The European Stability Mechanism's current legal setup would not allow it to become a "backstop" lender to a newly-created EU bank resolution fund, ESM Managing Director Klaus Regling told Economic and Monetary Affairs Committee MEPs on Tuesday. Pressed repeatedly on the matter, Mr Regling did however concede that he was open to considering other possible legal interpretations which could justify this role for the ESM.

MEPs' questions to Mr Regling focused almost exclusively on whether the ESM could take on more tasks, such as acting as a "backstop" for the EU Single Resolution Fund to be set up next year, and directly recapitalising struggling banks.

However they did also question whether Greece's debt is as sustainable as some say - just as they did at Monday's meeting with ECB President Mario Draghi - and pressed Mr Regling for his opinion on the prospects of the other "programme" countries.

Backstop lender?

Mr Regling conceded that "some form of backstop" would indeed be needed for the Single Resolution Fund, adding that it would be needed permanently and not just until the fund reached its target levels of money. However, he also said that the ESM's current legal setup would not allow it to take on this role. Furthermore, the ESM could pass money on directly to banks only if there was a unanimous decision of the Eurogroup, he added.

Some MEPs argued that there was no legal impairment preventing the ESM from acting as a backstop for the Single Resolution Fund and reiterated the widespread understanding that once the single supervisory system was approved, the ESM could interact directly with banks themselves, thereby severing their links with sovereign lenders.

"Programme" countries

Mr Regling was positive about the progress being made by the "programme" countries. But he did qualify his comments about Greece, saying that "it was probably a correct assessment that Greece will need more help" by the end of next year. Several MEPs were critical of the work being done by the Troika (EC/ECB/IMF) in Greece, arguing that the private sector was being suffocated and contesting the Troika's claims that the country's debt levels were sustainable.

In the Chair: Sharon Bowles (ALDE, UK)