Sunday 17th October 2021
Upper limit “not up to date”
ESM boss wants to relax debt rules
The European Stability Mechanism has been supporting euro states in need since the global financial crisis and, above all, the Greek crisis. But only if they meet requirements. The head of the ESM would like to “adapt these to the changed economic conditions”.
The head of the European rescue mechanism ESM, Klaus Regling, has spoken out in favor of reforming the European Stability and Growth Pact. The monetary union needs fiscal rules, that is undisputed, Regling told the “Spiegel”. “But they have to be adapted to the changed economic conditions.” The debt ceiling of at most 60 percent of economic output is “no longer in keeping with the times”.
Of the European stability mechanism (ESM) was created after the world financial crisis from the experience of the Greek crisis. It has a share capital of around 700 billion euros and has been helping financially ailing countries in the euro area, whose crisis could endanger the entire monetary union, since 2012. Among other things, the ESM can grant loans to countries in need and bridge financing difficulties. For this he imposes conditions.
Politicians should be aware that “a state can borrow too much, but also too little,” warned Regling. Government borrowing in the euro area could also be scaled back too much. This could “create a lack of safe investment opportunities for investors” and the interest rate could “fall even further”. The European Union was “well advised”, according to the ESN boss, to “contribute to a sufficient supply of so-called safe assets”.
Praise to Italy
Regling also praised the package of measures with which the Italian government intends to use the funds from the European Reconstruction Fund. “The Italian Prime Minister Mario Draghi has launched a promising reform program that offers the best prospects of bringing the economy on a growth path and thus bringing the debt level down”.
The financial politician also pointed out that Italy had only low costs for its debt servicing due to the favorable conditions on the international financial markets. “In 1993 the government in Rome had to spend almost 12 percent of economic output on interest,” said Regling. “Today it’s a little more than 3 percent.”