Is the eurozone equipped for more bailouts?
With the recent clashes over its budget, Italy’s high level of public debt, along with its poor economic growth, remains a serious issue for the EU. However, according to the chief of the European Stability Mechanism, there’s enough funding for a bailout.
In an interview, the fund’s chief Klaus Regling said that the euro area’s rescue fund is large enough to rescue Europe’s key economies if it became necessary. This includes Italy, whose debt recently reached 138% of GDP in the second half of this year.
But, despite Italy’s growth being slow – half the eurozone average in the last 25 years – the problems still aren’t as serious as those faced by Greece, Portugal, Cyprus and Ireland. Greece has been receiving economic support for years, and its bailout program has just ended.
As explained by the European Financial Stability Facility (EFSF), the deficit of rescued economies were around 10 and 15%. Italy, on the other hand, isn’t currently in a position where it would need to be rescued by foreign capital.
However, when asked if, hypothetically, there would be enough funding to do this, he replied that “very hypothetical question of whether the ESM is big enough also to save big European economies, I can only say yes. Financing is not really an issue if you think of a big crisis… we will never run out of money”
At the moment, it’s estimated that there is around €410 billion available to lend to eurozone countries. Furthermore, unlimited funding could be accessed if necessary through a joint program with the ECB – Outright Monetary Transactions.
This is a relief to many, especially given the recent disputes between the EU and the Italian government, although the government has said it is willing to follow the recommendations of the Commission that will adjust its spending and reduce its public debt,