A busy trading room is the very heart of the Luxembourg based headquarters of the European Stability Mechanism, one of the newest organisations on the European continent.
There men and women are working hard to maintain the eurozone alive, raising billions on the international markets in order to help countries in the monetary union that are in deep trouble.
Euronews’ Hans von der Brelie met with the Managing Director, Klaus Regling, who is the mastermind behind the battle against speculators hitting the panic button. He is convinced that most European crisis countries will be back in the markets very soon.
Euronews: Mr. Regling, my first question comes from my Greek colleagues based in Athens: they want to know, why the European Stability Mechanism is not directly re-capitalising Greek banks?
Klaus Regling: Out of the overall Greek programme, 50 billion euro has gone via the Greek government to the Greek banks and that has restructured and recapitalized the four largest Greek banks. What you are maybe alluding to and what we are not able to do this year is direct bank re-capitalisation, which maybe we will be allowed to do next year. This instrument might be created once the European Central Bank acts as a common supervisor in the euro-area, then this possibility might exist. At the moment we have to do it indirectly, money goes to the government, earmarked for the banks, that has happened.
Euronews: The International Monetary Fund is saying that another bail-out is needed for Greece.
Klaus Regling: Well, this is under discussion, but it is not so clear. At the moment we have the programme running and it runs until the middle of 2014. It is fully financed assuming that Greece meets all the conditions, then we will continue to disburse, just like the International Monetary Fund, and there is a commitment from the euro-area that, if Greece continues to implement reforms and if there is additional financing needed after the end of the current programme, in the middle of next year then additional assistance will be provided. It is far too early to say in which form this will take place.
Euronews: You have a certain amount of money available in the European Stability Mechanism. I saw quite a nice picture behind me, showing and proving that you have “real muscles to help”. But, is that picture true? Have you not under-financed yourself?
Klaus Regling: The point is that the EFSF (European Financial Stability Facility) and now the ESM (European Stability Mechanism) have been very successful in the market, we have raised about 140 billion euros over the past 2 and a half years, starting from zero, very successfully. Overall, the EFSF and ESM together have a lending capacity of 700 billion euro. Ninety percent of the ESM lending capacity is uncommitted, unused and available if it is needed. This is also reassuring for markets, where a lot of firepower is left.
Euronews: There is a lot of firepower left but is there enough to take on Italy if a worst case scenario takes place?
Klaus Regling: The firepower is indeed enough also to finance a large country if there is a need. We have seen many predictions from people over the last two and a half years, many have predicted the end of the euro. Luckily not everybody who paints such a horror picture has been right, most have been wrong and we are seeing successes in our member states. The adjustment programmes are working in Ireland, Portugal and Greece. There is good progress, they are reducing their fiscal deficits, they are improving their competitiveness, so we are seeing success stories.
Euronews: You have mentioned Ireland. Is it really a success story?
Klaus Regling: Ireland, first and foremost, is a real success story. Interest rates are below four percent for ten year government bonds. That’s a real success because they were above ten percent two years ago and Ireland has already been able to go back to the market and is issuing ten year government bonds.
Euronews: Ireland is a success-story. Let’s move to Portugal: where the temperature is rising in the political system and because of the political system also in the financial system: Have a look at the interest rates, which have been shooting up. The huge rise in interest rates in Portugal was some weeks ago and there is still a systemic risk and instability in Portugal. Nevertheless the Portuguese government followed every single recommendation by you and the troika: so, whats going wrong?
Klaus Regling: Well, Portugal is making good progress. when we look at the early indicators: competitiveness, export performance, the current account deficit has disappeared in Portugal. At the same time it’s painful for the population. GDP is dropping, so real economic activity is falling, unemployment keeps rising, this leads to political instability and when two ministers of the government resigned, there was a political crisis. But Portugal is back on track: the coalition has agreed to stay together.
Euronews: Are you in discussion with Spanish authorities about a stand-by credit line?
Klaus Regling: From everything I know, and this has been confirmed by the Spanish authorities, they will not request more money for the Spanish banks and I have not seen any indications that they want another kind of programme. I don’t think its needed.
Euronews: What will happen in the future, when a bank breaks down. Who has to pay?
Klaus Regling: Public money and European taxpayers money will be used less than in the past. Bank creditors will be involved more and in a more systematic manner, including junior debt holders, if necessary also depositors above the 100 000 euro limit. There are certain rules on that, but the details are still under consideration with the European Parliament.
Euronews: Barroso, the president of the European Commission, said that the worst of the crisis is over. We have serious concerns about Portugal, Cyprus, Greece, Slovenia and maybe other countries. Who’s right and who’s wrong?
Klaus Regling: Half or even two thirds has been done. I can see that we are getting to the end of this operation because the countries that are doing their homework will be able to go back to the market. We have come a long way.
Euronews: Finally, why have you picked the painting you have hanging on your wall?
Klaus Regling: On the one hand, the colours are nice in the painting. It goes well in the office, which otherwise would be mainly white or grey, but it also symbolises market behaviour: herd behaviour. Everybody is moving in the same direction, sometimes excessively, and its part of our role here to be aware of that and if possible even to control the behaviour of a herd.
Euronews: So you’re the man stopping those beasts?
Klaus Regling: Well, it might be difficult and dangerous but you have to be aware.
Euronews: Good luck! Thank you!