European Stability Mechanism (ESM) General Director Klaus Regling told MEPs of the European Parliament’s Committee on Economic and Monetary Affairs that member states will monitor the progress of Greek reforms and will decide on whether there will be discussions on further debt relief. He made it clear that a haircut on nominal debt for Greece wasn’t on the cards. “My opinion is that this is not necessary,” he said, unerlining that Greek debt is sustainable for the next ten years.
“Greece has already benefited significantly from the European Financial Stability Facility (EFSF) and the ESM. We have already paid loans totaling 143 billion euros corresponding to 45% of the entire Greek debt. We did this on very favorable terms for Greece. These loans have maturity time on average 32 years and a very low rate of approximately 1%,” he said.
He said that the generous loan terms provide for significant savings for Greece. Profits are equivalent to a haircut. “If you also add the favorable terms from the official European lending, the benefit equals a 50 percent haircut for Greece. But this is very different from the nominal debt haircut,” he said.
Regling said the ESM could further improve the economic conditions of the program provided that Greece meets its commitments for reform. “For example we could lengthen the time of maturity of the loans and postpone the imposition of an interest rate,” he said.
He said that the EP has no official role in negotiations and could only play such a role if the ESM radically changed the decision-making process. This would happen if member states decided to integrate ESM in the EU treaties, said Regling.