The Eurozone Crisis

One of the most dramatic events in the history of the European Union is the Eurozone crisis. This crisis constitutes a determining fact for the European Union and its Member States. This crisis was the first instance of the International Monetary Fund (IMF) becoming involved in the Eurozone. Before that, the involvement of IMF in Eurozone financial problems was not welcome because of the antagonism between Euro and USA dollar. Another reason for this negative position against the IMF was the perception that if Eurozone accept the IMF assistance, this means that Eurozone is incapable of resolve its matters and need help from Washington. The first Eurozone Member State which resort to the IMF’s financial assistance was Greece. Greece is one

It was evident that Greece has a dept, cannot print Euros and has lost market access. Greece had to ask financial assistance in order to cover its financial needs. Greece as a Eurozone country, would ask financial assistance from the family of the Euro Area Member States (EAMS). However, the EU did not have the technique and the framework for the solution of such situations. Because of that, EU had to search other possibilities such as bilateral loans by other member states and assistance by the IMF. In April 2010, Greece became the first euro area country which request support from the IMF. We talk about a package involving “substantial IMF financing and a majority of European financing” which would be “subject to strong conditionality”. On 3 May 2010 a series of facts took place. First, the Greek Minister of Finance and the Governor of the Bank of Greece addressed a letter of intent to the appropriate European authorities and requested a financial assistance from the EAMS for 80 billion euro. In this letter was attached a Memorandum of Understanding ,

In this letter, a MEFP and a TMU was attached. By this letter, extra financial assistance under the form of a Stand-By Arrangement Euro was asked. The TMU, the MEFP and the letter of intent delineate the conditionality which was supported of the requested agreement. On 9 May 2010, a three- year SDR 26,4 billion (30 Billion Euro) Stand-By Arrangement for Greece was approved by the Executive Board of the IMF. The most essential element was that the IMF had provided some criteria for special access decisions. The most substantive was that there should be “a high probability that the member’s public debt is sustainable in the medium term”. But the situation in case of Greece was different because the IMF staff found that the debt of Greece was not compatible with a high probability of dept sustainability. The reality was that the financial assistance from the IMF was necessary. If the IMF’s Executive Board did not provide the assistance, it was possible that the global economy would destabilize and adverse effects would be appeared for the Euro. Due to these circumstances, the IMF amended this criterion and permitted exceptional access even if there is not a high probability that the dept is