Regling: ESM could further improve the economic conditions of the Greek program

11 November 2015
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Member states will monitor the implementation of reforms by Greece and decide whether to enter into discussions on further debt relief, the general director of the European Stability Mechanism (ESM) Klaus Regling said during a conversation with MEPs of the European Parliament Committee on Economic and Monetary Affairs.

However, he underlined that a haircut in the nominal debt of Greece is not on the cards nor the IMF suggests something like that. “My opinion is that this is not necessary,” he said, stressing that the Greek debt is sustainable for the next ten years.

“Greece has already benefited significantly from the European Financial Stability Facility (EFSF) and the ESM. We have already paid loans totaling 143 billion euros corresponding to 45 percent of the entire Greek debt. We did this on very favorable terms for Greece. These loans have maturity time on average 32 years and a very low rate of approximately 1 percent,” he said and pointed out:
“These generous loan terms provide for significant savings each year in the Greek budget. These profits – what economists call ‘net present value’ – are equivalent to a haircut in the case of Greece. If you also add the favorable terms from the official European lending, the benefit equals a 50 percent haircut for Greece. But this is very different from the nominal debt haircut.”

Regling stressed that the ESM could further improve the economic conditions of the program, given that Greece meets its commitments for reform. “For example we could lengthen the time of maturity of the loans and postpone the imposition of an interest rate.”

Regarding the role of the European Parliament, he stated that any official role is not provided for the EP in the negotiations on the support program. “In order for the European Parliament to play an official role, the ESM should radically change the decision-making process. This could happen if member states decide to integrate ESM in the EU treaties,” he underlined.

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