Worst of European debt crisis is over -- Regling
The head of the euro area’s financial backstop declared the worst of Europe’s debt crisis over, saying budget-austerity policies are "in place" across the region.
“Europe has taken decisive action to tackle sovereign-debt issues,” Klaus Regling, chief executive officer of the European Financial Stability Facility, told a conference today in Brussels. “The worst of the crisis in Europe is behind us.”
The EFSF would sell bonds backed by €440bn in national guarantees and use the money it raises to make loans to euro-area countries in need. The entity would sell debt only after an aid request is made by a country.
The EFSF, created for three years, is the main part of a €750bn aid package that European Union finance ministers hammered out in May to combat the sovereign debt crisis.
Another €60bn came from the European Commission -- the EU’s executive arm -- and €250bn from the International Monetary Fund.
“European governments have done a great deal in recent months to put structures and policies in place to address the problems,” said Regling, a German national who once ran the commission’s economic and financial affairs department.
“Fiscal-consolidation strategies are in place now in all the member states.”
While citing “significant divergences” between European countries, he also said the EU is on course to tighten the enforcement of fiscal rules. He called the planned crackdown on high-deficit states “encouraging.”
Echoing his stance over recent weeks, Regling said the “central expectation” is that no country will seek EFSF assistance.
EFSF aid would bring with it the kinds of budget- austerity conditions on recipients that Greece faces under its separate €110bn bailout from the EU and IMF.
Regling said the interest rate on any EFSF loans to countries would be “comparable” to the 5pc rate that Greece pays for its emergency funding from fellow euro-area nations.
“There is a general understanding that borrowing costs would be comparable to the Greek case,” he said. “This is around the 5pc.”
When putting together the backstop six months ago, euro- area governments ruled out any EFSF debt sales before an aid request because “ministers did not want to give a wrong signal,” Regling said.
“There was a clear political decision on this point,” he said. “We will not pre-fund.”
Governments also ruled out that any EFSF loans would have the same preferred status as IMF aid so as not to “overburden” the borrowing country, said Regling. Seniority would give the Luxembourg-based EFSF priority in any payout after a default.
“It was a deliberate decision not to suggest that for the EFSF,” he said. “If there are too many senior claims on a country, then the private sector may be reluctant to go back to that country.”