–EFSF Cannot Cut Interest Further On Greece Without EMU Support

FRANKFURT (MNI) – Markets are reacting with concern to recent
developments in Italy, thus emphasizing the importance of the country’s
reform process continuing, Klaus Regling, head of Europe’s two bailout
funds, said in an interview published Monday with Germany’s daily
Sueddeutsche Zeitung.

“Italy has pushed through important reforms in the past year.
Markets have honored this so far; however they have reacted with concern
to the recent developments at the end of the last week,” said Regling,
who heads the European Financial Stability Facility (EFSF) and its
permanent replacement, the European Stability Mechanism (ESM). He cited
the planned resignation of Prime Minister Mario Monti and the renewed
candidacy of former prime minister Silvio Berlusconi as the key worries.

Regling said it was important for the entire Eurozone that the
reform process in Italy be continued. At the same time, he cited the
overall market calm as a sign that the mood has shifted away from the
fear of a euro breakup that prevailed only a few months ago.

“It does not have to stay this way, but investors have certainly
registered that a number of large hedge funds mis-speculated with their
bets on a collapse of the monetary union and lost many billions of
euros,” Regling said. “Something like that impresses markets much more
than decisions in Brussels,” he said.

Regling also denied that the EFSF rescue fund could further cut
interest rates on its loans to Greece without funds from the Eurozone.
The EFSF is already financing its own loans at the same rate it charges
Greece, he said.

“If interest rates were lowered further, member states would have
to make up the difference with their budgets,” Regling told the paper.

The German finance ministry has raised the possibility of a further
EFSF rate cut after 2015 as one option to close Greece’s remaining
fiscal gap.

— Frankfurt bureau: +49 69 720 142; email: ccermak@mni-news.com

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