Whether Institutions Like IMF and EU Are Helping or Hindering Economy Recovery in Greece - Example

Name Class Unit Introduction Economic crisis is in most cases followed by governments defaulting to pay their debt obligations. As the economic crisis came to an end, it was followed by a threat of sovereign debt crisis. Greece is facing a sovereign debt after the economic crisis (Schmidt, 2010). In 2010, International Monetary Fund (IMF) and the European Union (EU) endorsed about $145 billion as a financial package to Greece aiming to avoid Greece default. The move would also ensure that the crisis did not spread to other European countries. EU added about $636 billion as a financial assistance to the venerable countries in Europe (Abboushi, 2011). Despite the financial assistance to Greece, the threat of its financial crisis and economic downturn is real (Lane, 2012). This essay will discuss whether institutions like IMF and EU are helping or hindering economy recovery in Greece. This will be discussed incorporating economic deficit. Greece current economic crisis is associated with both domestic and international factors. Domestically, there was high government spending, corruption, issues of tax evasions and system rigidity (Schmidt, 2010). These led to the debt accumulating to for a long time. On the international side, Greece adoption of Euro and the EU rules also contributed to the debt crisis. Domestically, government expenditure was higher than the growth of their revenues. This led to huge budget deficits which were above the EU threshold (Lane, 2012). Democratic deficit is associated with the EU and other bodies due to complexity of their operations which make it hard for the citizen to access them. The financial crisis was also contributed to this weakness of the EU system of governance. Despite the fact that Euro remains strong, EU economies have been sluggish since the financial crisis. EU has deviated from their goal of promoting economic growth to the European countries towards polarization among members. Euro had been a symbol of the union success but with the failure of the Greece economy, it has become a symbol of failure for EU. The Greece crisis shows the effects of the democracy deficit through inability of democracy to respond and solve the international problems (Buiter & Rahbari, 2010). The decision by IMF and EU to bailout Greece was flawed. Granting Greece bailout made the euro crisis more severe. The bailout destabilised the Eurozone even more than it was before. A bailout was a step that would encourage Greece and other nations which were reckless in their expenditure to continue. Giving a bailout harms the citizens of Greece who did not participate in overspending. This is an area that shows the democratic deficit in EU and IMF. Greece is supposed to take the responsibility of their actions. The government actions were irresponsible after they introduced the Euro (Haidar, 2012). Greece had rampant corruption and their tax collection apparatus were weak. The country political corruption led to their problems and to the rest of world. Rescuing a country that has failed to exercise budget discipline will not be helpful. The bailout does not give Greece time to adjust the flaws in their economic policy which are a major cause of financial crisis. Greece government have been facing a difficult time as they try to carry out economic reforms (Gocaj & Meunier, 2013). The cost of economic reforms has led to the government abandoning their pledges to their citizens. There are high rates of unemployment with the citizens bearing the costs of the economic reforms. As the country citizens bear the costs of economic reforms, they do not share it with the private creditors. These are the issues that should be addressed before a bailout (Chamley & Pinto, 2011). Rather than focusing on managing the crisis through bailout, IMF and EU should be more focused in making Greece fix the existing economic deficits. The bailout can be looked at as a move to protect the private sector from bearing the loss brought by the Greek debt. France and Germany choose to protect their investors through bailing out Greece. Despite this, the debt was too high to be paid by the government. This made the private sector to agree to a 50% to the Greek bonds (Buiter & Rahbari, 2010). Greece can exit from Eurozone in a bid to resolve their crisis. This would be a very beneficial stand that would enable the country to have a control of their monetary policy. Exiting the Eurozone would make Greece to easily pay their debt (Katsimi & Moutos, 2010). Exports from Greece would become more competitive making the country to earn more. After exiting the Eurozone, Greece can devalue their currency making it possible to avoid bailout and austerity. The exit from EU would act as a measure to prevent any future crisis. Despite this, the cost is high as the move does not guarantee economic growth (Haidar, 2012). Citizens would benefit from reduction in economic deficit but their problems would not end. The best move that could have saved Greece is increased integration of the Eurozone members. The main problem with the EU is treasury and fiscal federalism. The institutions in the Eurozone attained monetary convergence but lacked economic convergence (Gros & Mayer, 2010). EU should take an approach that will come up with a genuine fiscal federation. In EU, national identity is given the most importance over the integration. Enhanced integration would make it easy for the EU to give bailouts (Buiter & Rahbari, 2010). Economic convergence is a measure that can ensure that countries do not take bailouts which exploits the taxpayers. Although there are negative sides of the EU and IMF interventions to Greece crisis, the austerity measure will help Greece to bring down their budget deficit. This is a great measure towards avoiding the country going to bankruptcy (Buiter & Rahbari, 2010). Through the austerity plan, it will be possible for the Greece economy to cut their budget by 30bn in a period of three years. Greece will also have a capability to cut their public deficit to become less than 3% (Haidar, 2012). This is an aim of making the economic adjustment in Greece which is solely based on reduction in expenditure. The stipulations set out as bailout preconditions are a major step towards economic recovery. Years after EU and IMF gave Greece the bailout, the economic conditions in Greece are still worse. Greece citizens are facing rough times with the current economic climate (Haidar, 2012). The austerity conditions have worsened the economic climate with the public losing patience. Despite the fact that Greece have complied with EU and IMF requirements, the economy is still closer to default than before intervention. The adjustment program proposed has not been able to work as expected leading to a worse situation (Gocaj & Meunier, 2013). Greece citizens have lost their commitment to support the process. With more extreme austerity measures being put on Greece by IMF and EU, citizens are suffering more (Chamley & Pinto, 2011). This is also a proof of economic deficit of the bodies. They are too complex to be near the citizen. There is need for EU and IMF to renegotiate the austerity terms. This would ensure fairer terms that would cater for the citizens. The involvement of IMF and EU in dictating the Greece economy is leading to more skeptism among the citizens. There is need for more pressure to be put on the government institutions and banking system which is the main cause of Greece problems. EMF and EU intervention are not the solution to Greece crisis (Chamley & Pinto, 2011). The solution lies on the Greece government taking major economic reforms. Conclusion International Monetary Fund (IMF) and the European Union (EU) involvement in the Greece crisis have both positive and negative impacts on economic recovery. It’s important to note the role of democracy deficit that is exhibited by both bodies making them far from the citizens. The Greece government brought the economic crisis to itself though reckless spending and undisciplined approach to budget. The government thus should have taken full responsibility of the crisis. The bailout has made the crisis more severe and Greece is still far from recovery. It did not give Greece time to adjust their flaws in economic policy. There is need to increase integration in the Eurozone to prevent future crisis from happening. Despite this, the preconditions set out through austerity were a positive move in economic recovery. Despite the move by EU and IMF, Greece economy is still worsening. Their move seems to have hindered economic recovery while making the economic conditions worse for the citizens. This can be explained by the democratic deficit in these bodies. Lastly, IMF and EU intervention in Greece have not helped in economic recovery. References Abboushi, S. (2011). Analysis and outlook of the Greek Financial Crisis. Journal of Global Business Management, 7(1), 1-8. Buiter, W. H., & Rahbari, E. (2010). Greece and the fiscal crisis in the EMU. Centre for Policy Research Paper (Policy Insight No. 51). Chamley, C. P., & Pinto, B. (2011). Why official bailouts tend not to work: An example motivated by Greece 2010. The Economists' Voice, 8(1). Gocaj, L., & Meunier, S. (2013). Time will tell: the EFSF, the ESM, and the Euro Crisis. Journal of European Integration, 35(3), 239-253. Gros, D., & Mayer, T. (2010). How to deal with sovereign default in Europe: Create the European Monetary Fund now!. 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