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Regling Sees Rescued Nations Back in Bond Market in 2014

Oct. 24 (Bloomberg) -- Klaus Regling, head of the European Stability Mechanism, talks about the European debt crisis, the role of the ESM and the outlook for Europe's economy and bond market. He spoke with Bloomberg's Linda Yueh in Luxembourg yesterday. (Source: Bloomberg)

The head of Europe’s permanent rescue fund said the countries bailed out by the region’s governments should be in a position to finance themselves by the end of 2014.

“That should be well underway in two years,” Klaus Regling, head of the European Stability Mechanism, said in a Bloomberg Television interview in Luxembourg yesterday. He didn’t name specific countries.

While “there will not be a feeling that the crisis is over” as workers adjust to wage and pension cuts, measures taken by governments may be sufficient by then to help them pass “the ultimate test” and return to the bond market, he said.

European policy makers are working to draw a line under a crisis that is now in its fourth year. While market turmoil has eased since the European Central Bank pledged to buy unlimited quantities of government bonds to stop the euro from falling apart, economists and investors say they still expect Spain to apply for aid from the bailout fund in coming months.

Regling, who didn’t mention Spain, said that the ESM can give a precautionary credit line to distressed nations more quickly than the two or three weeks it takes to put together a full sovereign bailout.

“If a country asks for a precautionary arrangement, we can act relatively fast,” he said. “Secondary market intervention” could be done in two days, he said.

The ESM was declared operational on Oct. 8 and will rely on paid-in capital by European governments to underpin its full firepower of 500 billion euros ($649 billion.) By 2014, governments will have paid in 80 billion euros in capital. Regling said that the 32 billion euros currently paid in will be invested by the end of November.

The ESM has so far invested 4 billion euros in “highly rated” government bonds and the bonds of international institutions. The securities are “mainly in euro,” he said.

“We do it in small amounts of money, otherwise we would move the market, which we don’t want to do,” he said.

To contact the reporters on this story: John Fraher in London at jfraher@bloomberg.net; Linda Yueh in London at lyueh@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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