Eurozone bailout fund may get monitoring powers

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Klaus Regling, the head of the euro zone bailout fund, said on Friday that the European Stability Mechanism (ESM) could get new powers to monitor Eurozone economies next year as part of the single currency bloc’s plan to integrate more deeply,

The new powers would allow the bailout fund to be ready, with a possible bailout and attached conditions for a troubled sovereign at very short notice, Regling said.

"It is correct that if the ESM gets the mandate to be ready at any time on short notice to put together, with the European Commission, a programme with conditionality, we would only be able to do that if we do some continuous monitoring," he said.

"Otherwise one cannot do that job," Regling told Reuters in an interview on the sidelines of the International Monetary Fund and World Bank fall meetings in Washington. He added that the idea was "not so revolutionary" because it was already in place for half of the euro zone countries.

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The issue is delicate because European Union treaties have assigned the job of policy monitoring and surveillance to the European Commission.

Germany, however, would be happy to see those powers shared by an intergovernmental institution like the ESM, because it believes the Commission has become too political in enforcing EU rules to limit government borrowing that underpin the euro.

"I do not intend to take away any competences of the European Commission, it would not be possible, because they are enshrined in the EU treaty," Regling said, adding that the two institutions could peacefully cooperate.

Germany would like the euro zone reforms to include a mechanism for sovereign debt restructuring. Under such a mechanism, if a country were to ask for a bailout from the ESM, its bond maturities would be automatically extended and its debt could be more deeply restructured if that were needed to make it sustainable.

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"Burden-sharing can be important to create the right incentives," Regling said, adding that so far the euro zone had taken such decisions on an ad-hoc basis.

"To have something more structured, more transparent, more predictable for everybody, I think would be good. So that’s a good objective," he said.

He added, however, that he would not be in favour of any automatic mechanisms because they could backfire by making the crisis even worse.

Germany wants to introduce a clause in the CACs that would require only one vote on the debt restructuring of all the bonds involved without additional votes on the individual bond series.

Source(s): AFP ,Reuters