It worked on the second attempt: the euro rescue package ESM gets a new boss. Former Luxembourg finance minister Pierre Gramegna is said to be in charge of the relief fund, which is conveniently headquartered in Gramegna’s home country. The 19 euro finance ministers agreed on this in a video conference on Friday evening. The countries with the single currency own the European Stability Mechanism. The jumps to crisis-ridden euro states with emergency loans if they have problems finding buyers for their bonds on the financial markets.
Klaus Regling managed the ESM from its founding in 2012 until last October, when the German retired. However, the 19 euro governments were unable to agree on a successor in time. As a result, both the 64-year-old Liberal Gramegna and his last remaining rival João Leão had to withdraw their candidacy in September. The social democrat Leão is a former finance minister from Portugal. Therefore, Regling’s vice Christophe Frankel temporarily took over the top post.
Now this blockade has been resolved – apparently thanks to the change of government in Italy. The voting rights of the 19 euro countries depend on how much capital they have made available to the ESM. This gives Germany and France, the two biggest supporters, a de facto veto right over this personnel decision. Italy alone does not have enough voting rights for a veto, but together with Portugal it certainly does. The federal government supports Gramegna and prevented Leão’s appeal. Italy and Portugal, in turn, apparently jointly blocked the Luxembourger in September. This led to a stalemate and the withdrawal of both candidates.
The fact that Prime Minister Mario Draghi in Italy was replaced by right-wing populist Giorgia Meloni has raised many concerns in Brussels. But at least in the stranglehold over the ESM post, this was even useful, as Meloni’s government gave up its opposition to Gramegna.
The fund is set to become even more powerful
The Luxembourger studied law and economics in Paris and initially as a worked as a diplomat. He was Finance Minister from 2013 to early 2022. Now he is master of a huge aid fund. As of 2018, five countries benefited from a total of €295 billion in cheap loans: Greece, Cyprus, Spain, Portugal and Ireland. A further 414 billion euros are still up for grabs.
However, an important task for Gramegna will be to overcome reservations about the ESM, especially in southern Europe. In return for the cheap loans, the states have to commit themselves to pro-business reforms. As a result, governments fear the stigma and political anger of asking for support from the fund. Curious result: governments even refrain from cheap loans if they exceptionally come without reform conditions. In the Covid crisis, for example, the ESM is allowed to transfer aid loans for the healthcare system without any conditions, but nobody asks for them, not even highly indebted Italy, which has suffered greatly from Covid.
The influence of the Luxembourg euro rescuers should Amendments to the ESM Treaty keep growing. The fund should have more say in which reforms promise recipients of emergency loans, and would thus be more similar to the International Monetary Fund. In addition, the ESM should be able to inject money into the euro zone’s bank resolution fund if bankruptcies overwhelm it. But Italy’s parliament has not yet ratified these adjustments; in Germany, approval is also pending because the Federal Constitutional Court has not yet ruled on an action against it.
A second personality has also been clarified
Federal Finance Minister Christian Lindner (FDP) has always supported his liberal party friend from Luxembourg in the race for the top post. It is therefore no wonder that the federal government praised the personnel decision on Friday. The decision was a strong signal for the ability to act, it said. And the transition period after Regling is “shorter than feared”. As a former minister, Gramegna has the necessary authority on the financial markets, is likeable and an “excellent communicator” who can also present the positions of the ESM in parliament and perhaps remove obstacles to its use.
Irish Finance Minister Paschal Donohoe was responsible for the search for a boss. The Christian Democrat has been President of the Eurogroup since summer 2020; So he chairs the panel of 19 finance ministers from countries with the common currency. However, his two-and-a-half-year term as president is now running out, and the 19 ministers are to elect a successor on December 5. Donohoe wants to do it again, and as of Thursday, the deadline, there were no other applications. In fact, two important personal details were clarified within two days: a double whammy at the end of the week.