This, too, is clear from the ongoing discussion surrounding Greece. So how exactly can bridging payments via the ESM be safeguarded in turbulent times without absolving existing creditors from their liability? One suggestion put forward by the Bundesbank envisages, for example, an automatic threeyear maturity extension for all bonds. This would be activated the moment a government applies for an ESM programme.
Such a mechanism would dramatically reduce the level of funding required for any ESM programme, which would then only be needed in order to spread the fiscal adjustment over a longer period, thus simplifying this procedure while avoiding any repayment of legacy debt.