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Was the Euro saved by a phonecall from Obama?

The European Central Bank should perhaps mint a special euro coin with Barack Obama's head on it.

As the dust settles and the markets cool, 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.

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 last weekend from Hampton, Virginia, where he was giving a college address. He spoke first to Ms Merkel Mr Sarkozy.

A senior US official said Mr Obama warned the Europeans 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". 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.

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. The talks appeared to be about to collapse. "The deal is exploding," said a text message to an increasingly agitated President Sarkozy in Paris.

The deadlock was broken by 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.

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. Mr Sarkozy's idea that the ECB should buy up the bonds of struggling countries, had always been dismissed by Jean-Claude Mr Trichet, the governor, as unthinkable. The ECB said that it would do just that.