It’s about an unloved colossus: The European Stability Mechanism (ESM) in Luxembourg jumps in with emergency loans to euro countries if they have problems finding buyers for their bonds on the financial markets. The Luxembourg fund can still allocate up to 410 billion euros, but governments have recently spurned the cheap money in order to avoid the conditions that are due. But soon that’s no longer Klaus Regling’s concern: The German economist has been in charge of the euro rescue fund since it was founded in 2012, but the 71-year-old will retire in October.
The finance ministers of the 19 euro countries want to agree on a successor this month. The deadline for applications closed on Monday evening, and four men threw their hats in the ring: former finance ministers Pierre Gramegna from Luxembourg and João Leão from Portugal, former Dutch finance secretary Menno Snel – and Italian Marco Buti, an official from the EU Commission, who headed the Economics Department there and is now Chief of Cabinet of Economics–Commissioner Paolo Gentiloni is.
The Board of Directors of the ESM is to appoint the new boss at its annual meeting in mid-June, ideally by consensus, otherwise by vote. Since Germany is the largest economy among the 19 euro countries, the federal government holds a particularly large number of shares in the fund – and thus voting rights.
Buti is a little out of the ordinary among the candidates: The 65-year-old economist is the only one who does not have a career as an elected politician; he is a scientist and a top civil servant. The relationship between his home country Italy and the ESM is also difficult. Politicians in Rome, for example, are reluctant to take advantage of the fund’s help because the bailout fund usually attaches conditions to these loans: governments must carry out pro-business reforms. This is considered stigmatizing by Italians. Italy’s parliament has also still not ratified important changes to the ESM treaty that would give the fund more responsibilities and powers. This approval is also pending in Germany, as a decision by the Federal Constitutional Court is awaited.
Looking for “a tough dog”
In the EU Commission, Buti has always pushed for more leniency towards highly indebted countries. That arouses suspicion: “For the ESM chief post, you need a tough dog who watches with eagle eyes that the funds are not misused,” says CSU MEP Markus Ferber. “A career official in Brussels, whose home country would like to misuse the ESM anyway,” is not the best person for this, warns the economic policy spokesman for the Christian Democratic EPP group.
During and after the sovereign debt crisis, the fund distributed 295 billion euros to five countries: Greece, Cyprus, Spain, Portugal and Ireland. In addition, the 19 euro countries agreed in 2020 that the ESM could transfer up to 240 billion euros in Covid aid. This time, governments did not promise reforms in return; the only stipulation is that states have to put the money into health care. Despite the generous scheme, no government wants the cheap loans, not even hard-hit Italy. Regling’s successor must therefore try to improve the fund’s bad image as a fearsome savings commissioner in some southern European countries.
The finance ministers of the euro countries joined together for a video conference on Tuesday. But it wasn’t the top personalities that were on the agenda, but another explosive topic: the banking union, the tough and ambitious plan to create a barrier-free banking market. So there is more than enough debate for ministers at the moment.