Role of IMF and ECB in Resolving Greece's Financial Crisis

Running head: INTERNATIONAL FINANCIAL MARKETS AND INSTITUTIONS
International Financial Markets and Institutions
Name of the Student:
Name of the University:
Author Note

1INTERNATIONAL FINANCIAL MARKETS AND INSTITUTIONS
Table of Contents
Introduction:...............................................................................................................................2
Actions taken by the both ECB and IMF during the debt crisis of Greece:...............................2
Analysing the main role of International Monetary Fund (IMF) in resolving the financial
crisis experienced by Greece:.....................................................................................................3
Analysing the main role of European Central Bank (ECB) in resolving the financial crisis
experienced by Greece:..............................................................................................................6
Conclusion:................................................................................................................................8
References and Bibliography:....................................................................................................9

2INTERNATIONAL FINANCIAL MARKETS AND INSTITUTIONS
Introduction:
The overall assessment aims in evaluating the role that was played by International
Monetary Fund (IMF) and European Central Bank (ECB) in curbing the financial crisis that
was experienced by Greece during 2010. The financial turmoil in Greece mainly started from
2010, where an indication from the government was issued regarding the default on its debt
repayment during the period. This indicated an 8-year long bailout program that was initiated
and monitored by both IMF and ECB. The financial crisis of Greece also initiated the
eurozone debt crisis, which increased the fears for another global financial crisis. Thus, the
roles that was conducted by both IMF and ECB has mainly helped in curbing the problems
related to their financial default.
Actions taken by the both ECB and IMF during the debt crisis of Greece:
The Greece debt crisis was handled by both the IMF and ECB mutually, where both
the institutions took actions and relevant decisions to bailout Greece from the crisis that
might lead to a second financial crisis1. The first debt default was mainly highlighted during
the period of 2010, where the Greece was not able to pay back their dues in the international
market. Both IMF and ECB provided 110 Billion Euros or $146 Billion to Greece during
2010, as loans for securing the current debt conditions of the country. However, ECB after
providing relevant monetary funding to Greece, it initiated the austerity measures, which
included the 30 billion euros in spending cut and tax increase. The bailout program that was
initiated by both the IMF and ECB was mainly not effective for Greece, as no relevant tax
increase and expenditure cuts were conducted by the government.
1 Bbva.com. ""The ECB Played A Fundamental Role In The Crisis" | BBVA". 2017. NEWS BBVA. Accessed
October 29 2019. https://www.bbva.com/en/ecb-played-fundamental-role-crisis/.

3INTERNATIONAL FINANCIAL MARKETS AND INSTITUTIONS
However, due to the increasing problems that was faced by Greece, IMF and ECB
decided to provide the second Bailout program during 2012 for an amount of 130 Billion
euros or $172 Billion in total. Moreover, the deal or packages came with certain restrictions,
which was to be followed by Greece for the next financial years. The new bailout progress
would reduce the debt by 53.5% for private Greek Bondholders, where exchange the
reduction in debt to GDP ratio is expected by Greece. Thus, ECB and IMF instigated that
with the new flow of money he debt needs to be reduced from 160% to 120.5% by 20202.
This would lead to a restructuring of debt, which might improve their current economic
condition.
Moreover, the third bailout program for Greece was initiated during 2015, where an
amount of 86 billion euros was initiated only by the EU, while IMF did not contribute to the
new rescue package, as there was no significant debt relief provided by Greece to their
creditors. Hence, the IMF after the second bailout program was not satisfied by the measures
that was taken by the Greece government on their current tax and expenditure levels.
Moreover, the austerity measures that was provided by the IMF and ECB for reducing the
overall debt obligations of Greece was mainly rejected by their new government. This led to
the fallout of IMF as the major player in the bailout program that was provided to Greece3.
Analysing the main role of International Monetary Fund (IMF) in resolving the
financial crisis experienced by Greece:
The International Monetary Fund (IMF) has been considered as one of the major
financial backbone of the world economy. IMF has been considered as the first respondent to
a problematic financial condition of an economy or country, which might have negative
2 Gourinchas, Pierre-Olivier, Thomas Philippon, and Dimitri Vayanos. "The analytics of the Greek
crisis." NBER macroeconomics Annual 31, no. 1 (2017): 1-81.
3 Mylonas, Yiannis. "Greek Crisis, Eurozone Crisis, Global Capitalist Crisis." In The “Greek Crisis” in Europe,
pp. 48-86. Brill, 2019.