Pierre Gramegna interviewed by Bloomberg TV

Transcript of interview with Pierre Gramegna, ESM Managing Director

Bloomberg TV

16 October 2026

Interviewer: Avril Hong

Bloomberg TV: What are we seeing in terms of the risk out there? You've been warning before about this combination of an energy shock, the US market sell-off, and what this could mean in terms of the ESM potentially stepping in. At what stage do you move beyond just monitoring the risk to actually providing some form of assistance to Member States?

Pierre Gramegna: First and foremost, we're still certainly in the monitoring stage. And let me explain why. We're the lender of last resort of the euro area, and we would have to be active only when all other solutions haven't been exploited or found. So, what we are seeing now is that we have a geopolitical shock in the Middle East that has triggered energy prices that are higher, and an increase of interest rates, which hits all countries around the globe, not only Europe.

And what we've seen is that the shock is less well absorbed by countries that have no buffer in the budget and have very little fiscal space. So that's, I think, important to realise. And so interest rates have gone up for everyone. In fact, in the United States, 10-year bonds are above 5%. It's higher than any country in the euro area.

You talk about the countries that don't have as much of a fiscal buffer, namely France. It seems to be at the centre of things in Europe. For the ESM, at what stage does a fiscal position for a country move beyond, say, being a national budgetary issue to becoming an issue for financial market stability for the eurozone?

Well, first we have to look at the rules that we have in Europe. We have the Stability and Growth Pact, and up to now France has always complied with our budgetary rules. It might slightly deviate this year, but in the past year it has delivered. And what we have seen is that the government has announced a very ambitious budget with a deficit reduction of €54 billion for next year.

And I think, in terms of endeavour and amount of the savings that are foreseen, this is very important and would make sure that France is complying with the Stability and Growth Pact of Europe. So the first thing to do in such a situation is that every country, not only France, does its homework. And France has announced that it intends to do so. So that means that we are still in a monitoring role as ESM.

What are you monitoring, though, also in other parts of Europe, in countries like Italy that has yet to ratify the ESM reform treaty? And you get the sense that if things escalate and the ESM does need to step in, what sort of practical implications might that mean for how you can assist?

What Italy has not ratified is an amendment to the treaty. So, apart from the backstop for banks, which cannot be activated because Italy has not ratified, all the other instruments that we have are there and ready to be used. In fact, we have even worked on our toolkit to make some of these instruments even more efficient and accessible.

We have also what we call precautionary loans, which have never been used in the past, which come in earlier than the kind of instruments that we had for saving Greece or supporting other countries, like we did in the last decade. So, we have a full range of instruments that can be used, and obviously we monitor the situation all the time. But we are not at all at a stage where the ESM has to jump in. Far from it.

So you're saying that even if things are delayed and there's no ratification still from the likes of Italy, that there's no chink in the armour of the crisis management framework?

Not at all. It's very robust. And it's good you mention it, because there's a misunderstanding about this absence of ratification. It is for one single instrument that has been added lately and which, unfortunately, is not there.

But this is not the type of instrument that we would definitely need in a situation like this. So, we are well equipped in terms of instruments and also in terms of available capital or lending capacity. Our lending capacity for the time being is €430 billion. So I think no other institution in the world has as much money available, not even the IMF. So I think that the situation and the setup in Europe is very solid.

It's quite a war chest. What is that going to be used towards? Because there's also a lot of chat and speculation about the potential for ESM financing to help Europe with the defence build-up. Is that a possibility?

Well, there's a lot of people who think, when we have this war chest there, why don't we use it? Now, one has to understand, the ESM was set up in times of crisis 15 years ago to help when there is a major risk of contagion inside the euro area and some countries are not going to be able to refinance their debt. So we are there to help directly the budgets of countries, or eventually banks. We have also instruments for banks. But that's the key thing to understand.

So we're not there to support projects, like other institutions could do, and we cannot also deviate from our mandate. Our mandate is very clear. We are there to support countries with conditionality, in times where countries are losing access to markets or access to markets is far too expensive.

What about the risk of contagion from the US? I mean, we are seeing Treasuries rally this week, but there have been a lot of concerns. How exposed would Europe be in the event of a disorderly sell-off in the US Treasury market?

What we see is that the German Bund has been confirmed as the most valuable reference on all the markets. In fact, especially because there's the sell-off in the United States, what investors are looking for is a stable harbour, a refuge, and the German Bund has reinforced its role as anchor. And so the spread is measured against the German Bund.

What we have seen is that also the spreads that we have today, they are higher than they were two months ago, but they are also contained, compared to what they were in the international financial crisis. So I think that also the euro area has a lot of solidity, stability today. We have overcome our teenage crisis, as I tend to call it, in the last decade, where there were doubts even if the euro would survive. And I think the setup that we have, a strong European Central Bank and the ESM, the European Central Bank that said, "We're going to do whatever it takes", and the setup of the ESM, is a very, very solid and credible setup that we have that, in fact, nobody else has.

Nice to hear that Europe is moving past its teenage tantrum!