debt to protect them from anxious investors.
After the 16 leaders of the euro zone met Friday evening into early Saturday to confirm their previous deal for Greece, which the markets had considered inadequate, they agreed they had to do more. Their finance ministers gathered Sunday in Brussels, under a deadline to act before financial markets opened in Asia on Monday morning, to hammer out the details.
It was another of the all-night sessions that have come to epitomize the challenge of making decisions in Brussels, where 27 sovereign states with more than 450 million people sometimes painfully decide to share their sovereignty. The crisis most directly touches the 16 nations that use the euro. But it may also affect the fate of the single currency — a main symbol of the new European unity — and thus touches the entire European Union.
But the states that share the euro, which is controlled by the independent European Central Bank, do not share a single treasury, tax system or budgetary authority. The euro’s lack of coordinated financial backing had become excruciatingly evident after Greece admitted that its level of debt was much higher than previously reported, due to bad management and prevarication.
A sovereign debt crisis — compounded by a recession that had cut tax receipts and prompted extra government stimulus spending all over Europe — began to gnaw at those countries most exposed and least competitive: Greece, Portugal and Spain.
American officials became worried about the European response as early as February, a senior administration official in Washington said on Monday, when European leaders repeatedly stated that the Greece problem was well contained. They believed that mere expressions of support would be enough to calm the markets — and that they did not need to put in real commitments of emergency funds.
The Americans were less persuaded, telling their counterparts that they had to eradicate “the risk of default.” The Europeans debated this internally and, in the mind of one senior American official, who would not speak on the record, the Europeans “waited too long.”
“Had they acted sooner,” he said, “They might have gotten away with less.”
The United States officials began talking to their counterparts about an American concept: overwhelming force. “It’s all about psychology,” said the senior official. “You have to convince people that the government will get its act together.”
But it was not until Sunday, one official noted, that the meltdown spreading across Europe was regarded as “an existential threat.”