• But ESM cannot finance deal, says Regling
The European Stability Mechanism (ESM) mandate does not allow financing a Cyprus settlement, its Managing Director said on Tuesday after a meeting he had with Cyprus President Nicos Anastasiades, noting that “at the moment that would not be possible without changing the ESM Treaty.”
In statements to the press Klaus Regling also said that it is impossible to quantify at the moment the cost of a settlement, stressing that he is convinced that in the long-run the economic potential of unification is huge, the Cyprus News Agency reported.
On his part, Finance Minister Harris Georgiandes, who also attended the meeting, said that the economic dimensions of the reunification of Cyprus are extremely important, adding that "we had a very useful discussion as regards these aspects, in view of a relevant discussion on the financial parameters of the Cyprus problem that will take place on Monday at the Eurogroup."
He also said that they reviewed the general progress of the Cypriot economy and both the President and himself had the chance to reiterate the government’s commitment to continue efforts to promote reforms, and the prudent management of public finances even after the conclusion of Cyprus’ Programme.
In his statements, Regling recalled that he was in Cyprus about a year ago, adding that it was a good moment now to review the progress of the Cypriot economy during the last twelve months, about half a year after the end of the ESM Programme for Cyprus.
"And I think it is fair to say that Cyprus is reaping the benefits of the three-year adjustment programme that was linked to the ESM and IMF Programme. Good progress in many-many areas. Growth has come back. Unemployment is coming down and I am confident that will continue," he noted.
He said that there is commitment from the President and the Minister of Finance to continue with a responsible fiscal policy, adding that the momentum for structural reforms should be maintained.
He noted at the same time that there is unfinished business in the area of public administration reform, local government, the health sector adding that it would be important for the reforms to continue.
He said that the work done so far has been recognised by rating agencies and expressed certainty that if reforms continue there will be more upgrades coming. "That is very encouraging," he went on, adding that the banks that have gone through tremendous adjustments in the last few years have challenges. "They need to reduce their NPLs. The legislation is in place to do that. So I think the preconditions are there," he added.
Referring to efforts for a Cyprus settlement, he said "I hope very much that there will be success that the talks next week in Switzerland are productive. It will not be easy but Europe is looking to Cyprus to come to a positive conclusion here which will be good for the Cypriot economy".
He noted that "there is a tremendous potential if unification takes place and it would be good for the EU and Europe at a time when we have a number of political problems if one of the unresolved issues of our times were to be solved."
Asked what will be the impact on the Cypriot economy if a solution is found and it loans will be required to finance a solution, Regling said that this is one of the big issues, "how much money will be needed, loans."
"But it is very hard to say before more details are known about the settlement, particularly on the property issue. So I think therefore it is impossible to quantify at the moment the cost. There will be cost. I am convinced that in the long-run the economic potential of unification is huge. So a way has to be found to finance, but I cannot at the moment how much," he added.
Invited to say if the ESM and the EU will be willing to contribute, he noted that "at the moment our mandate will not allow that. The ESM is a crisis agency, a crisis fund, when the Euro is at risk. I don’t see that. At the moment that would not be possible without changing the ESM Treaty."
Asked when the ESM will be in a position to specify the relief measures for Greece, he recalled that the debt relief measures were specified by the Eurogroup in May this year.
"There was a framework that was agreed importantly also there was agreement on how to assess the need for that relief that was agreed between the Eurogroup, Greece and the IMF. So we have an agreed framework to look at that. There was also agreement to look at short-term measures, medium-term and long-term measures," he noted.
He added that the ESM has a mandate to look at short-term measures "which we do and we will make proposals before the end of the year. These are short-term measures mainly to reduce the interest vulnerability of the Greek economy," he added.
He noted that medium-term measures would be if necessary adopted at the time the programme ends, "if it ends successfully, which I assume that would be the middle of next year and then there is a long-term commitment of the Eurogroup to help Greece if they stick to the reforms and to the agreed frameworks in the EU, including the Stability Pact."
"So there is quite a lot of agreement. We will not have precise agreement on what to do in mid 2018 but on the short-term measures we will probably have some decisions later this year," Regling concluded.
