Discuss about the Banking Finance for Greek Government Debt Crisis.
The financial crisis of Greece is also termed as Greek Government-debt Crisis or Greek Depression and it is considered as a sovereign debt crisis that has been faced by the people of Greece after the occurrence of the global financial crisis of the year 2007-08. Based on the historical analysis, it can be said that in late 2009, the Greek Crisis took place due to turmoil of Great Recession, revelations on government debt and weakness in the economy of the country (Morales, Gendron & Guénin-Paracini, 2014). However, it has been found that even in present days, Greece faces never ending fiscal drama. In addition it can be said that the global financial crisis took place due to the collapse of the Lehman Brothers in the year 2008 in the month of September, which was a sprawling global bank situated in USA. It took large taxpayer-economical bail-outs for shoring up the industry. Moreover, the global financial crisis is believed to start in 2007 due to credit crunch that is when the U.S. investors lost their confidence in the value of sub-prime mortgages and this resulted into a liquidity crisis.
The reason behind this is that the bailout program of Greece is held up through a disagreement among the fiscal targets of the nation. In the year 2015, under the contract strike, the people of Greece supposed to attain the main excess previous to the payment of interest of a rate of 3.5 % in the year 2018 (Gibson, Hall & Tavlas, 2014). In addition to this, it has been found that the nation maintained the stated excess amount with the aim to sustain the medium term. However, as per Germany, this medium term implies for ten years, but according to the European Commission, it has been found that it prefer to consider the medium term as 1 or 2 years. Thus, it can be said that the medium term plays a vital role as Germany only agrees to continue to put fund regarding bailout of Greece, only if the institution International Monetary Fund also agrees to put money in the same. On the other hand, from detailed analysis of the present situation of the country, it can be said that the International Monetary Fund (IMF) would participate in the same only if the numbers get added up. Thus, with the lowering of the excess target, more relief of debt is required for adding up the numbers and this is considered as an issue for Germany (Theodossopoulos et al., 2013).
In addition to this, for making the situation more complex and difficult, the IMF opt a very pessimistic point of view regarding the present fiscal situation of Greece. Thus, at present, the circumstances can be clearly noticed that Greece conveyed a chief surplus of a minimum amount of 2 % in the year 2016 and more than the target of initial program of an amount of – 0.5 % (Karanikolos et al., 2013). It has been found that with the growth of the Greek economy, the European Commission becomes relatively more confident regarding the aspect that the nation is more capable for obtaining 3.5 % of the total target for the year 2018 along with certain additional measures regarding fiscal (Kentikelenis et al., 2014). Nonetheless, as per IMF, the surplus of the present year was more for one-off factors and it gets sticks to the forecast it has made earlier i.e. the excess amount will be equivalent to only 0.9 % in the year 2018. In order to reach the target of 3.5 % in the year 2018, the IMF predicted that Greece would require legislating in advance additional severity that quantifies about 2 % of the GDP (Gross Domestic Product) (Souliotis et al., 2016). However, according to Athens, this is considered as a measure that is impossible. Therefore, it has been found that the investors have suddenly started worrying regarding the country Greece again.
According to the staffs and most of the Executive Directors of IMF, 179 % of GDP for the year 2015 was considered as “unsustainable”. Thus, as per the IMF staffs, Greece requires to do with its budget as medium-term chief fiscal excess leads to 1.5 % of GDP. Moreover, most of the Directors of IMF agreed with the fact that Greece does not need more financial consideration in the present days, but other group of Directors has found to favor an excess of 3.5 % of GDP within the year 2018 (Sklias & Maris, 2013). In spite of being backing of a mainstream of the IMF for the technical assessment of the staffs, Greece does not require tightening of its budget; rather it should reduce its debt as IMF has found to finance itself at certain risk. It has been found that the outdated government outbreaks the good functioning of IMF and knocks the global standing as well as weakens the efficiency.
It can be said that the main reasons for occurring this financial crisis in Greece include – introduction of Euro in the country as it becomes possible for certain countries of Euro zone to borrow at cheaper rates. This occurred as the liability was considered as national debt and the suppositions were made that implies risk of the nations has decreased due to incorporation of various economic rules. Therefore, the main rules needed the members of Euro zone to make sure that the liability of the government did not surpassed 60 % of the GDP and any kind of budget deficit should not surpass 3 % of the total GDP (Wolf, 2014). Thus, the gloss of good credit rating of Germany got rubbed off and thus Greece and many other nations like Spain, Italy, Porugal and Ireland also started to suffer.
According to the detailed study and analysis, it can be said that the main issue regarding financial crisis in Greece is the problem regarding liquidity. As a result, the European Central Bank that is also known as ECB in short has taken various activities in conjunction with the other various leading central banks across the world. The main reason behind this strategy is to try and also to make sure about the aspect that the governments as well as the main banks possess enough liquidity. In addition to this, based on further analysis, it can be said that the particular central bank that is the ECB has brought the private debt securities and along with it the government debt securities into the open market (Ecb.europa.eu, 2017). The main cause for this was that it serves cash that is liquidity to those institutions or firms or government that sell the securities of debt. Moreover, it has been noted that with the progression of the financial crisis, the central bank of Europe that is ECB has recognized the bonds of the Greek Government of any status as guarantee with the aim to lend. These purchases imply an obviously politically motivated movement and are not considered as the normal transactions that occur for commercial purposes. As a result, these have declined the autonomy of the ECB efficiently and successfully and misery along with this was prompted certain high point of resignations.
In juxtaposition with the European Union (EU), it has been found that the IMF has made availability of certain loans. Moreover, the IMF become first institution that got included due to the incapability of Europe for agreeing with a solution to the emergence of the financial crisis of Greece. In addition to this, it has been noted that certain nations are thought to possess keenness for the institution IMF to become or to get included as of the reputation of the IMF. In general, the institution, IMF possesses reputation with the aim to impose inflexible financial soberness measures (Morales, Gendron & Guénin-Paracini, 2014). Moreover, it is assumed that the countries might take more observe of events that have been imposed by the IMF than the dealings that have been imposed by the European complements. It has been found that in the beginning of the year 2012, the institution IMF was searching for an additional $ 500 billion with the aim to lend more and this anticipates that the institution might require assistance of the nations for the problems of liquidity (Greekcrisis.net, 2017). In addition this can be said that this activity was a clear indication regarding the fact that as per the perspective of the IMF there requires more to be done. Furthermore, it was anticipated that an additional lending might have been considered as per the requirement and the recipient nations generally attain the severe financial severity measures (Theguardian.com, 2017). Nevertheless, it has been found that the new head of the financial institution IMF became more critical and put focus on the severity of the actions and has called for larger actions in order to endorse the growth.
From further detailed analysis, it has been come to know that in the United States, the growth is primarily promoted by the depression of their currency that is dollar and various other activities (Gibson, Hall & Tavlas, 2014). On the other hand, there has been lower focus on the severity of the activities. Moreover, it has been found that this was regulated by the U.S. with a fear of the depression like that of 1930s (Globalpolicy.org, 2017). On the other hand, in Germany, there is much eagerness regarding the force of severity of activities, as there is a fright regarding the occurrence of inflation. Moreover, it can be said that this inflation might occur due to hyperinflation, where Germany might suffer due to its presence between the two world wars. Furthermore, it has been found that all the countries are considered as the victims of the history.
It can be said that the ECB is the central bank of 19 countries of Euro zone and it maintains stability of price by the set up of key rates of interests and also controls the money supply of the union (Nytimes.com, 2017). Additionally, after the occurrence of the sovereign debt crisis in the Euro zone in the year 2009 to 2011, the central bank sparked controversy through undertaking of a wide range of monetary policies (unorthodox). These include – using negative rates of interests, un-limited bond buying program and quantitative easing plan of $ 1.2 trillion (O’Brien & O’Brien, 2017). In the meantime, the ECB was placed in the middle of the initiative for developing a banking union in the euro zone and these grants the banks with new powers regarding supervision over the largest monetary institutions of Europe. It was also considered as the 2015 resurgence of the debt crisis of Greece that has renewed the questions over common euro currency in future.
Furthermore, it can be said that the response of ECB to the sovereign debt crisis of Euro zone was steeped outside of the conventional functions through repetition of the buying of the government bonds. This has found to develop an intense debate over the mandate of the bank. Unlike the Federal Reserve of U.S., the ECB did not mandate for pursuing the complete employment. In addition, the Maastricht Treaty forbade it from financing the national governments directly. During the same moment of time, the absence of the financial union involves a euro zone wide treasury to pool debt and this has made the potential function of the ECB as lender of the last resort much in a complicated way. It has been found that for the years 2011 and 2012, the euro zone struggled for the worldwide fiscal crisis (Cfr.org, 2017). During the period, the leaders of Europe debated the capability of the ECB for supporting the ailing economies.
Finally, it can be said that both the IMF and the ECB and along with these the European Commission (EC) have very important role in the financial crisis of Greece (Imf.org, 2017). All these have formed Troika that holds the principal aspect for resolution of the sovereign debt crisis of Greece and along with it the debt issues faced by the other member states of Euro zone. The release of bailout funds in real and its generation for the sovereign debts of Europe need a contract between all three sovereign supranational units in Troika. It has been found that each of the entities respond to the incentives and several mandates. In addition, the rescue funds would be channeled by the EFSF (European Financial Stability Facility) and the emergency fund of bailout for the greatly grateful member states governments of Euro zone in the monetary distress.
References
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Ecb.europa.eu, E. (2017). The European Crisis and the role of the financial system. European Central Bank. Retrieved 11 February 2017, from https://www.ecb.europa.eu/press/key/date/2013/html/sp130523_1.en.html
Gibson, H. D., Hall, S. G., & Tavlas, G. S. (2014). Fundamentally wrong: market pricing of sovereigns and the Greek financial crisis. Journal of Macroeconomics, 39, 405-419.
Globalpolicy.org (2017). The International Monetary Fund. Globalpolicy.org. Retrieved 11 February 2017, from https://www.globalpolicy.org/social-and-economic-policy/the-three-sisters-and-other-institutions/the-international-monetary-fund.html
Greekcrisis.net (2017). The Greek Crisis. Greekcrisis.net. Retrieved 11 February 2017, from https://www.greekcrisis.net/
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