20 June 2013

Klaus Regling - Firefighter of the eurozone

Translated from the German

The EFSF and the ESM have €700 billion at their disposal. How do you handle such abundant assets?

The €700 billion are not assets in themselves, but they are the maximum lending capacity. Currently, nearly €250 billion have been pledged to Greece, Ireland, Portugal, Spain and Cyprus, of which €200 billion have been paid. This means that these five States may take out another €50 billion claim when they meet our conditions for the improvement in terms of economic policy. There are currently €450 billion unused credit capacity. There is also the capital of the ESM, which will amount to €80 billion in a year's time. These are the real assets of the ESM - those billions come from the 17 euro countries and will be invested conservatively by us in order to secure the ESM bonds on the market.

The ESM's predecessor, the EFSF, expires at the end of the month. What's your evaluation of the programme?

I dare say that if the EFSF had not been established, Ireland and Portugal would no longer be in the monetary union today. This is probably our greatest success.

The roots of the crisis, which made the EFSF and ESM necessary, lie in the US. But what about EU internal failings and shortcomings?

Such a major crisis has more than one cause, and certainly also some homemade ones. Not all countries have recognised clearly enough that in a monetary union, they have to give up part of their sovereignty. In the first decade of the monetary union, not enough attention was paid to this fact. But we are drawing the right lessons from it now - many rules have been tightened and economic policies are better coordinated.

The US has closed 500 banks since the crisis began in 2007. In Europe, so far only one single bank has been shut. There could still be a lot of work ahead for the ESM.

The issue of banks is one of the things that could have been dealt with better and sooner. I do not think that Europe will have to close as many as 500 banks as our bank structure is different from that of the US. Furthermore, in dealing with its banks, the US had it considerably easier: after all, they are one country and do not consist of 17 sovereign democracies such as the euro area. 

In banking, rigorous steps should certainly have been taken earlier in Europe. There are differences from country to country, but overall we do not enjoy the credibility on the markets that would be needed. The markets have the feeling that we are acting too slowly here, and that there are still too many banks that have not strengthened their capital.

You are, together with Luxembourg's Prime Minister Jean-Claude Juncker, a supporter of eurobonds. Are they still required now that we have the ESM?

Under 'eurobonds' many things are understood by different people. In fact, the EFSF and ESM are actually already a type of eurobond. We have shared responsibility for the repayment and give joint guarantees of the work of the EFSF and ESM.

Full interview (in German)

© Luxemburger Wort