This is the opinion of the Executive Director of the Save the States Fund who shows extreme optimism
“We learned the techniques from the IMF; the reforms requested will bring growth and jobs”
The ‘bailout plans’ put into action by Europe guaranteed that the countries hit hardest by the crisis could remain in the single monetary unit and they are bringing visible improvements in these economies that are slowly overcoming the crisis and returning to the road of growth and employment. Klaus Regling, Executive Director of the European Stability Mechanism (ESM) is convinced of this, the so-called Save the States Fund, which was received yesterday for a hearing at the Economic and Monetary Affairs Committee in the European Parliament.
Regling reminded the MEP’s that in all 17 States of the ESM, they contribute with a total underwriting of 700 billion, of which 80 paid in capital. Its maximum lending capacity is 500 billion, which together with the European Financial Stability Facility (EFSF, the former rescue mechanism) reached 200 billion. The EFSF, on its side, until end of 2011 furnished 168.5 billion in loans divided between Ireland, Portugal and Greece, 19.8 billion still remain to be distributed but in the future they will not go into effect. From today forward the assistance will be guaranteed only by the ESM, which already provided Spain with 41.3 billion and 4.5 (of 9 forecasted) to Cyprus for its ‘bailout plan.’
“The principal idea is the one the International Monetary Fund (IMF) used for decades: give temporary loans to the countries in crisis when the market rejects them” affirmed Regling, explaining the function of the Save the States Fund; but the loans are subject to conditions, or better that the financing is “reasonable” and that the country that receives it uses it “to undergo reforms.” The interest asked from the countries for repaying the loan, continued Regling, “is only what the ESM paid when they asked for money from the market, to which a small tax was added to cover operating costs.”
And this model “part of a coherent strategy of the Euro Zone” would be successful because “under this conditionality there were fiscal consolidations and structural reforms in the receiving countries.” Not only, “the unit labor costs in Ireland, Portugal, Greece and Spain decreased” and thanks to this these states “improved their competiveness and the state deficits are disappearing.” According to Regling’s analysis the results are tangible and would demonstrate that “conditionality works.” “Greece is demonstrating a primary surplus” and the markets are “repaying these efforts” with “Ireland and Portugal being able to sell their government bonds at acceptable tax levels.” “I am convinced – the Director concluded therefore – that without our assistance these countries would have been forced to leave the European Monetary System.”
Regling also admitted however that the citizens of the countries under the program “don’t see important improvements yet” and are undergoing difficult times due to the “loss of many jobs” and pay cuts to “salaries and pensions.” “The ESM is aware of the pain that these adjustment plans are creating,” but he continued coming across more than optimistic, “the experience of the IMF shows that the structural reforms and the improvement in competitiveness brought growth and jobs.” We hope.
