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The head of the ESM raising the ceiling for public debt in the euro area

The head of the European Stability Mechanism (ESM), Klaus Regling, supports raising the ceiling on public debt in eurozone countries.

The head of the ESM raising the ceiling for public debt in the euro area
Yazar: Tom Roberts

Yayınlanma: 16 Ekim 2021 22:43

Güncellenme: 21 Kasım 2024 00:00

The head of the ESM raising the ceiling for public debt in the euro area

The head of the European Stability Mechanism (ESM), Klaus Regling, supports raising the ceiling on public debt in eurozone countries. Monetary union's fiscal rules "must adapt to changing economic conditions," Regling told the German weekly Spiegel. He added that the current ceiling for public debt at 60% of gross domestic product (GDP) is "no longer up to date". The ESM rescue fund, sometimes called the permanent euro, was set up during the global financial crisis as an instrument to provide financial assistance to euro area countries and is a financial institution with its own capital. The ESM has been in operation since 2012 and aims to address the financial problems of member countries that could jeopardize the entire monetary union. In exchange for financial assistance, it traditionally sets the conditions for fiscal consolidation that the recipient country must meet. According to Regling, politicians must understand that "the state can borrow too much, but also too little." He praised Italy's recovery plan, which should kick-start the country's economic growth and thus reduce public debt. He pointed out that due to low interest rates, debt service will cost Italy relatively little. "In 1993, the government in Rome still had to spend almost 12% of the economy's performance on interest payments. Today it is just over 3%." Regling also warned that too sharp a reduction in government lending could cause a "lack of safe investment opportunities for investors" and cause further interest rates to fall.
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