Sunday, October 17, 2021

Upper limit “not updated”
ESM boss wants to relax debt rules

The European Stability Mechanism has been supporting the euro states in need since the global financial crisis and, above all, the Greek crisis. But only if they meet the requirements. The MEDE director would like to “adapt them to changing economic conditions.”

The head of the European rescue mechanism ESM, Klaus Regling, has spoken in favor of a reform of the European Stability and Growth Pact. The monetary union needs fiscal rules, that is indisputable, Regling told “Spiegel”. “But they have to adapt to changing economic conditions.” The debt ceiling of at most 60 percent of economic output “is no longer in line with the times.”

Of the European stability mechanism (ESM) was created after the global financial crisis from the experience of the Greek crisis. It has a share capital of around 700,000 million euros and since 2012 has been helping countries in the euro area with economic problems, whose crisis could endanger the entire monetary union. Among other things, the ESM can make loans to countries in need and overcome financing difficulties. For this it imposes conditions.

Politicians should be aware that “a state can borrow too much, but also too little,” Regling warned. Public debt in the euro area could also be reduced too much. This could “create a lack of safe investment opportunities for investors” and the interest rate could “fall further.” The European Union was “well advised”, according to the head of ESN, 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 funds from the European Reconstruction Fund. “Italian Prime Minister Mario Draghi has launched a promising reform program that offers the best prospects for putting the economy on a growth path and thus reducing the level of debt.”

The financial politician also pointed out that Italy only had low costs for servicing its debt due to favorable conditions in international financial markets. “In 1993, the Roman government had to spend almost 12 percent of economic output on interest,” Regling said. “Today it is a little more than 3 percent.”