The head of the euro bailout fund ESM, klaus regling, has warned of a new financial crisis in europe.
"It is certain that there will be a next crisis," he said at a central bank of ire event in dublin on wednesday. The only thing that is unclear is the exact date. Therefore, urgent reforms had to be implemented now.
"If we fail to deepen the monetary union now, the next crisis will force us to do it," regling said. "But then the reforms are likely to be more costly and happen under extreme time pressure."
In the debates on the deepening of the monetary union, which were most recently driven by the french president emmanuel macron and fleshed out by the EU commission, two things are at stake: the completion of the so-called banking union through the introduction of a europe-wide security system for savings deposits and the expansion of the ESM into a european monetary fund.
According to regling, the deposit insurance scheme was able to prevent a run on the banks of an affected country during a financial crisis. "Investors would not see the need to withdraw their money if they knew that it was secured not only by their respective governments, but by all of europe."
However, there are considerable reservations about such a security system, especially in germany. Banks and savings banks fear that in case of doubt they will have to assume joint liability for financial institutions in crisis-stricken countries.
In the expansion of the ESM, which can grant aid loans to countries threatened with bankruptcy, one of the controversial issues is the extent to which the european parliament could control it in the future and what tasks it could assume. "The international monetary fund (imf) is less and less involved in eurozone aid packages," regling said. One of the core tasks of the washington-based IMF is to support countries in financial difficulty – for example, in the case of particularly high levels of debt, balance of payments problems or capital flight by investors. In return, the required states must agree to reforms.
The ESM could play an even bigger role in the design of aid programs in the future, regling said. In addition, it was able to grant short-term loans earlier rather than in the case of an emergency. "This could help stabilize individual euro countries before small problems become big ones."
After years of crisis, the 19 countries of the euro zone are currently in a phase of economic growth. Public debt, which in the past was sometimes extremely high, is slowly declining. In 2018, new debt is expected to be below three percent of economic output for the first time in all euro countries, thus meeting the so-called maastricht criterion.
Of once five ESM program countries – ireland, spain, portugal, cyprus, greece – only the latter is now dependent on international aid. The current aid program for athens of up to 86 billion euros ends in august. Then the country should be able to finance itself again.