+1-817-968-5551
+61-488-839-671
+44-7480-542904About Expert
Key Topics
Requirement
Assignment based on International Financial Markets and Institutions
Solution
Introduction
The European Central Bank is the central bank for the Eurozone that comprises of nineteen nations. The mandate of the bank is to maintain the stability of prices by setting up the key rate of interests and by controlling the money supply of the union. The Eurozone faced sovereign debt crisis between 2009 and 2011 and at that time the bank undertook many orthodox monetary policies like it introduced a program for buying the unlimited bonds, it also used negative rate of interests and introduced a $1.2 trillion quantitative easing plan (Baum, 2013). These steps divided the economists and the policymakers between the fact that the bank overstepped it authority in taking this decision and some argued that it should have taken more aggressive action. But with continuous efforts, the immediate Eurozone debt crisis had calmed down by 2015 major economic headwinds were facing Europe.
IMF or the International Monetary Fund provides the economic analysis and advice on the policy as part of its process of surveillance for the European economies that are advanced and emerging. These economies culminate in the annual consultations with the separate and individual member countries. These consultations assess the economic outlook of the countries and their economic and financial stability. Not only these policy discussions, but IMF is also responsible for holding the consultations with the euro area as a whole annually. This is similar to those that are held for the currency unions of other nations. The views of the IMF are then presented to the Euro group of the euro area (Baum, 2013).
Why take stress when you can take finance assignment help from the top experts of Allassignmenthelp.com?. The experts on our website are always ready to provide you with the best finance dissertation help at an affordable price. Students from all around the world can easily avail themselves of our financial management assignment help.
Roles performed by the European Central Bank (ECB) in resolving the financial crisis experienced by Greece in recent years
The financial sector of Greece was in trouble, so ECB gave its banks liquidity at the same rate as that of other Eurozone countries. But of this, the Greece had to comply with the bailout requirements (Saffari, 2013). Then the new president was elected, and he put the Greece cooperation in doubt, so the banks in Greece could receive the funds from ECB only through Emergency Liquidity Assistance (ELA) at the discretion of ECB and the rate of interest was also high. Though ECN is not a political institution, but Greece relied on the ELA, which gave the bank an unavoidable role to fraught the negotiations over the Greek bailout (Beirne, 2013). With the intensification of the crises, many people started to withdraw money from the Greece banks and the banks relied more on the ECB, who gave them huge funds as emergency liquidity support. So, by capping the ELA and forcing Greece to impose controls in capital, ECB sought a balance. Also, it never halted its support to Greece even when Greece came on the brink of exiting the Eurozone. Hence it played a role of the resolver of the continent’s persistent debt crises that was large and most uncertain than ever (De Santis, 2012).
The European Central Bank does not have any liquidity constraints so for Greece to overcome its liquidity crisis, the bank injected additional cash in the system. It used all its instruments that were available to him, but it did not take up the excessive risk of the credit. The objective of the European Central Bank in doing this was to give an adequate amount of liquidity to the financial system of Greece (Douzinas, 2013). For providing the liquidity to the markets of Greece, it lent to the banks in Greece against adequate collateral. This lending was conducted on the basis of a collateral management framework which was designed very carefully. So the European Central Bank injected a considerable amount of liquidity in the system and at the same time it did not expose itself to any additional risks. When the European Central Bank enters into a repurchase agreement, it faces a risk of counterparty so it needs to select the collateral unilaterally and it can impose the haircuts on the collateral that the counterparties accept (Dietrich, 2013).
Then for overcoming the crisis of Greece, the European Central Bank aimed to maintain the price stability in the economy. It geared the rate of interest that made a clear-cut distinction between the stance of its monetary policy and the need for the management of the bank to maintain the liquidity. Through the regular market operations, the European Central Bank provided liquidity to the Greece economy (Saffari, 2013). This was extended to then in terms of the maturity of the operations of lending, and they were relaxed in terms of the tender procedures as and when the crisis started changing its nature from worse to slightly better. The financial institutions in the country were given access to the standing lending facilities that are otherwise given to the banks at a penalty rate. The European Central Bank relaxed its collateral policies so that more finance could be extended to the banks and financial institutions of the country (Economou, 2013). Apart from all this, the European Central Bank made an outright purchase of the securities that pumped in more money, and the crisis got relaxed to some extent. There were banks in Greece that were illiquid due to the crisis, but they were not insolvent. So the European Central Bank gave them emergency liquidity assistance. This was done in close cooperation with the supervisory authorities so that the decisions that are made remains informed and the resources of public are utilized efficiently. Then further extending this, the European Central Bank has also played the important role of a catalyst for the private rescue measures on some specific occasions (Habermas, 2013).
Furthermore, the European Central Bank made an active contribution to make the market transparency in Greece better. For this, the bank supported the market initiatives and hence the identification, and the analysis of the systematic risks could be supported by it. It made the securitisation in Greece more transparent which led to better and accurate information on the value of the underlying assets, especially the loans. Then the infrastructure also got improved that was used by the issuers and the investors for exchanging the information on the financial products that were complex. This further improved the transparency and fostered the market innovation. The systematic risk in the market of Greece got also reduced to some extent (Dietrich, 2013).
With regard to the rate of interests, the European Central Bank lowered down its rate of interest to the largest possible cut. This was the first time ever that the bank cut a huge amount of rate of interest for reviving the economy of Greece. There were upside risks associated with that related to the price stability that has receded over that period because the oil and other commodity prices fell sharply and the economic activity slowed down abruptly (Douzinas, 2013). The European Central Bank considered price stability as the needle in their compass, so they took account of the inflationary pressures and hence lowered the rate of interests. When this happened, the banks in Greece had more money because they borrowed from the European Central Bank at the lesser rate, and hence they lent more to the public. This increased the supply of money in the economy of Greece. The investment got a boost up, and the recovery of the Greece economy started happening at a faster pace (Vandoros, 2013).
In addition to lowering the rate of interests, the European Central Bank tool exceptional policy actions in response to the Greece crisis. It took the ‘non-standard’ measures for managing the liquidity. The bank provided additional liquidity to the banks in Greece for meeting their immediate liquidity needs. At some point in time, when the crisis started to intensify, the European Central Bank engaged in a new mode of liquidity provision. It provided the refinancing at a level that was more than the levels which banks could absorb for fulfilling their requirements of reserves in the normal times. For doing this, the European Central Bank adopted its regular operations of refinancing. It followed a tender procedure of fixed rate full employment and it expanded the maturity of its operations significantly. The banks in Greece got access to the unlimited liquidity for a short period of time. This mode of operation of European Central Bank was exceptional. This showed that the European Central Bank acted as a surrogate for the market in terms of allocation of liquidity and the setting up of prices (Ifanti, 2013). Then the European Central Bank used to take the long list of collateral but to deal with the crisis; the European Central Bank accepted the even wider range of securities as collateral. This had important implications as the banks did not have constraints of depositing only those things that were mentioned in the list of European Central Bank. If it did not have something from that list them, it could not take loans. But this problem was removed and the banks could give the European Central Bank anything they had and could be deposited as collateral (De Santis, 2012). This gave the banks in Greece more flexibility to deposit the collaterals and take loans. Thus, unlimited refinancing was offered to the economy of Greece against the wide range of collateral. But the European Central Bank could reach the financial system only if many counterparties were able to take part in the refinancing options of the European Central Bank. This was also made possible by the European Central Bank by following some essential changes in its operational framework which raised the number of the participants (Lane, 2012). For example, the European Investment Bank became an eligible counterparty in the Eurosystem’s monetary policy operations. Access to the Eurosystem’s liquidity is a natural complement to the EIB’s financing initiatives and it facilitated the accommodation by the EIB of additional demand for its lending program. Furthermore, the Governing Council decided in principle that the Eurosystem will purchase euro-denominated covered bonds issued in the euro area. The ECB expected to engage in a program of around €60 billion that targeted an important segment of the private securities market, which had been particularly affected by the financial market turbulence (De Santis, 2012).
Roles performed by the IMF in resolving the financial crisis experienced by Greece in recent years
IMF provides technical assistance to the countries. With this, the countries can improve their institution’s capacity and also the effectiveness of their policy making. Ultimately, the overall effectiveness is increased. When Greece was hit with the crisis, IMF provided technical expertise to it. This was an effort by the IMF to strengthen the financial system and trigger demands in the advanced economy of Greece. It delivered technical assistance to Greece in many ways (Habermas, 2013). Through the staff missions, which were of limited duration, support was sent from the headquarters. The experts and the resident advisors were placed for a particular period that ranged from few weeks to few years. Then IMF also provided its assistance to Greece in the form of studies that were technical and diagnostic. Training courses were started, seminars and workshops were organized, and an on-line support was also set up for providing advice to the Greek economy. The approach that was adopted by IMF to deliver technical assistance and training was that it organized the courses for officials from the new countries that were now a member of the EU and other economies that were in transition in Europe and Asia (Douzinas, 2013).
When the global financial crisis hit the emerging and advanced countries in Europe, they ask for financial support from IMF. IMF helps the countries in overcoming their fiscal and external imbalances. So when the crisis hit Greece in 2012, IMF provided it credit. This helped the country to maintain its liquidity and improve the condition of its economy (Palamida, 2015).
To combat the crisis faced by Greece, EU joined with IMF, and they announced financial support for Greece. In addition to this, they also said that they would start an economic adjustment program for Greece. So the European Council adopted the first financial assistance program for Greece, and it got support from economies of EU and contributions were made by IMF in the form of SBA. IMF contributed almost 30 billion euros to help the Greece economy. The program was named as ‘Troika’ because it was run by European Commission, European Central bank, and IMF. The focus of the program was in the high public debt of Greece and the competitiveness that was lacking to a great extent in the Greek economy (Economou, 2013). The IMF reviewed the program on the quarterly basis to see that whether the disbursement of the loans is conditional on the progress of reforms or not. Then again in 2011, a new program started for Greece by the EU because there was a financing gap of almost 109 billion euros in Greece. So it was decided that this financial help will come when the lending rates will be reduced, and the debt maturities were needed to be extended so that the sustainability and refinancing of the profile of government debt of Greece could be improved. The sum that would be left will come from the involvement of private sector who will voluntarily get involved in this. This could be done if the private sector cuts the Greek government bonds that are held by them. To this program, the IMF extended its support, but it said that it will not extend any new support to the economy of Greece in the form of financial resources (Ifanti, 2013).
It was recommended by IMF that ‘unconditional’ debt relief must be provided to Greece. It said that the repayments of the heavily indebted country must be deferred for more than two decades. This move was recommended by IMF as it believed that if the country will be given more debt relief, then it would be able to perform well, it will not face cash shortages, the investment in the country will boom, demand will increase, the money supply and liquidity will increase too (Vandoros, 2013). So, it encourages the EU and other member countries to give Greece ‘unconditional’ loans as the economy of Greece could be (Lane , 2012) trusted and the people here are so talented that once they get a boost in some form or the other, they will be able to manage something for them which will help the economy to recover. When the debt is extended then only it will be able to invest, produce, etc. and IMF also had trust in the Greek economy that it will pay off its debts in the long run. So this announcement or recommendation by the IMF was followed by many countries and in return, Greece got a huge amount of debt for its recovery (Ifanti, 2013). The countries had trust in IMF because the role of IMF was that of an analyzer too and they believed that if IMF has predicted something, then the risks would be less and gains would be more in the long run.
Conclusion
It can be concluded that IMF regained its strong influence on the economy of the world as well as on the international financial markets by rescuing the actions for the countries in EMU that were hit by the crisis. It has lent the funds at the time of emergency and for Greece; it has elaborated and monitored the economic adjustments program. The way IMF cooperated with the other members of Troika is commendable, and it was very essential too as if the IMF would have worked alone, then it would not have been possible for it to raise the funds during an emergency. The contribution of IMF was almost 33% to the rescue funds and in return, it got 100% influence in the design of the program and the surveillance procedure as the programs were of IMF-style and the disbursement of each tranche of the funds ultimately depended on the decisions of the IMF executive board (Beirne, 2013). The credibility of EU and EU politicians lacked so the involvement of the IMF made sense so that the moral hazard problems connected with the bailouts could be mitigated. IMF monitored the economic adjustment programs closely, and it also enforced the reform progress.
Furthermore, it can be said that if the European Central Bank would not have taken such initiative that has been mentioned above, then the failure of important market segments of Greece could have happened, and it could not have recovered from the severe decline in the activity that the crisis caused. Thus it can be said that the European Central Bank made a significant contribution to resolving the crisis in Greece by providing adequate amounts of liquidity in the economy. Also, it acted as a catalyst in fostering the developments in the market of Greece that helped in improving the transparency, improve the management of risks and the dysfunctional markets got improved.
Place Order For A Top Grade Assignment Now
We have some amazing discount offers running for the students
Place Your OrderReferences:
-
Baum, A., Checherita-Westphal, C. and Rother, P., 2013. Debt and growth: New evidence for the euro area. Journal of International Money and Finance,32, pp.809-821.
-
Beirne, J. and Fratzscher, M., 2013. The pricing of sovereign risk and contagion during the European sovereign debt crisis. Journal of International Money and Finance, 34, pp.60-82.
-
De Santis, R.A., 2012. The Euro area sovereign debt crisis: safe haven, credit rating agencies and the spread of the fever from Greece, Ireland, and Portugal.
-
Dietrich, H., 2013. Youth unemployment in the period 2001–2010 and the European crisis–looking at the empirical evidence. Transfer: European Review of Labour and Research, 19(3), pp.305-324.
-
Douzinas, C., 2013. Philosophy and Resistance in the Crisis: Greece and the Future of Europe. John Wiley & Sons.
-
Economou, M., Madianos, M., Peppou, L.E., Patelakis, A. and Stefanis, C.N., 2013. Major depression in the era of economic crisis: a replication of a cross-sectional study across Greece. Journal of Affective Disorders, 145(3), pp.308-314.
-
Economou, M., Madianos, M., Peppou, L.E., Theleritis, C., Patelakis, A. and Stefanis, C., 2013. Suicidal ideation and reported suicide attempts in Greece during the economic crisis. World Psychiatry, 12(1), pp.53-59.
-
Habermas, J., 2013. Democracy, solidarity and the European crisis.Roadmap to a Social Europe, 4.
-
Ifanti, A.A., Argyriou, A.A., Kalofonou, F.H. and Kalofonos, H.P., 2013. The financial crisis and austerity measures in Greece: their impact on health promotion policies and public health care. Health policy, 113(1), pp.8-12.
-
Lane, P.R., 2012. The European sovereign debt crisis. The Journal of Economic Perspectives, 26(3), pp.49-67.
-
Palamida, E., Papagiannidis, S., Xanthopoulou, D. and Stamati, T., 2015. Capital, Motives, and Their Link to Investment Intentions: The Moderating Role of the Financial Crisis in Greece. Journal of Small Business Management, 53(S1), pp.115-144.
-
Saffari, A., Daher, N., Samara, C., Voutsa, D., Kouras, A., Manoli, E., Karagkiozidou, O., Vlachokostas, C., Moussiopoulos, N., Shafer, M.M. and Schauer, J.J., 2013. Increased biomass burning due to the economic crisis in Greece and its adverse impact on wintertime air quality in Thessaloniki.Environmental science & technology, 47(23), pp.13313-13320.
-
Vandoros, S., Hessel, P., Leone, T. and Avendano, M., 2013. Have health trends worsened in Greece as a result of the financial crisis? A quasi-experimental approach. The European Journal of Public Health, p.ckt020.
Give your grades a boost
Just share your requirements and get customized solutions on time.
-
1,168,768 Orders
-
4.9/5 Overall Rating
-
5,052 Experts
