Klaus Regling: 'Politically it will be a big loss for the EU if the UK leaves'

Europe has suffered the worst economic and financial crisis in decades but it seems to have survived. European citizens however, paid a high price for it, and now they are losing faith in the European project. To discuss this euronews’ Efi Koutsokosta is joined here in the Brussels Economic Forum by a key crisis management figure, the head of the European Stability Mechanism, Klaus Regling.

THE TRUTH ABOUT BAILOUT MONEY

euronews:
“Mr Regling, many thanks for joining me on Global Conversation. So, you are a head of a mechanism created at the peak of the crisis to give bailout money to countries in need. You have given so far over 250 billion euros if I’m not wrong. So where does this money come from? And I am asking this because of all this rhetoric about the taxpayers’ money, about French or Germans paying for countries in need. Is this argument justified in real terms?”

Klaus Regling/ Head of the European Stability Mechanism:
“Well yes and no. The money that we disburse to these countries comes from the markets. When we make a disbursement to Greece or in the past to Ireland or Portugal, this is not money that comes from national budgets of our share holders. However, the arrangement means that the budgets of our shareholders assume risks because when they guarantee our operation, these are risks taken by national budgets. If something goes wrong, these risks could lead to real costs”.

GREECE: THE LONG WAY TO RECOVERY

euronews:
“Greece is a special case as it is the only country still under the ESM program and supervision. What is the situation now? We have a Eurogroup meeting on Thursday. What should be expected?”

Klaus Regling:
“Greece is a special case indeed. All the other four countries which have exited the programs successfully only needed one program. Greece is in the third program for one reason, that the starting point was the most difficult, the misalignments were the biggest and also there was a setback in the Greek developments a year ago. During the first half of 2015 Greece tried a new approach. They reversed some of the reforms and therefore the positive developments which we also saw in Greece in 2014 were interrupted quite seriously”.

euronews:
“Do you mean that the third program could have been avoided?”

Klaus Regling:
“Well I don’t know if it could have been avoided completely but certainly it would have been much smaller. But now we have the third program, the cooperation with the Greek government is again productive. When the Eurogroup meets, I think there is a good chance that a decision might be taken on the next disbursement”.

euronews:
“And there is this big discussion about the debt relief, debt reprofiling for Greece. There was a statement by the Eurogroup last time, that a mechanism could be triggered after the program if needed. What does this “if needed” mean. Is the debt sustainable or not?”

Biography: Klaus Regling

• Klaus Regling is a German economist and head of the Eurozone’s rescue funds, (EFSF, ESM), since the beginning of the debt crisis
• He is the son of Karl Regling, a carpenter from Lübeck who was elected in the Bundestag for the Social Democrats
• EFSF and ESM have disbursed 255 bn euros over the last five years to Greece, Ireland, Portugal, Cyprus and Spain
• He played a key role in drawing up the Stability and Growth Pact in the 1990s while based at the German Finance Ministry and strongly criticised as a “tough monetarist” and supporter of “neoliberal positions” ---

Klaus Regling:
“Well, that’s the big question. And given that we have a very long time horizon for this program run, the program will come to an end but loans will only mature over the next 30 or 32 years. We want to make sure that during this period Greece can stand on its own feet again, we have to deal with the uncertainties that come with such a long period. We all know that forecasts are always risky, there is uncertainty even for the next year. So, as we are dealing with a 30-year period, uncertainty is obviously much much higher. And therefore the statement of the Eurogroup is quite appropriate that they stand ready to help Greece if Greece also implements reforms. I think this is very good because I think to take all the decisions now might be too little or not enough and if it’s not enough then Greece would suffer. If it’s too much then the member states of the euro area would not be very happy”.

THE BREXIT BREAKUP

euronews:
“In less than 10 days British citizens will decide whether they want to stay in the EU or not. So if they decide to leave the EU family what will Europe be like the following day? What is your biggest fear?”

Klaus Regling:
“Politically it will be a big loss for the EU if the UK leaves and that’s why every EU government wants the UK to stay. I think economically it will cost us, there are many studies on that. The precise cost is not clear because it will very much depend on what happens in the immediate following years, what kind of arrangements the UK would find with the EU? There will be some relationship of course, there would be trade, there would be a relationship but how it will look like exactly we don’t know. We don’t know how long it would take to come to such an understanding and therefore it’s very hard to predict exactly what happens. It’s also possible that markets will be very volatile”.

euronews:
“Could this revive a new crisis in the eurozone or the EU?”

Klaus Regling:
“Well, I don’t know because volatility in markets does not always mean a crisis immediately. Volatility in markets can be bad for economic developments, but I don’t see a crisis coming out of that”.

SPECIAL TREATMENT FOR FRANCE?

euronews:
“As you are one of the architects of the stability pact as we know it today, Jean Claude Juncker, the EU Commission President has been criticised for giving leeway, giving more time to France to reach the fiscal target, the deficit of 3%. Is France a different case?”

Klaus Regling:
“I think it’s important to have clear rules in the Monetary Union. Because in the European Monetary Union we have this unique experiment that monetary policy is totally centralised, one interest rate, one exchange rate, other policy areas, fiscal policy, structural reforms are done in the different countries in a decentralised way and there were always people that have argued for decades that this cannot work.

Our answer has always been that it can work but it needs to be well- coordinated. We have also, for the past few years, made the stability pact more flexible to accomodate different economic situations and I think that it’s good to some extent”.

euronews:
“Should France be given more time to adjust?”

Klaus Regling:
“All that depends on the analysis and the Commission is in charge of that. As I said there are now more factors taken into account influencing decisions on flexibility but overall there has to be equal treatment among the countries”.

SAVING THE EUROZONE

euronews:
“And a last question. Have you ever felt that the Eurozone might really collapse?”

Klaus Regling:
“I think we got close to that in 2011 and 2012. But because of all these different initiatives, European Central Bank, EFSF/ ESM, Banking union, the adjustment in the countries concerned, we were already heading in a good direction. Therefore it’s very easy to understand now with hindsight why in the end this did not happen. We got close to it and I think also that without the creation of the EFSF, (stability mechanisms), for instance, some countries would have been forced probably to leave the euro area, and I am happy that this was avoided. So we had very risky moments during the last few years but I think we can be quite proud of what has been achieved”.

euronews:
“So no country is at risk of leaving the Eurozone right now?”

Klaus Regling:
“No, not at all”.