VIENNA (MNI) – While other countries are “on track” in their
recovery measures, “Greece is the bad news” within the Euro area, Klaus
Regling, CEO of the European Financial Stability Facility, said here
Thursday.

“The bad news is Greece: its fundamentals are the worst in the euro
area and there is no other country in the euro area with such a high
fiscal debt,” Regling said, speaking at an economics conference
sponsored by the Austrian National Bank.

“Greece does not have a liquidity problem like the other countries,
rather it has a solvency problem,” Regling said. That is why private
creditors were asked to help Greece reduce its debt via the “private
sector involvement” (PSI) deal concluded earlier this year.

“This measure is reserved for such a special case, and I don’t see
any other country in the euro area which is comparable,” Regling
asserted.

He said countries like Ireland, Portugal, Spain and Italy were “on
track” towards reducing their deficits and increasing their
competitiveness.

“In all these countries, exports are on the rise despite negative
GDP growth that is normal during a phase of austerity – but this is
something which is not enough reported about,” Regling claimed.

This morning he signed a E4.2 billion transfer of funds to Greece,
part of a previously agreed E5.2 billion tranche previously agreed to
under the terms of Athens’ bailout package. Regling said the remaining
E1 billion would be made available to service Greece’s debt in June. For
payments that need to be made after that, that there will have to be
another troika meeting to determine what happens in the second half of
the year, he said.

“The Eurozone is determined to continue to support Greece as long
as Greece is prepared to fulfill the conditions,” Regling said.

On the question of the effects a possible Greek default could have
on the EFSF, Regling noted that the facility “has not disbursed much
money to Greece so far.”

“If there was a default, then losses might happen. But a default
never means that nothing is paid, so it is hard to predict – and I am
not forecasting a default,” he stressed.

Regling noted that the EFSF “has no problems getting financing from
the markets.” He said he did not expect any further downgrades from
rating agencies this year after Standard & Poor’s lowered the long-term
outlook for the EFSF to AA shortly after downgrading Austria and France,
which had been two of its triple-A guarantors.

“With all these measures, I am sure that the EMU will function
better after the crisis than it did before,” Regling asserted.

The EFSF chief said he was convinced that the world financial
system is “moving towards a multi-polar currency system where the U.S.
dollar will continue to play an important role for some time but not a
dominant role.”

Asked about Eurobonds, he said they “might be useful in the longer
run when all the conditions are in the place and fiscal discipline
really works.”

Regling noted that all the new institutions created on a European
level mean a “transfer of sovereignty from the national to the European
level,” which is “justified and important in this situation and may be
only the first step.”

He said it “could be interesting” to start the discussion about a
European finance ministry or other mechanisms to increase integration in
the European financial system, though it will take decades before actual
implementation.

A Eurozone finance minister “could be responsible for the
implementation of the stability and growth pact, for financial market
supervision and external representation of the euro area, but all this
would raise difficult questions of democratic legitimacy and whether the
European parliament and commission need to reorganise and maybe create a
subgroup for only euro area members,” he said.

[TOPICS: M$Y$$$,M$X$$$,MGX$$$,M$$CR$,MT$$$$]