IRELAND’S EXPANDING bank rescue just got bigger, Portugal’s plight worsens by the day and Greece seems as far away as ever from salvation. But Klaus Regling, chief of the euro zone bailout fund, insists EU leaders have finally turned the corner in their titanic battle against the sovereign debt crisis.
“In the summer of last year, the majority of market people in New York thought the euro would have disappeared in three years. This was not the situation east of here. In Asia, people had a different view. But in London, New York, that perception that existed last summer, has turned around,” he says in his sparse Luxembourg office.
“My conclusion from that very clearly is that the strategy that was adopted to preserve financial stability in the euro area is working. It doesn’t mean that all problems have been resolved, but overall the euro is no longer questioned. We are now dealing with a difficult situation in three countries and that’s very different from six or nine months ago.”
Regling, who may yet succeed European Central Bank president Jean-Claude Trichet this autumn, was handpicked by euro zone finance ministers last June to lead the nascent European Financial Stability Facility (EFSF).
This is the temporary rescue fund from which Ireland will draw down a total of €17.7 billion in the course of its EU-IMF bailout. Also in train is a permanent new fund, the European Stability Mechanism (ESM), whose operations start in 2013.
A crisp German with a direct no-nonsense style, Regling is known in Ireland for writing an unsparing dissection of the banking debacle for Brian Cowen’s government.
Reviewing Ireland’s present situation, he holds rigidly to the line that the mountainous debt burden is sustainable and that there should be no move to scorch senior bank bondholders. “We have a strategy which works without breaking promises,” he says in an interview with four European papers.
None of that should come as a surprise, but it is at odds with the stance adopted by Irish Ministers right up to the conclusion of the stress tests. The latest recapitalisation bill is enormous, but Regling points out that it does not exceed the €35 billion set aside for banks in the EU-IMF package.
“As that number is around €25 billion, it is well within the existing programme. We have the judgment of the IMF and the [EU] commission that this programme, if everything is implemented on the Irish side also, will lead to a sustainable situation.”
Minister for Finance Michael Noonan arrived in office uttering dire warnings that the increasing bank debt could overwhelm the State, but Regling believes Ireland can carry the burden. This means debt restructuring – code for default – is not in prospect.
“These are scenarios which are discussed in the media, by academics but not by us, not in the policy world. We have a programme with Ireland. There’s another operation with Greece, which was done before the EFSF was created, and we don’t have any other at the moment,” Regling says.
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