Dexia, which was bailed out by France and Belgium once before, in 2008, is just a small piece of the broader European debt and banking turmoil. But its collapse comes at a critical point, as European officials are meeting this weekend to work out how taxpayer money should be used to resolve the Continent’s debt crisis.

The most acrimonious debate has been over the amount of losses banks should suffer for lending hundreds of billions of euros to countries that may not be able to fully repay. In the case of Greece, big lenders in Europe have tentatively agreed to swallow modest losses on what they are owed, but are resisting proposals that would force them to take a much bigger hit. Even if they accept losses, they may then seek tens or hundreds of billions in capital infusions from their governments.

As the Dexia bailout deal closed last week and was approved by the French Parliament, officials overseeing the restructuring say that the bank will meet all of its obligations in full. Alexandre Joly, the head of strategy, portfolios and market activities at Dexia, said in an interview that the idea of forcing Dexia’s trading partners to accept a discount on what they are owed “is a monstrous idea.” He added, “It is not compatible with rules governing the euro zone, and it has never, ever been considered to our knowledge by any government in charge of the supervision of the banks.”

While several government officials in France and Belgium agree that they expect to allow Dexia to use its rescue money to pay its trading partners in full, others said a final decision had not been made. Representatives for Dexia’s trading partners, like Morgan Stanley and Goldman Sachs, said they were not concerned about exposure to Dexia.

Dexia has suffered in several lines of business, including investments in sovereign debt from countries like Greece. But the biggest drain on its cash stemmed from a series of complex, wrong-way bets it made on interest rates related to its municipal lending business. A significant part of Dexia’s business is lending money to these localities at a fixed interest rate for relatively long periods, say 10 years. But, because the interest rate that the bank itself pays to finance its operations fluctuates, that exposes it to potential risk. If its cost of borrowing exceeds the interest it charges on loans outstanding, it loses money.

To protect itself, Dexia entered into transactions with other banks. But in doing so, it made a major miscalculation and protected itself only if interest rates rose. Instead, interest rates fell, and according to Dexia’s trade agreements, Dexia had to post billions of euros in collateral to institutions on the opposite side of its trades, like Commerzbank of Germany, Morgan Stanley and Goldman Sachs.

Dexia is also suffering losses on about 11 billion euros ($15.3 billion) in credit insurance it has written on mortgage-related securities, the same instruments that felled A.I.G., echoing that insurer’s troubles. In this business, too, Dexia’s problems have been worsened by aggressive demands by some trading partners for additional collateral. According to a person briefed on the transactions, Goldman Sachs, one of Dexia’s biggest trading partners, has asked for collateral equal to nearly twice the decline in market value of its deals. As was the case with A.I.G., Dexia must provide the collateral when the prices of the underlying securities fall, even if they have not defaulted.