NICOSIA, Nov. 2 (Xinhua) -- The managing director of the European Stability Mechanism (ESM), Klaus Regling, suggested on Thursday the idea of setting up a "rainy-day" fund that could be used by eurozone countries to meet unexpected economic contingencies.
"It can be set up in the form of a U.S.-style rainy-day fund, or a complementary unemployment insurance. Short-term ESM lending is another option," Regling told an annual financial forum in Nicosia.
Regling added that there was room for a facility to be set in place to buffer what he termed asymmetric shocks.
He further said that such fiscal capacity could be combined with a more transparent system for burden-sharing with private creditors in case of a sovereign debt restructuring.
Regling suggested that the fund could be within a market-based framework, but with stricter collective action clauses regarding bond documentation.
"Automatic maturity extensions are not desirable, because they can have pro-cyclical effects. The ESM could take on the role of organizing London Club-type restructurings, in a case where a country's debt is unsustainable," he said.
He observed that as a consensus was growing against the International Monetary Fund contributing to future rescues of eurozone countries in distress, proposals were being floated for setting up a European monetary fund.
He added that the ESM could take over some of that role along with the European Commission.
Regling hailed the eastern Mediterranean island's economic recovery after the 2013 near meltdown of the economy, saying that in less than five years it had achieved one of the higher growth rates in Europe.
He said Cyprus's fiscal performance had been remarkable, but warned of the risks from a still-high rate of non-performing loans, totaling just over 21 billion euros (24 billion U.S. dollars).