Markets are now adjusting to a new interest rate environment, however, interest rate burdens on Eurozone government budgets relative to GDP are currently at their lowest level in half a century, despite significantly higher public debts. This was one of the points the head of the European Stability Mechanism (ESM), Klaus Regling, made during his speech at the Economist conference.

“If Russia cuts off natural gas flows to Europe, the consequences will be serious for the European economy. However, I do not agree with the view that raising interest rates will create a new euro crisis,” noted Mr Regling.

Read also: Credit and recommendations in Greece by the ESM

Significant progress

Referring to Greece in particular, he stressed that it had recorded “significant progress”, recalling that the country exited the Eurozone’s enhanced surveillance regime in mid-June and is now merely in a post-program monitoring framework, which for him is an important normalization step after years, despite the fact that some significant economic challenges remain.

Read also – Regling: The rise in interest rates will not affect Greece

As he said, due to ESM interventions, most of the Greek debt has a fixed interest rate with long maturities – 20 years on average, which means that he does not see any immediate threat to debt sustainability.

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