Importance of the ECB and IMF in the Greece Financial Crisis

This article discusses the importance of the European Central Bank (ECB) and the International Monetary Fund (IMF) in the Greece financial crisis. It explores the roles played by these institutions and their impact on the global economy. The article also highlights the measures taken by the ECB and IMF to stabilize the situation.

Importance of the ECB and IMF in the
Greece Financial Crisis
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Importance of the ECB and IMF in the Greece Financial Crisis
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1 Executive Summary 2
2 Introduction 2
3 Literature Review 3
3.1 Analysis by IMF and ECB 3
3.2 Analysis by other Banks 4
3.3 The crisis stuck other countries 5
3.4 The effect on GDP 6
3.5 Contributions of various institutions 8
4 Recommendation 9
5 Conclusion 10
6 References 11
1. Executive Summary

Importance of the ECB and IMF in the Greece Financial Crisis
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This paper focuses on the main roles played by the International Monetary Fund (IMF) and
European Central Bank (ECB) in the Greece financial crisis. Both the ECB and the IMF are
universal banks and directing financial and money related arrangements on world. In this
article, the IMF, ECB and the Eurozone nations assume a pivotal job in helping Greece
endure its obligation emergency to keep the remainder of the world from being hauled down
into the pit of obligation emergency also. The paper is made in a manner that includes the
synopsis of the whole matter that affected the financial crisis in Greece.
2. Introduction
Greece's budgetary emergency happened fundamentally because of the worldwide monetary
emergency that started in 2007 to 2008 with the breakdown of major United States (US)
banks, and their absence of planning to manage the emergency that hit them with obligation.
US began offering securities supported by home loans to speculators to condense their non-
fluid resources even before the crisis. As this was turning into a well known pattern, more
financial specialists purchased these securities and went for broke of the sub-prime home
loans and securities, while banks began to credit out more cash to sell as securities. Venture
banks, for example, Lehman Brothers concentrated more on purchasing home loans to sell as
securities. This had later added to their defeat when speculators began to pull out rapidly and
at the same time because of absence of certainty (Iossifov and Podpiera 2014).
The ECB's primary job is to deal with the steadiness of the euro, concentrated on
investigating the financial and fiscal strategies. They propose and execute these approaches to
guarantee that the Eurozone is very much controlled and that its monetary and money related
prosperity is being looked out for. The ECB guarantees the soundness of the money related
markets, organizations and banking framework are represented well by the Eurozone's
individual country (Gortsos 2018).

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The IMF's essential employment scope includes looking out for monetary and money related
developments in the market and warning administrations to vast association and ordinarily
countries itself. It spends significant time in avoiding money related emergency. It was giving
advances to substantial global firms and countries which are significant in keeping up or
building up the world's monetary and budgetary status. The IMF likewise proposes and
executes different financial and money related arrangements to direct nations. The United
States reserve fills in as an essential money related senator to the world. Hostile to fear based
oppression and illegal tax avoidance ends up one of the IMF's primary job as of late when
psychological warfare surfaced and turned into a risk internationally ("International Financial
Architecture And Debt Restructuring" 2019).
3. Literature Review
3.1. Analysis by IMF and ECB
By and large, IMF has the obligation to keep up a steady global money related framework
and to exhortation its part nations when they execute budgetary strategies ("International
Financial Architecture And Debt Restructuring" 2019). Both the ECB and the IMF go about
as universal banks and in directing financial and money related arrangements on the planet.
In this article, the IMF, ECB and the Eurozone nations assume a pivotal job in helping
Greece endure its obligation emergency to keep the remainder of the world from being hauled
down into the pit of obligation emergency also.
Lehman Brothers and other big venture institutions had rapidly gone bankrupt (Iossifov and
Podpiera 2014) as did other speculation banks, for example, Bear Stearns ( Reis 2019), that
additionally offered a lot of benefit supported securities to financial specialists. As these
banks went bankrupt, the economy was influenced as banks quit loaning cash out, which
brought about an endless loop, as their capital stays stale without gaining premium. Stock

Importance of the ECB and IMF in the Greece Financial Crisis
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costs for these banks and different US monetary establishments likewise fell, prompting
financial exchange costs declining over the globe, bringing about misfortunes for speculators.
3.2. Analysis by other Banks
Banks became quite sensitive due to the lack of money and was unable to credit out money.
Consequently, shoppers around the world experienced difficulty obtaining cash and prompted
request declining as a rule, prompting a drop in utilization. Furthermore, exchange send out
diminished worldwide as interest for products and ventures in the U.S fell and they quit
bringing in as much merchandise available to be purchased.("ESM Treaty - Consolidated
Version (All Official Languages Of ESM Members) | European Stability Mechanism" 2019).
Even countries like United Kingdom, Australia, South-east Asia as well as the Eurozone was
badly hampered by the crisis.
Greater banks like Northern Rock in the UK likewise held vast quantities of private home
loans. At the point when the emergency hit in US, speculators all inclusive lost trust in their
interests in UK and had lined up to pull back their ventures. Comparative issues occurred in
Australia to two of their greatest banks, Babcock and Brown and Allco Finance Group, which
were to a great extent reliant on securities and needed to shut down to condense the
organization to pay their leasers (Blustein 2019)
Asian countries were mostly affected indirectly via international trade in a roundabout way
by means of worldwide exchange. As they are reliant on exchange for fare pay, a decrease in
the economy and obtaining intensity of shoppers worldwide influenced their pay from fares
(Blustein 2019). This brought about a general decrease in total national output (GDP) over
the Asian nations.
3.3. The crisis stuck other countries
Europe unquestionably felt the impacts of the worldwide money related emergency, since
securitization was drifting, numerous subprime contract credits had been packaged as

Importance of the ECB and IMF in the Greece Financial Crisis
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collateralized obligation commitments (CDOs) and had been sold to different locales
(Stratfor, 2008; International Monetary Fund, 2009; The Economist, 2013, for example,
Europe. The European banks in this manner endured immense misfortunes as these subprime
contract advances were defaulted on ("ESM Treaty - Consolidated Version (All Official
Languages Of ESM Members) | European Stability Mechanism" 2019). Thus, these banks
turned out to be additional careful in loaning out cash, prompting a decrease in obtaining.
Customers' utilization was discouraged as there was significantly less cash going in the
market for exchange. Along these lines, the European Central Bank (ECB) had been
compelled to venture in and started diminishing key loan costs to invigorate the financial
framework.
Inevitably, financial specialists lost their trust in a few Eurozone nations like Greece, Spain
and Italy among others. Financial specialists were relinquishing Greek bonds and offers in
dread of a breakdown.
In 2009, it was discovered that the shortage sum was being downplayed for quite a long time.
Greece got hit hardest when the new head administrator, Mr Papandreou dominated, he
revealed that the genuine obligation figures were 115% more than Greece's GDP (Schwartz
and Takagi 2019). Greece's obligation shortfall therefore went up to 13.6% from the detailed
12.7% by April 2010 .
At first, Mr Papandreou continued demanding that Greece had the capacity to reimburse its
obligation notwithstanding the nation had surpassed the EU's obligation limit by about
multiple times. The Greek economy hinted at lopsidedness when the second and third
starkness programs were executed in line with the IMF.
Likewise, Dubai World had declared in 2009 that they require a multi month obligation ban.
Financial specialists all inclusive felt the expansion in hazard and accordingly had
investigated Greece's substantial monetary uneven characters and Greece's intensity to re-

Importance of the ECB and IMF in the Greece Financial Crisis
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decide the hazard dimension of their ventures there. Financial specialists discovered that
Greece had profound situated monetary irregular characteristics which cause huge
acknowledge chance as Greece's intensity declined because of high compensation and
expansion rates contrasted with other Eurozone nations. These speculators had lost their rust
in Greece, and retreated rapidly of their current ventures (Schwartz and Takagi 2019).
3.4. The effect on GDP
Due to the poor conditions and unfavorable impacts, the GDP development rate was quickly
declining, from a positive 7% to a negative 9%, as appeared in Graph 1.0. The negative GDP
development implied contracting of the Greek economy. The quickly declining economy had
no methods for reimbursing its obligation, but to utilize the recently credited assets to pay for
their old obligations (The New York Times, 2015), making it fall further into the money
related emergency.
Graph 1.0

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This in turn caused the debt level in the EU Region to increase as their loan amounts shooted
enormously, shown in Graph 1.1.
Graph 1.1
Source: Eurostat
3.5. Contributions of various institutions
The contribution of the IMF in the underlying stage additionally consoled the European
nations and urged them to take part in the bailout reserves. It was additionally for the most
part in charge of asking Greece to execute the nine starkness programs which included higher
assessments on extravagance merchandise, diminishing benefits, laying off open segment
labor and expansive scale privatization of organizations to free up more assets for Greece.
Notwithstanding, after two gravity programs which were as yet fruitless in paying off
Greece's obligation, the EU and IMF had met up to talk about the primary worldwide bailout
plan with Greece. Greater part of the financing originated from the Eurozone part nations,

Importance of the ECB and IMF in the Greece Financial Crisis
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while some originated from IMF. With the execution of the first bailout, a third somberness
program was set up (Amundi Group, 2015).
In the meantime, ECB improved its money related strategy to broaden the development of its
long haul renegotiating tasks (LTROs), charging EU banks fixed rates to obtain, changing the
guarantee qualification prerequisites for getting, swapping cash at fixed financing costs, just
as purchasing up to an aggregate sum of 60 billion Euros in securities to ease liquidity.
From 2010 to 2011, the ECB further reacted to the emergency by actualizing another two
LTROs, diminishing Eurozone nations least save proportion necessity to facilitate their
requirements for liquidity, further expanding criteria for qualification to advance, and
acquiring another 16.4 billion in securities to give significantly greater liquidity. In the end
from 2012 to 2014, ECB had started an out and out money related exchange program (OMT),
to buy securities in the auxiliary market to help Eurozone part nations (Delivorias, 2015).
Combined with the fourth starkness program, which demonstrated that the Greek economy
was as yet shaky, the ECB, EU and IMF framed a troika. The troika had together examined
and executed numerous approaches to help the Greek economy from another five gravity
programs, obligation benefits, obligation decrease plans and two other worldwide bailouts
(Trichet 2019).
Now, Greece has all the earmarks of being in an awkward position where it has to choose
between the welfare of its kind and the capacity to arrange bailout assets from the troika.
After a progression of credits and reimbursements, in June, Greece guaranteed to reimburse
IMF an aggregate of 1.5 billion Euros toward the month's end however consequently defaults,
being the principal nation in EU to default (Yamani 2015). The IMF clarified that Greece will
never again get bailout assets from IMF except if Greece achieves a lower obligation level,
requesting that Greece's lenders suit to a noteworthy obligation discount (Trichet 2019).

Importance of the ECB and IMF in the Greece Financial Crisis
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4. Recommendation
Greece would better itself if he guarantee that its obligation was in a controllable range
without having the IMF and ECB to venture in. Anyway since the emergency is going on as
of now, the best for Greece would be if Greece had the capacity to increase generous
measures of profits on its ventures with the goal that it will most likely reimburse its banks,
or if Greece's lenders were to enable Greece to discount lion's share of its obligation. This
would require the execution of stringent changes, for example, greater gravity programs that
must be deliberately arranged in a maintainable way to guarantee no new advances are
required, something else, these new advances will be utilized to cover foremost and intrigue
installments of past advances, leaving Greece where it is, or much further expanding its
obligation.
5. Conclusion
Greece was constrained by general strikes by its natives while the troika was pushing for
gravity measures. The vote in favor of gravity measures, a type of return for the salvage
bundles, was casted a ballot out. This was unmistakably a result of the absence of welfare of
the Greeks that they casted a ballot out the starkness programs. Over the long haul, the
Greeks will endure because of their failure to surrender their transient welfare benefits.
Subsequent to having the IMF hauling out of bailout talks in June 2015, financial specialists'
certainty of Greece's capacity to secure assistance from the worldwide store will no doubt
fall.
The EU and IMF organizations ought to regularize their common sharing of classified data.
This has been proposed by the European Court of Auditors. An inward direction note on the
sharing of secret IMF data would keep away from conceivable unintentional infringement of

Importance of the ECB and IMF in the Greece Financial Crisis
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the staff set of accepted rules. A participation report could likewise clear up issues identified
with the different IMF desires portrayed in the ESM Treaty. Methods could be built up to
purpose contrasts of view at the mission level by including their particular bosses. In the
event that such issues stay uncertain, communications could occur between the proper IMF
Deputy Managing Director and EU partners, and if fundamental the IMF Managing Director
and the relating head of establishment can resolve matters. Such methodology would likewise
give that (in the expressions of the Bank-Fund Concordat) "in those cases, which are required
to be uncommon, the administrations will wish to counsel their particular Executive Boards
before continuing." This last arrangement may should be adjusted to fit contrasts in the
enrollments, casting a ballot forces, and administration structures of different cash
associations and RFAs.
6. References
Gortsos, Christos. 2018. "Legal Aspects Of The European Central Bank (ECB) - The ECB
Within The European System Of Central Banks (ESCB) And The European System Of
Financial Supervision (ESFS)". SSRN Electronic Journal. doi:10.2139/ssrn.3162024.
Iossifov, Plamen, and Jiri Podpiera. 2014. "Are Non-Euro Area EU Countries Importing
Low Inflation From The Euro Area?". IMF Working Papers 14 (191): 1.
doi:10.5089/9781484300527.001.
"ESM Treaty - Consolidated Version (All Official Languages Of ESM Members) |
European Stability Mechanism". 2019. Esm.Europa.Eu. https://www.esm.europa.eu/legal-
documents/esm-treaty.
Reis, Ricardo. 2019. "Different Types Of Central Bank Insolvency And The Central Role
Of Seignorage". NBER. http://www.nber.org/papers/w21226.

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Trichet, Jean-Claude. 2019. "The ECB's Enhanced Credit Support". Ideas.Repec.Org.
https://ideas.repec.org/p/ces/ceswps/_2833.html.
Blustein, Paul. 2019. "Laid Low: The IMF, The Euro Zone And The First Rescue Of
Greece". Centre For International Governance Innovation.
https://www.cigionline.org/publications/laid-low-imf-euro-zone-and-first-rescue-greece.
"International Financial Architecture And Debt Restructuring". 2019. Emta.Org.
https://www.emta.org/template.aspx?id=4929.
"The European Central Bank: From Problem To Solution - Openmind". 2019. Openmind.
https://www.bbvaopenmind.com/en/articles/the-european-central-bank-from-problems-to-
solution/.
Schwartz, Moisés, and Shinji Takagi. 2019. "Chapter 5. The IMF’S Role In The Euro
Area’S Crisis: What Are The Lessons From The IMF’S Participation In The Troika?".
Elibrary.Imf.Org. https://www.elibrary.imf.org/view/IMF017/23900-9781475562538/23900-
9781475562538/ch05.xml.
Li, Larry, Malick Sy, and Adela McMurray. 2019. "Insights Into The IMF Bailout Debate:
A Review And Research Agenda."
Yamani, Ehab Abdel-Tawab. 2015. "Emerging Market Carry Trades And Financial
Crises". SSRN Electronic Journal. doi:10.2139/ssrn.2660623.

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