European Stability Mechanism chief Klaus Regling outlined the key parameters determining the ESM’s history and future in an address touching on the prospects and purpose of a prospective European Monetary Fund.
While noting that support for the euro is at the highest level since 2004 among the citizens of the euro area, Regling said that eurozone states must politically seize that momentum.
“In December, it looked as if Europe was doing exactly that: seizing the momentum. But only four months later, I’m not so sure anymore. We seem to be losing the momentum, rather than seizing it. Let me explicitly warn here against the risk of political inaction. Countries need to understand that the current reform agenda is a package. One should not look at its individual elements in isolation,” Regling said.
He described European monetary union and crisis management as a package deal in which there is something for everyone, but everything for no one.
“No country will get all that it wants – but each country will get something. For that to happen, national traditions and convictions will have to meet somewhere in the middle. That is how Europe works. If countries can’t agree on this package, we risk having to wait for the next crisis. Then, the changes we are debating now would be inevitable. But they would happen under extreme time pressure, and probably at greater cost,” the ESM chief underlined.
Regling recalled the process under which the eurozone came to rely less and less on the IMF, to the degree that an autonomous European Monetary Fund is on the agenda, as the IMF pulls out from significant contributions.
“At the start of the crisis, the Fund was needed not only for its financial firepower, but also for its broad experience with assistance programmes. Over the years, the financial contributions of the Fund have become gradually smaller. The IMF contributed one-third in the beginning of the crisis, but only one-tenth in the second Greek programme. In the current Greek programme, it has not made any financial contribution so far. We also know there is criticism inside the IMF, from its non-European members, who say that the Fund has been too active in Europe. Consequently, Europe may not be able to count on the IMF to the same degree as in the past,” Regling said.
ESM debt restructuring mandate?
Regling spoke of a possible new debt restructuring mandate for the ESM, which could directly affect Greece, though he did not mention it in that regard.
“Another possible new mandate for the ESM is managing a sovereign debt restructuring framework to make rescheduling negotiations with private creditors more predictable. I call this a “framework” and not a “mechanism” because it would not include strict rules, such as an automatic extension of maturities, which would be pro-cyclical. The ESM could be the moderator between creditors and the country concerned, along the example of the London Club, to achieve an outcome that is fair for everybody.”
Dicrete roles of constant ESM monitoring, Commission
Regling propounded an ESM-European Commission cooperation in economic assistance programmes, with full respect for the authority and powers of the Commission.
“It seems reasonable that the ESM and the European Commission in the future will be jointly responsible for designing, negotiating and monitoring assistance programmes. Of course, this needs to happen with full respect to the competences of both institutions as laid down in the Treaty, and without any overlap. I have no intention of taking competences away from the Commission. But in order for the ESM to be ready to act at short notice when financial assistance is requested, we need to be able to regularly monitor the economic situation in all euro area countries, and not just the current or former programme countries,” he said.