Regling: Low Greek bond interest rate a sign of credible policies

The fact that Greece pays an interest rate of only 1.17 percent for its 10-year government debt is a sign that the country is now implementing a credible policy, the head of the European Stability Mechanism (ESM) Klaus Regling said in an interview published Wednesday.

Asked by Neue Zurcher Zeitung is this shows investors are becoming too reckless again, Regling responded negatively. “No, this is rather a sign that Greece is now implementing a credible policy. This is the reason why Greece is swimming with the tide again in the financial markets.”

He said the premium the country pays, with interest rates being 156 basis points higher than in Germany, shows that “Greece is perceived as a competitive by the markets.”

Regling also said Greece, like Portugal, is a positive example of how a country can turn around its economy.

“Look at Greece. In Greece we see growth again. For three years, we have also seen a surplus in the overall budget. The unemployment rate is more than ten percentage points lower than at the peak of the crisis in late 2013. The population has even voted out a populist government and elected a reformist government,” he said.

Asked whether a sovereign insolvency mechanism combined with the threat that a bankrupt country would have to leave the currency union could be an alternative to the ESM, Regling said both would be “a massive intervention in the property rights and in the markets.”

“In the case of Greece, an exit from the euro was discussed a lot four years ago. We had estimates that the GDP, which had already shrunk by a quarter, would have dropped by another quarter. That cannot be a goal we aim for,” he explained.

“In addition, this would have altered the character of the currency union. Every time a country faced problems, we would have a massive increase of speculation.”