A contest to lead Europe's financial rescue fund is drawing to a close with the spotlight on three candidates. But a question that has hung over the monthslong race looks certain to persist: Will the winner have enough to do despite fresh economic shocks?
Finance ministers from the 19 countries that share the euro currency could decide Thursday in Luxembourg on a successor to Germany’s Klaus Regling as managing director of the European Stability Mechanism, created during the eurozone debt crisis a decade ago. They also could postpone the decision until July.
In the running to become the fund’s second-ever head are two former finance ministers, Pierre Gramegna of Luxembourg and Joao Leao of Portugal, plus a senior European Commission official from Italy, Marco Buti.
One will take over in October for a five-year term as the European Stability Mechanism faces a paradox.
It rescued a handful of vulnerable countries with emergency aid and kept the European single currency intact during the 2010-2015 debt crisis. But the ESM became politically stigmatized because of its link with financially troubled nations and with belt-tightening that was a condition for the bailouts.
As a result, when the coronavirus pandemic hit and the ESM was empowered to offer up to 240 billion euros ($250 billion) for euro countries as a whole to cope, none requested support.
“The ESM was never popular and even today is not popular in some countries,” Regling, 71, told a conference organized by the Bruegel think tank in Brussels this month.
It is a sign of both the turbulent economic times and the European Union’s institutional evolution that the ESM, established in 2012, faces questions about its relevance after helping safeguard the euro.
The economic shocks are such that the European Central Bank pledged Wednesday to create a market backstop to protect member states from rising borrowing costs following the bank’s plan to raise interest rates for the first time in 11 years to fight record inflation. A selloff in the bonds of some euro nations was a central feature of the debt crisis a decade ago.
During that crisis, the ESM and its predecessor raised emergency funds by selling bonds jointly backed by euro governments to international investors. From 2010 through 2018, both organizations provided a total of around 300 billion euros to five countries: Greece, Ireland, Portugal, Spain and Cyprus.
The principle of common debt underpinning the ESM helped pave the way for European leaders to authorize more than 700 billion euros to tackle a very different type of crisis: the recession triggered by the pandemic.
That program — dubbed NextGenerationEU — is run by the European Commission, the 27-nation bloc’s executive arm, and also involves the sale of bonds to aid national capitals. Unlike the ESM, the commission offers grants as well as loans, provides the funds to all EU countries and attaches none of the budget austerity requirements that characterized the euro-area rescues.
Now, with the European economy facing further woes as a result of Russia’s war in Ukraine, NextGenerationEU is being aligned more closely with a push by member countries to wean themselves off Russian coal, oil and natural gas.
Asked at a recent conference whether the ESM should be merged with NextGenerationEU, Regling dismissed the idea. He said the ESM is for “crisis management — ad hoc” while the other program focuses on longer-term investment goals. Combining the two “doesn’t make sense” and would be like merging the International Monetary Fund with the World Bank, he said.
Regling signaled the value of the ESM lies in it being not only deployed but simply available.
“My biggest worry when I accepted the job, which is now 12 years ago, was it could become boring,” he said. “It became then very exciting. And we had to be ready within a few months to issue the first bonds.”
That may be the best advice that Regling can offer whomever his successor turns out to be.
