As managing director of the European Stability Mechanism, Klaus Regling has overseen the bulk of financial assistance provided to ailing eurozone countries throughout the sovereign debt crisis. He talks to Danielle Myles about Greece, the health of the EU’s banking sector and the future of the monetary union.
Q: Of the five countries to receive assistance from the European Stability Mechanism [ESM] or its predecessor the European Financial Stability Facility [EFSF], four have needed only one programme. Which do you view as the biggest success stories?
A: All four are successes, although for some the crisis is further behind than others. Cyprus, for instance, came out of its programme only a year ago, but has already joined the other countries as a big success story. That’s perhaps not very well-known, because it is a small country. But considering how serious and painful the programme was in Cyprus – where the financial sector shrunk by about half – it has come a long way in a short time. Growth came back earlier than expected, its fiscal accounts are in surplus, and competitiveness has returned.
Based on [economic] growth rates, Ireland, which grew by 5% in 2016, is the most successful. But in Spain, where the banking system was restructured, employment has grown about 3 percentage points the past two years, which is very high, and Portugal is also doing well. So in all four of these countries, the programmes worked.
Q: You have said you expect Greece to return to debt markets next year, before its third ESM/EFSF programme ends, if it delivers on its promised reforms. What is your rationale for this?
A: It is important to remember that in the middle of Greece’s second programme in 2014, the first signs of success were evident. It saw positive growth for the first time in five years, unemployment came down by 2 percentage points, and it issued bonds on two occasions. But while we as economists could see that in the numbers, the electorate didn’t. Which isn’t surprising, as it takes a while for macro-economic data to become visible to the wider public. The new government from January 2015 had the mandate to do something completely different, and that threw Greece backwards. It proved very costly, despite the fact they were in good shape in 2014.