BRUSSELS When 20 European Union leaders gathered in Oslo's sub-zero temperatures on December 10 to celebrate winning the Nobel Peace Prize, there was an unspoken item on the agenda: banking union.
France and Germany planned to hold talks on the margins of the prize-giving to see if they could find a deal that would put the European Central Bank in charge of all euro zone banks.
Such centralized oversight would be a fundamental shift after three years of battling to contain the sovereign debt crisis and might help break the link between indebted euro zone governments and their unstable banks.
Making the ECB the single supervisor would also lay the ground for a common plan for winding down stricken banks and a coordinated scheme for protecting bank deposits, both of which would underpin the 17-nation single currency bloc and help countries such as Spain and Ireland overcome their difficulties.
Over a lunch hosted by Norway's prime minister in the Gamle Logen, a 19th century Masonic lodge on the edge of central Oslo, the leaders and the ECB president, Mario Draghi, discussed the prize and the crisis. German Chancellor Angela Merkel emerged from the lunch to tell the press she felt "more courageous".
Officials present said the talks confirmed a message that had already been sent by Berlin: that Germany wanted a deal on a single banking supervisor at a finance ministers meeting on December 12 to be approved at a leaders' summit on December 13-14.
Yet a few days earlier German Finance Minister Wolfgang Schaeuble, the most powerful member of the EU finance ministers' committee, known as Ecofin, had all but scotched the chances of a landmark deal on a single supervisor.
He had insisted that the ECB's oversight be limited to a lot fewer than the 6,000 banks in the euro zone, and questioned whether the ECB's top decision-making body, the 23-member Governing Council, should be the final arbiter in supervisory decisions, striking at the very heart of the plan.
His position went almost directly against that of France, with whose finance minister, Pierre Moscovici, he had had a public disagreement. A compromise looked unlikely, especially not in time for the summit.
But Schaeuble's line also went beyond what German Chancellor Angela Merkel supported, several EU officials have told Reuters, and when he returned to Brussels on December 12 for the Ecofin, he was already delivering a more conciliatory note.
He originally said he wouldn't make the start of the meeting because of a conflict but then said he would be on time.
"When Schaeuble said he would turn up for the start of the Ecofin it was already a good sign," said a euro zone official.
"And then (British finance minister) George Osborne's people said he was prepared to stay through the night if necessary, rather than having to leave at 8 p.m., which was critical too.
"The fact the Germans and the Brits were committed made it almost certain that a deal was possible."
The evening before, French and German officials stayed up late trying to find a deal on a supervisory mechanism.
The next morning they circulated the outlines of the compromise. The ECB would have oversight, but only of banks with more than 30 billion euros in assets or assets greater than 20 percent of a country's GDP.
Each country that joined the supervisory mechanism would have to have at least three banks overseen by the ECB, and a method would be found to ensure no country was put at a disadvantage under a special voting system.
But as finance ministers began arriving for the afternoon meeting, a deal remained uncertain. All 27 EU countries had to back it, even if not all of them planned to sign up. There were doubts among euro zone countries such as the Netherlands and Slovakia, and Britain and Sweden, two non-euro zone states with powerful banking sectors, were far from convinced.
If anyone withheld their support, the plan would collapse.
As he arrived, Sweden's Finance Minister Anders Borg said creating a banking union would be a "sad day for Europe", raising the threat that he could block the entire plan.
"There is a move now towards euro-banks, euro-taxes, euro-transfers, euro commission," he said. "We think the steps (are) in the wrong direction. It might be very popular among the eurocrats, but I think there are very few Europeans actually wanting these developments."
But 14 hours later, after intense negotiations on the second floor of the glass-and-steel Lex Building, he backed the deal.
After initial discussions in which each of the 27 finance ministers stated his or her position -- a process that took three hours -- the chairman, Cypriot Finance Minister Vassos Shiarly, called a halt and proposed "bilateral discussions".
Shiarly sat down with Michel Barnier, the European commissioner in charge of banking union, and a representative from the ECB, with each member state in turn.
Officials said Schaeuble insisted on being involved in the bilaterals. While it isn't clear if he took part in all 27, the sources said he played a significant part, huddling constantly with Draghi and Moscovici.
"Schaueble was always there. Whenever a new bilateral began, he was in the room or talking to the minister as he went in," said a diplomat present throughout the discussions.
Those bilaterals continued until almost 0400 leaving barely 12 hours before EU leaders were set to gather for their summit.
"We needed a solution so that Germany could say that it got what it needed," said another official at the meeting, while a third described the growing pressure to clinch an agreement.
"The fact that the EU leaders' summit was due to start in a few hours was in the back of everyone's minds," he said. "Nobody wanted to fail and for all the world to know it."
During the bilaterals, Osborne and Borg soon softened their stance, having secured firm safeguards that ensured their national regulators' would continue to have autonomy despite the new powers being given to the ECB. They were onside.
As the evening dragged on, Osborne spent hours away from the meeting room. "We had expected the UK to be the most difficult, but Osborne was the quietest man of the night," a fourth official said. "He spent most of the night in the canteen."
Borg and Moscovici read books to fill the long gaps in the talks. Officials paced the floors, with the wait broken only by the delivery of ham and cheese sandwiches.
At around 3.30 a.m., the final bilateral was held with Austrian Finance Minister Maria Fekter. She had opposed the proposed voting system in the supervisory mechanism and had support from Belgium and Luxembourg.
She was angry to have been kept waiting and at least one person present said she raised her voice in the meeting.
Belgium's finance minister asked that everyone be given at least 30 minutes to read through the final deal that Schaeuble, the ECB and Barnier had effectively coordinated. Half an hour later, at 4.30 a.m., everyone signed up to the compromise.
"It wasn't pretty, but it worked," said a euro zone ambassador who attended the talks with his minister.
In the end, Germany got much of what it wanted. Most of its savings and cooperative banks, which have had a close relationship with the German regulator, will not fall under the ECB's direct oversight, although the central bank can intervene if it sees a problem.
Direct assistance to banks from the euro zone's rescue fund would only be available in late 2014, months after the ECB system of supervision is in place and well after Germany holds national elections that are expected to return Merkel to power.
Schaeuble did not, however, manage to curtail the ultimate authority of the ECB's governing council. A mediation panel will intervene in the event of any dispute with regulators over how banks are monitored, but the buck will still stop with the governing council, the ECB's monetary policy-setting authority.
Euro zone countries must now create an agency to close stricken banks and a resolution fund to cover the costs. This may be more contentious than giving the ECB supervision powers and more late-night talks lie ahead.
As he headed out of the meeting at around 5 a.m. on December 13, Schaeuble's scowl perhaps betrayed his true feelings about a milestone in European integration, the fear that Germany will pay to clean up the problems of other countries' banks.
But a deal was done, and for Germany, intent on keeping the European project on track and alive, that counts too.
(Additional reporting by Robin Emmott; editing by Anna Willard)