Greece is on the right track, but must keep carrying out reforms to improve growth potential and investor confidence, European Stability Mechanism (ESM) Managing Director Klaus Regling said on Wednesday evening in Brussels.
Regling was addressing the association of German savings banks (DSGV) on the deepening of the Economic and Monetary Union.
Referring to the role of ESM in EU stability, Regling said that “by lending to weaker member countries, national crises are prevented from spreading to the entire currency area. Without the creation of the EFSF and the ESM, countries such as Greece, Ireland and Portugal would probably have had to leave the Monetary Union.”
Contrary to what is sometimes said, the mechanism’s managing director said, the ESM programmes are not funded by taxpayer money. The money for the loans is raised in the market by the two rescue funds. Program countries must repay their loans in full, including interest.
“The favourable financing conditions are passed on by the ESM to its borrowers. We have the opportunity to get long-term loans at around 1% interest – but of course only under strict conditions. These low interest rates give these countries fiscal space,” he said. “In the case of Greece, we estimate that the ESM loans will result in annual budget savings of almost 12 billion euros. This corresponds to 6.7% of Greek economic output. This is crucial for the recovery of Greek debt sustainability,” Regling pointed out.
The ESM director said that since 2011, the rescue funds have provided loans totalling around 295 billion euros to five countries. “The reforms are paying off: Ireland, Portugal, Spain and Cyprus are experiencing high growth and rapidly falling unemployment. And they can easily refinance themselves on the market again. Greece is also on the right track. However, it is important to maintain the reform path in order to strengthen the growth potential and to secure investors’ long-term confidence,” he said.