“If the government in Athens implements all the remaining reforms decisively, Greece can successfully emerge from the ESM program in August 2018,” Klaus Regling, president of the European Stability Mechanism, has said.
The ESM chief spoke at en event held in Aachen, Germany on the occasion of the awarding of the 60th International Charlemagne Prize to French President Emmanuel Macron.
Regling expressed confidence that Greece could repay its loans, provided the maturity times are sufficiently extended and the obligations do not exceed 15-20 percent of the country’s economic performance.
The ESM chief said that if the latest report on Greece’s bailout program is positive, there will be a final disbursement from the ESM, and then decisions will be made on possible further debt relief.
He argued that there was absolutely no alternative to the establishment of the rescue mechanism, without which, as he said, Greece, Portugal and Ireland would have probably come out of Economic and Monetary Union under “chaotic conditions,” while at the same time other countries such as Germany, would have problems.
Regling also stressed that ESM interest rates are clearly below the level that countries would have to pay in the markets, and that is why they save a lot of money.
In the case of Greece, “we estimate that ESM loans lead to savings of almost €10 billion [$11.8 billion] each year for the Greek budget”, he said and stressed that this is happening costing nothing to the European taxpayer.
“These savings are an expression of the solidarity shown by the member states of the euro zone,” he said, and referred to “great efforts” that Greece is making to fulfill the strict reform conditions.
“Overall, Greece now has impressive adaptation efforts behind it. The budget deficit at the start of the 2009 crisis was above 15 percent of GDP. For two years, the country has been generating a budget surplus. Such a success is only possible with profound reforms,” Regling noted and said that if Greece implements all reforms, eurozone finance ministers would give Greece further debt relief, namely longer repayment times.
The ESM chief further noted that ESM has disbursed €187 billion in loans, equivalent to about 100 percent of Greece’s GDP and more than 50 percent of the country’s state debt.
“Can Greece ever pay all these loans?” Regling said. “Yes! Decades of experience in similar difficult cases show that economies that have been weakened due to the crisis can fully pay off rescue loans if the repayment obligations are extended enough and do not exceed 15-20 percent compared to economic performance.”
To illustrate his point, Regling mentioned that Germany paid the last installment of its 1953 London Agreement obligations in 2010.
The next few weeks and months will be a period of very intensive work, Regling continued, explaining that ESM experts would return with their colleagues from the European Commission, the European Central Bank and the IMF in mid-May in Athens to work out a final report.
“If the report is positive, there will be a final disbursement from ESM. In addition, decisions on possible further debt relief will be taken,” he said.
Finally, explaining the reasons why Greece remains in a program while the other countries have completed their own, referred to the country as a “special case” for three reasons:
“Firstly, the Greek economy has had problems that are deeper rooted than for other countries in a program. Secondly, the country suffered from a much weaker public administration than the other eurozone member states.
“And thirdly, the Greek government in the first half of 2015 went in the wrong direction with then finance minister (Yanis Varoufakis): major reforms were revoked and an effort was made to stop the agreed reform program.
“As a result, the Greek economy had fallen into a recession. Grexit suddenly became a realistic scenario. The Bank of Greece estimates that this wrong move cost Greece €86 billion.”
“In the second half of 2015, however, the government had returned to the path of reform,” the ESM head said.