Brussels, 24/09/2013 (Agence Europe) - The treaty establishing the European Stability Mechanism (ESM) does not allow for it to lend cash to the future Single Resolution Mechanism (ESM), warned the ESM director general, Klaus Regling, on Tuesday 24 September during a hearing at the European Parliament's economic and monetary affairs committee.
Regling said he was aware of the talks over this issue after the cat was set amongst the pigeons in Vilnius on Friday 13 September by a member of the ECB's Executive Council, Jörg Asmussen, who suggested that the ESM could act as a backstop for the SRM by lending it money until it gets sufficient funding from the financial industry (see EUROPE 10922).
In response to a question from Jean-Paul Gauzès (EPP,France), Regling said he didn't think the ESM would be able to fulfil that role at this at this stage because this would require a change to the treaty. He said it would also require the go-ahead from all the members of the ESM's board, in other words all the eurozone finance ministers, and some countries would have to consult their national parliaments for this. On 23 September, the ECB president, Mario Draghi, said that during a transition phase, the SRM would have to have its own budget line, but he didn't know whether the ESM would be able to provide this.
Regling pointed out that under the EU directive on bank restructuring and resolution, the ESM only acts as a lender of last resort to bail out struggling banks. The stress tests at EU level over the next few months would, he said, reveal which banks had capital failings and whether action was needed.
A third Greek bailout described as “plausible.” The ESM director general mentioned work at the ESM on aid plans, noting that the ESM still has 90% of its lending capacity available, or around €450 billion. Ordinary people may not yet see a positive impact from the reform programmes, but the countries in receipt of financial aid are becoming more competitive and he said this was a sign that “conditionality” works. Regling asserted that “structural reforms and improvements in competitiveness do lead to growth but with a time lag.” He said that without aid from the European bailout funds, some countries would have had to leave the euro. On the question of Greece, he said it was plausible that a third aid programme would be set up, and on the viability of the Greek debt he said: “In a way, what we are doing for Greece is creating Japanese conditions” of long maturities and low interest rates. Regling added hat Ireland is on the right road to regain market access. The Irish programme will be discussed by Eurogroup in November. (EL/transl.fl)