WASHINGTON: The Euro­pean Stability Mechanism (ESM) could get new powers to monitor eurozone economies next year as part of the single currency bloc’s plan to integrate more deeply, Klaus Regling, the head of the eurozone bailout fund, said on Friday.

The new powers, which would require amendments to the ESM treaty signed by eurozone governments, would allow the bailout fund to be ready with a possible bailout and attached conditions for a troubled sovereign at very short notice, Regling said.

“It is correct that if the ESM gets the mandate to be ready at any time on short notice to put together, with the European Commission, a programme with conditionality, we would only be able to do that if we do some continuous monitoring,” he said.

“Otherwise one cannot do that job,” Regling told Reuters in an interview on the sidelines of the International Monetary Fund and World Bank fall meetings in Washington. He added that the idea was “not so revolutionary” because it was already in place for half of the eurozone countries.

The issue is delicate because European Union treaties have assigned the job of policy monitoring and surveillance to the European Commission.

Germany, however, would be happy to see those powers shared by an intergovernmental institution like the ESM, because it believes the Commission has become too political in enforcing EU rules to limit government borrowing that underpin the euro.

“I do not intend to take away any competences of the Euro­pean Commission, it would not be possible, because they are enshrined in the EU treaty,” Regling said, adding that the two institutions could peacefully cooperate.

He said the ESM was already monitoring Greece, Ireland, Portugal, Spain and Cyprus – the five countries that borrowed from the bailout fund during the sovereign debt crisis started in 2010 (not 2007-2009) and were under post-bailout surveillance until they repay the loans.

“We also monitor our largest economies. They are sometimes surprised to hear that. But because of our market activities on the funding side, on the investment side we must understand what is happening in Europe,” Regling said.

That means keeping a close eye on what is happening in Germany, France, Italy and Spain, he said.

“So half of our countries, for different reasons, we are monitoring already but not the other half. To monitor the other half we would need ESM treaty changes,” he said.

Such changes may come next year, he said, including one allowing the ESM to become a financial backstop for the Single Resolution Fund for banks that will not reach its full capacity, funded from bank annual contributions, until 2023.

Asked when the ESM treaty change could take place, Regling said pointed to 2018 as “a good year.”

The changes would be part of a broader package of reforms in the eurozone aimed at helping the 19 countries that share the single currency to rally around it. That has become more of an urgent matter as Britain prepares to leave the EU in 2019.

“We have a window of opportunity in the next 12 months because there are no other big distracting events like in 2019, when we have the elections to the European Parliament and the selection of the new Commission,” Regling said.

Germany would also like the eurozone reforms to include a mechanism for sovereign debt restructuring.

Under such a mechanism, if a country were to ask for a bailout from the ESM, its bond maturities would be automatically extended and its debt could be more deeply restructured if that were needed to make it sustainable.

Published in Dawn, October 15th, 2017