BUS390: Research Project - IMF, ECB, and the Greek Financial Crisis

This report examines the roles of the International Monetary Fund (IMF) and the European Central Bank (ECB) in addressing the financial crisis experienced by Greece from 2010 to 2018. The analysis covers the actions taken by both institutions, including the provision of bailout programs, economic surveillance, and the implementation of austerity measures. The report details the three bailout programs provided to Greece, the conditions attached to them, and the impact on the Greek economy. It explores the IMF's role in economic monitoring, loan provision, and structural adjustments, as well as the ECB's actions, such as liquidity measures and asset purchasing programs. The report concludes by assessing the effectiveness of these interventions and the long-term implications of the Greek debt crisis on the European Union and global financial markets. The report also highlights the rejection of austerity measures by the Greek government and the subsequent fallout of the IMF from the bailout program. The study emphasizes the challenges faced by Greece in managing its debt obligations and the significant roles played by the IMF and ECB in attempting to stabilize the country's economy and minimize the crisis's global impact.

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.

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impact on the world economy4. The problems that was faced by Greece after the financial
crisis of 2009 was considered to be catastrophic, as the country was not able to repay its debt
obligations and was intending to default on their payments. IMF feared that after the financial
crisis, a country defaulting on their payments would utterly destroy the financial market and
economy of the current market leader. Hence, adequate steps were taken by the IMF for
securing the debt crisis of Greece, while minimising its impact on the global scale. The major
roles of IMF are depicted as follows.
Economic surveillance and monitoring:
One of the major activities of IMF is the economic surveillance and monitoring that is
being conducted for all the countries in the world. This action allows IMF for preventing any
kind of problems in the financial sector that might arises in near future due to the
malpractices used by the government of the country5. Furthermore, IMF also plays a vital role
in identifying the major defaulter that might occur in near future. This surveillance and
monitoring allowed IMF to identify the problems that was associated with the Greek debt
conditions. Thus, IMF was able to analyse and detect the actual problems that was faced by
Greece after the financial crisis, which led to its first default conditions. IMF after the issue of
the bailout program continued their surveillance and monitoring for detecting the growth in
Greek economy.
Loans to countries with financial crisis:
IMF also provide loans to countries with the financial crisis for adequately stabilising
their economy and reducing he impact on the global scale. IMF is responsible for the global
financial market, where it comes to rescue for those countries that is facing financial
4 Imf.org. "IMF Capacity Development ". 2019. IMF. Accessed October 29 2019.
https://www.imf.org/en/About/Factsheets/imf-capacity-development.
5 Tsebelis, George. "Lessons from the Greek crisis." Journal of European Public Policy 23, no. 1 (2016): 25-41.

5INTERNATIONAL FINANCIAL MARKETS AND INSTITUTIONS
problems. During the period of 2010, Greece started to experience problems in their debt
repayment conditions, where it was not able to pay their obligations to the debt bondholders.
Hence, IMF loaded Greece twice during 2010 and 2012, which was branded as the bailout
program6. The IMF was responsible was analysing the fund requirements of Greece and
presenting the country with adequate measures that might help in reviving the economy.
Conditional loans/structural adjustments:
IMF also aims in structural adjustments and conditional loans, as it helps in improving
the prosperity of an economy and reduce any further obligations. IMF aims in tightening the
monetary policy, which directly improves the economy. IMF uses tightening of monetary
policy for reducing the inflation, higher tax rate for implementing the deficit reducing policy,
increasing the supply side policies, removing price controls, increasing free trade, devaluation
of country currency for declining their current deficit and strengthening the economy by
reducing the expenditure. These measures were proposed by the IMF during the financial
crisis of Greece, where different austerity measures were implanted, which would reduce the
government expenditure and increase tax levels of the country7. However, the actions of IMF
were debunked when the new Greece government rejected the austerity measures conditions
of the bailout program.
Technical assistance and economic training:
IMF is also responsible for the development of different efforts that can be used by
the troubled economy for improving the economic conditions of the country. IMF provides
training for Public finance, legal framework, statistics, monetary sectors and financial sector.
These training directly allow the country to improve the operational conditions of the
6 Tzogopoulos, George. The Greek crisis in the media: Stereotyping in the international press. Routledge, 2016.
7 Lanzavecchia, Alberto, Eugenio Pavarani, and Giulio Tagliavini. "How Euro shrinks Democracy: insights
from the Greek crisis." Journal of Governance and Regulation 4, no. 4 (2015): 135-146.

6INTERNATIONAL FINANCIAL MARKETS AND INSTITUTIONS
government and reduce the occurrence of any future financial stagnation. Henceforth IMF
during the debt crisis of Greece was initiating different training programs for the government,
which could be used for adequately curbing the crisis and bring the country out of the current
recession. However, the actions of IMF were relevantly nullified, as the government and the
people of Greece rejected the measures, as it increasing the negative odds of living in the
country8.
Analysing the main role of European Central Bank (ECB) in resolving the financial
crisis experienced by Greece:
European Central Bank was one of the major contributors to the relief program or
Bailout program that was presented to Greece during the debt crisis event. The ECB has
played a vital role in curbing the debt crisis of Greece by providing three bailouts to the
country. ECB was responsible for providing the relevant funding, which was invested by the
members of EU to Greece as loan for supporting its obligations and reducing the occurrence
of another world scale crisis9. The ECB was able o curb the crisis by implementing the
following measures.
 Providing new liquidity measures as such long term financiering line for banks, LTRO
and TLTRO, as it helps in curbing the overall cash crunch of banks in Greece10.
 Moreover, ECB also initiated liquidity measures as an emergency credit line for
preventing the systematic crisis, which is widely known as the Emergency Liquidity
Assistance (ELA). This measure was mainly initiated by ECB in fear of Greece leaving
8 Vaiou, Dina. "Tracing aspects of the Greek crisis in Athens: Putting women in the picture." European Urban
and Regional Studies 23, no. 3 (2016): 220-230.
9 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/.
10 Dany, Geraldine, Reint E. Gropp, Helge Littke, and Gregor von Schweinitz. Germany's Benefit from the
Greek Crisis. No. 7/2015. IWH Online, 2015.

7INTERNATIONAL FINANCIAL MARKETS AND INSTITUTIONS
the Economic and Monetary Union, which might be catastrophic for the whole countries
within the union. Therefore, reducing the prospect of any further continuation of the debt
crisis11.
 ECB also launched the asset purchasing program known as Securities Markets
Programme (SMP), which provides guarantee liquidity in the debt markets and restore the
effectiveness of monetary policy transmission. This relatively reduced the cash crunch of
Greece banks and ensured appropriate cash availability within the economy12.
 Furthermore, ECB also initiated the Outright Monetary Transaction method, which
helped in initiating the massive public debt buying program. This allowed ECB to curb
the debt problems of Greece and helped the country of get out from the financial turmoil.
 Moreover, ECB loaned three time to Greece for handling their financial debt obligations
also helped the country to come out of major financial crunch, while certain austerity
measure was accepted, which allowed Greece for curbing the cash problems and ensure
sing continued repayments of their debt13.
 During 2018, Greece exists the final Bailout program, where it currently owns roughly
around 290 billion euros or $330 billion to IMF and ECB combined. Greece agreed to
running a budget surplus through 2060, while accepting the financial supervisions and
additional austerity measures14.
11 Christopoulou, Rebekka, and Vassilis Monastiriotis. "Public-private wage duality during the Greek
crisis." Oxford Economic Papers 68, no. 1 (2015): 174-196.
12 Ioannides, Yannis M., and Christopher A. Pissarides. "Is the Greek crisis one of supply or
demand?." Brookings Papers on Economic Activity (2015): 349-383.
13 Rakopoulos, Theodoros. "Solidarity's tensions: informality, sociality, and the Greek crisis." Social
Analysis 59, no. 3 (2015): 85-104.
14 Papadimitriou, Dimitris, Adonis Pegasiou, and Sotirios Zartaloudis. "European elites and the narrative of the
Greek crisis: A discursive institutionalist analysis." European Journal of Political Research 58, no. 2 (2019):
435-464.

8INTERNATIONAL FINANCIAL MARKETS AND INSTITUTIONS
Conclusion:
The overall assessment aims in evaluating the roles of IMF and ECB in curbing the
financial problems of Greece during the period of 2010 to 2018. The 8-year long debt crisis
of Greece is considered to be one of the major financial problems of EU, which was
appropriately handled by both the IMF and ECB. There were three bailout programs that was
provided by Greece for handling their debt obligations, which relevantly totalled to 290
billion euros or $330 billion in 2018. Thus, the actions of IMF and ECB helped in curbing
one of the biggest financial tragedies that could have deteriorated the financial market of the
world.

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References and Bibliography:
Andriopoulou, Eirini, Apostolos Fasianos, Athanassios Petralias, Dimitrios Anastasiou,
Zacharias Bragoudakis, Ioannis Malandrakis, Alexandros E. Milionis et al. "Estimation of the
adequate living expenses threshold during the Greek crisis." LABOUR 32, no. 4 (2018): 237-
258.
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/.
Chatzidakis, Andreas. "Chronotopic dilemmas: Space–time in consumer movements of the
Greek crisis." Environment and Planning D: Society and Space (2019): 0263775819871301.
Christodoulakis, Nicos. "Greek crisis in perspective: Origins, effects and ways-out."
In Banking Crises, pp. 119-143. Palgrave Macmillan, London, 2016.
Christopoulou, Rebekka, and Vassilis Monastiriotis. "Public-private wage duality during the
Greek crisis." Oxford Economic Papers 68, no. 1 (2015): 174-196.
Dany, Geraldine, Reint E. Gropp, Helge Littke, and Gregor von Schweinitz. Germany's
Benefit from the Greek Crisis. No. 7/2015. IWH Online, 2015.
Gourinchas, Pierre-Olivier, Thomas Philippon, and Dimitri Vayanos. "The analytics of the
Greek crisis." NBER macroeconomics Annual 31, no. 1 (2017): 1-81.
Imf.org. "IMF Capacity Development ". 2019. IMF. Accessed October 29 2019.
https://www.imf.org/en/About/Factsheets/imf-capacity-development.
Ioannides, Yannis M., and Christopher A. Pissarides. "Is the Greek crisis one of supply or
demand?." Brookings Papers on Economic Activity (2015): 349-383.

10INTERNATIONAL FINANCIAL MARKETS AND INSTITUTIONS
Lanzavecchia, Alberto, Eugenio Pavarani, and Giulio Tagliavini. "How Euro shrinks
Democracy: insights from the Greek crisis." Journal of Governance and Regulation 4, no. 4
(2015): 135-146.
Mylonas, Yiannis. "Greek Crisis, Eurozone Crisis, Global Capitalist Crisis." In The “Greek
Crisis” in Europe, pp. 48-86. Brill, 2019.
Papadimitriou, Dimitris, Adonis Pegasiou, and Sotirios Zartaloudis. "European elites and the
narrative of the Greek crisis: A discursive institutionalist analysis." European Journal of
Political Research 58, no. 2 (2019): 435-464.
Rakopoulos, Theodoros. "Solidarity's tensions: informality, sociality, and the Greek
crisis." Social Analysis 59, no. 3 (2015): 85-104.
Tsebelis, George. "Lessons from the Greek crisis." Journal of European Public Policy 23, no.
1 (2016): 25-41.
Tzogopoulos, George. The Greek crisis in the media: Stereotyping in the international press.
Routledge, 2016.
Vaiou, Dina. "Tracing aspects of the Greek crisis in Athens: Putting women in the
picture." European Urban and Regional Studies 23, no. 3 (2016): 220-230.