Greece will probably need a third rescue program next year and the euro area’s firewall fund will be able to move quickly when needed, European Stability Mechanism chief Klaus Regling said.
“It’s very likely that they will need more assistance,” Regling said in Washington during an interview with Sara Eisen for Bloomberg Television. He said Greece is more likely to remain shut off from financial markets when its current bailout ends, unlike Ireland and Portugal, which have been in better shape and made more progress regaining investor confidence.
Greece’s current 240 billion-euro ($325 billion) rescue program runs into the middle of next year. If another bailout package follows, “we don’t need that much time” to prepare, Regling said.
When asked if the ESM is preparing new assistance for Spain or Italy, Regling said “at the moment I see no signs that these countries need money from us.” The 500 billion-euro ESM has about 90 percent of its capacity available for further rescues if needed, with only 50 billion euros committed to Cyprus and the Spanish bank rescue, he said.
“That will go a long way to cover any problems that I can imagine,” Regling said. Bailouts for Greece, Ireland and Portugal were funded through the ESM’s predecessor, a temporary euro-area backstop.
The ESM is now working with euro-area nations to develop a tool that could provide direct aid to banks, a measure sought by European Union leaders last year to break contagion between the sovereign debt crisis and financial system strains.
As the European Central Bank conducts balance-sheet reviews as a precursor to taking over bank supervision duties in the currency zone, details on how to use that tool need to be developed, Regling said.
“I don’t think it has to be in place before,” he said. “But it has to be in place the moment the results come out, which will be a little bit later. We are working on that.”
The ESM attracted more than 200 investors for the 7 billion-euro sale of five-year bonds, Regling said. More than a fifth of investors came from Asia, including central banks, sovereign wealth funds, pension funds and insurance companies. More than half of the bond’s demand came from Europe, representing all types of investors, he said.
Regling said the ESM invests its funds in euro-area assets and therefore is not immediately exposed to market turmoil related to the U.S. government shutdown and need to raise its debt limit.
“If it really became very bad, we are all interconnected” and there “could be a ripple effect,” he said, adding that “I don’t expect that.”