On April 20, the Atlantic Council’s EuroGrowth Initiative hosted Mr. Klaus Regling, Managing Director of the European Stability Mechanism (ESM), to discuss the role of the ESM in preserving global financial stability and promoting growth in the eurozone.
Main takeaways are:
The ESM has acted so far as a crisis-resolution mechanism for the euro area, as a lender of last resort for sovereigns. Mr. Regling acknowledged that this role may change in the coming years, along with other reforms to the architecture of eurozone institutions. These reforms could see the ESM transformed in several directions, such as becoming a true European Monetary Fund, similar to the International Monetary Fund but limited geographically to Europe. Alternatively, it could also become some sort of common eurozone Treasury. Mr. Regling refused to say which alternative he prefers, but noted these changes would require reforming the European Union’s treaties.
Since its creation, the ESM has conducted five programs (Ireland, Spain, Portugal, Cyprus and Greece). Four of these countries have successfully exited their programs and in some cases, particularly Ireland and Spain, show strong economic performance after successive competitive reforms. Greece saves about €10 billion per year thanks to the lower rates provided by the ESM. The ESM is able to lend at attractive rates thanks to its strong AAA credit rating. Nineteen Eurozone countries have contributed to its €700 billion capital.
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