The Greek Debt Crisis was caused by both internal and external factors. The heavy government spending such as the workers being entitled to an additional month’s pay in December to help with the holiday expenses, lead to dramatic increase in borrowing requirements and high levels of accumulated public debt. Due to low productivity, gradually reducing competition and increase tax evasion, the Greece government was unable to satisfy the internal public budget constrain and this led to the public debt being uncontrollable in the long run, Markrydakis (1999). The European Union governments failed to support Greece was the Debt crisis was increasing. There was lots of disagreement and debates concerning whether bailouts are illegal. This led to problems for financial institutions holding the Greek government bonds.
Due to the increased cost of borrowing in the late 2009 and the beginning of 2010, the Greek government developed and used a fiscal consolidation programme in order to reduce the debt and provide a basis to improve stability and growth of the country’s economy. The programme included measures to reduce tax evasion and improve tax collection, reduction of social contribution evasion, increase on several types of indirect taxes, decreasing government spending on salary allowances, termination of many short term contracts in the public sector and reducing the pension funds.
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Since the measure taken by the Greek government were proved to be short term, the government was forced to enter a negotiation with the European Union (EU) commission in order to agree on a rescue plan given its difficulties to borrow from financial markets. The International Monetary Fund (IMF) main goal is to ensure the stability of monetary and financial system. It helped the Greece to come up with, design and implement effective policies in order to help them recover and solve the debt crisis. It also elaborated the economic adjustment programs and closely monitored the progress through quarterly reviews based on economic missions. The IMF agreed to give Greece conditional financial support on the effective implementation of the program i.e. IMF approved austerity measures. The first measure the IMF took was pushing the Greece government to create companies and jobs and thus to increase the taxes paid by the workers. This was to enable the government to collect more taxes and to reduce the high unemployment level in the country.
IMF advised the government to reduce debt. This was to be done by Greece embracing budgetary cuts, freezing wages and pension for a period of three years. The government will stop funding any programs that extend security benefits but will continue to provide to the weak and vulnerable (MLA, 2011).This measure would enable the economy to utilize the financial help and stabilize the economy. The withholding of the pension, would discourage early retirements and encourage working for more number of years.
The IMF implied that Greece should adopt measures to increase and improve the current business climate and environment. This will attract foreign investors who had become hesitant about investing Greece companies since the overall salaries of the work labor was very high. The increase number of investors will also lead to increased number of business. This increase number of business, will generate ad create more job employment to the citizens thus the government will be able to collect taxes, which will create a source of income to the government.
The IMF instructed the government of Greece to change policies and regulation regarding to the waste. This will impact utility from products and reduce wastes. It was also required to adopt very harsh measures to fight corruption in the country by the elimination of non-transparent procuring practices. The IMF encouraged Greece to reform the environment for conducting business since it was not appropriate as people tend to retire early and enjoy pension benefits. It also aimed to curb and reduce the several benefits the government extended to people in Christmas, Summer and Easter bonuses. This reform would encourage people to work more.
Greece would adopt procedures to minimize and reduce tax evasion and provide protection to the vulnerable. The IMF suggested and proposed that Greece needed and required to make its business environment and economy more competitive, that is, reduce monopoly of business by ensuring investors get better business opportunities. This will enable the Greece government to gain back the control over prices and ensure price competitiveness. This will lead to cost controlling and reduction in increase of prices without proper control which leads to exploitation of its citizen.
The IMF also suggested the maturity date of the loan given to Greece with the grace period of upto 30 years in order to give the Greek economy a chance to recover before paying back the loans. This debt relief was intended to provide more time to Greece to regain it economic status before imposing the payments on them.
The IMF was able to support the government of Greece by giving them two financial packages to boost their economy in 2010 and 2012. This was done in conjunction with the Eurozone government (The European Central Bank, ECB.). Greece has been gradually and consistently recovering for the state of the crisis with the several aids it has being receiving. The greatest financial relief and support has been provided by the International Monetary Fund during the economic downfall of the country. The most valuable and important input that is leading to the recovery of Greece has being the policies and proposition suggested by the IMF helping the restructure of its economy. With the help of the IMF, the country has been able to bail out of most of its extreme debt crisis thus making it economy stable and viable.
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