According to Alfons Weichenrieder, Professor of Economics and Public Finance at Goethe University and Principal Investigator in SAFE, a new credit program for Greece via the ESM is not justified. The use of ESM funds is limited to cases where the stability of the European Monetary Union is threatened, Weichenrieder writes in a recent SAFE Policy Paper. This is currently not the case.
"Contagion seems impossible given the only minimal reaction of risk premia for Italian, Portuguese and Spanish government bonds. Risk of contagion is also limited because foreign banks have sold off Greek debt by now. It could only be justified, for matter of consistency, to prolong existing credits that had been granted at a time when contagion to other euro countries could not have been excluded. New credits that would be given against feable and probably not enforceable conditions would be an open breach of ESM principles."
According to Weichenrieder, German politicians are right in demanding humanitarian aid programs given the severe situation in Greece but not granting a further credit program, this time financed via the ESM.
