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Free AccessMNI POLICY: Pandemic Fund Has Room To Spare - ESM's Regling
By Luke Heighton
FRANKFURT (MNI) - The European Stability Mechanism could exit the Covid-19
crisis with three quarters of its lending capacity untouched, ESM head Klaus
Regling said in an interview with news agencies on Tuesday.
While all 19 euro area member states qualify for support from the Pandemic
Crisis Support, which is based on the ESM's established Enhanced Conditions
Credit Line (ECCL), with debt sustainability "a given" in every case, not all
are expected to apply for such support, Regling told the agencies including EFE,
ANSA and AFP. Of those which do, the majority are not expected to draw, he
continued, although the cost savings could be substantial - up to EUR2 billion a
year for Spain and EUR7 billion for Italy.
"If I make a very rough estimate," Regling said, "maybe one-third might
become activated. That would represent EUR80 billion. That would mean given our
current unused lending capacity of EUR410 billion, we would still have EUR330
billion for whatever comes at another crisis, which I don't want to predict and
cannot predict."
There is "no justification" for a repeat of the kind of conditionality that
previously accompanied loans other than that the money is spent on health sector
costs, direct and indirect, linked to the pandemic.
Instead, Regling said, the ESM's Early Warning System "only looks at the
risks to repayment," including an analysis of a country's repayment capacity for
the next 12 months "and whether there is any risk that the payments due might
not be made."
"Markets fully understand how the ESM operates," he continued. "They know
that this is cheap money so the country that needs to finance its deficit is
actually better off asking for some of the deficit to be financed by the ESM
than doing all of it on its own in the market, because the interest rate is
lower. This is good for the country's standing in the markets."
Once the crisis is over, Regling said, "we can return to a normal
situation, the [Stability and Growth] Pact works and the monitoring that is
linked to ESM lending is exactly as described [...] there will be no special
monitoring."
Regling said he "hoped" the economic recovery from the pandemic would start
in 2021 and last two to three years, and at least "some" of the additional
fiscal resources required would come in the form of grants, rather than loans.
Suggestions that Greek debt was "exploding" as a result of the Covid-19
crisis were "not true," Regling said. "It is going up, of course, because Greece
will run a large fiscal deficit, like everybody else.
"But when you compare debt ratios, you must realise that in the case of
Greece, more than half of their debt is with the ESM, so it is at very, very low
interest rates. So in that sense, the annual debt servicing cost for Greece is
lower in terms of GDP than in many other countries."
--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: M$X$$$,M$$EC$,MFX$$$,MGX$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.