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Government Business Relations - International Monetary Fund - Case Study Example

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The paper "Government Business Relations - International Monetary Fund" is a perfect example of a business case study. Greece is in a fixed economic situation as things stand. Its economic woes are as a result of inefficient and less productive public sector and a financial model that is distorted and based on consumption funded by the public sector…
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Government Business Relations Name Institution Date Greece is in a fixed economic situation as things stand. Its economic woes are as a result of inefficient and less productive public sector and a financial model that is distorted and based on consumption funded by the public sector. This problem seems to be part of the larger crisis of sovereign debt that is being experienced in the Eurozone (International Monetary Fund, 2013). Quite a number attempts have been made to solve the economic problems of Greece in particular with International corporations like IMF and European Union being involved. However, these corporations will not help in solving the economic problems of Greece. This essay will explain why international corporation involvement in Greece economic crisis will not solve the prevailing economic problems. Greece is particularly in a peculiar position given that they have the largest public deficit in the entire Eurozone making it the center of all economic crisis (Affairs Dept, 2013). It was the first country from the Eurozone membership states to have come under high marketing pressure and also the first country to turn to IMF and Eurozone members' countries for financial help (Belkin & Mix, 2011., p 1). Greece had a large debt problem even before it joined the European Union and before the credit crisis. The credit crisis worsened the already bad economic state of Greece making it primarily uncompetitive (Pettinger, 2014). So far, Greece is yet to recover fully with the involvement of these international corporations. It is also understood that the economic plight of Greece is contributed to by the European Union through its policies and corporations that have resulted into the introduction of common Currency among members states. This has prompted series of reactions from economists with most of them urging Greece to withdraw its membership in the European crisis. The role of European Union is also criticized due to the ever deepening democratic deficit thriving in Europe with the use of strict rules (Bitros & Karayiannis, 2013, p.196). However, the active involvement of IMF elicited many questions (Thomas & Franz, 2012, p. 1). Some were asking the reason for the participation of the International Monetary Fund in the whole rescue program. Others saw the involvement of IMF as a strong indication that European Union cannot solve their economic problems or rather, they wanted to utilize the IMF's outstanding proficiency in elaboration and monitoring of economic adjustment programs with conditionality. IMF lending programs are regularly linked to sharp and sustained redirection of economic course despite the variance in objectives and duration exhibited by these programs (Thomas & Franz, 2012, p. 1). The IMF involvement was allowed and primarily taken as the last option of exit since all other opportunities had been exhausted (Thomas & Franz, 2012, p. 9). The problem that prevented the European Union from effectively assisting Greece and allowing IMF to get involved was that EU treaty was insufficient or not followed. Secondly, EU as an institution lacked credibility and necessary expertise to handle severe national fiscal problems (Aristidis Bitzenis, 2013, p. 196) (Aristidis et al., 2013,p.196).The IMF involvement was also fuelled by the influence of big economies like US, who feared that this crisis can spread to the United States (Belkin & Mix, 2011., p 1). It is important to note that most of the decisions that were made by European Union members' states to allow for the incorporation of IMF clearly shows that this body cannot help Greece survive the economic turmoil it is struggling with. European Union has got very limited experience with it the balance of payments facility that provides a medium term assistance in terms of finance to non-European Countries (Thomas & Franz, 2012, p. 9). As opposed to European Union, IMF is an international body that has got reputation and experience of more than 60 years of lending money as well as fostering reorganizations to help nations in balancing of payment problems with other financial crises (Thomas & Franz, 2012, p. 10). Another point is that International institutions like European Union have considerable political influence due to their proximity to politicians from strong member's states (Thomas & Franz, 2012, p. 11). This clearly shows that they cannot be able to solve effectively economic problems of any given member state without political influence playing some great role. For example, European Union failure to solve sovereign debt crisis was mainly because of the inability of members countries to reduce budget deficit (International Monetary Fund, 2013). Member states failed to comply with the rule of European Stability and Growth Pact. In addition to political influence, there is no democracy in European Union states, and this has greatly contributed to the Greece economic problem (Nicole, 2012). The problem of politics in the international organizations seems to be solved by the existence of IMF (Ronald, 2010, p. 6). This body can strongly resist political influence as compared to regional international organizations like European Union. The cooperation with IMF and its involvement should, therefore, inject the necessary energy for implementation of reforms in countries being assisted (International Monetary Fund., 2011). The negotiations of ‘saving’ packages used to be hard and time consuming. However, this problem has been solved by the involvement of IMF in the rescue programs (Thomas & Franz, 2012, p. 10). In as much as we can agree with the fact that IMF has covered European Union's failure as an international corporation, there are some issues with IMF that makes it not to be an ideal solution anybody can propose to help in solving the economic problem being experienced in Greece. (Ronald, 2010, p. 6), opines that the European Union and IMF should recognize that it is very much unlikely that their rescue package policy will leave Greece on a sustainable path in terms of economy. A report by IMF on October admitted some failure within the organization that resulted in more problems. Failures included the underestimation of the fiscal policy multiplier (Marjolein, 2013). It is observed that the rescue package is even not in consistency with the IMF standard structural program. A proper adjustment structural program is supposed to be fiscally credible and can restore country's access to financial markets. According to Ronald (2010), there is an increase in the size of the rescue package from 40 billion euros to 110 billion euros in the final package (p. 6). This increment might have been informed by the fact that IMF realized that despite their strict adjustment programs, it will not restore the financial market confidence. It is also possible that this increment was thought necessary to boost the volume of the loan package so that Greece would be whipped out of the global market for the subsequent two to three years due to repayment logistics (Verleger, 2011). IMF's inability to solve Greek economic problems is also evidenced by the failure of IMF to restore the market confidence. Its conditional lending policies are not fair to the affected economies like Greece (Chris, 2012, p. 193). The rescue package offered by IMF is not helping in realizing this dream and as things go, lack of market confidence restoration altogether with the recession of Greece economy, there is a risk of double-digit unemployment and rising poverty. This begs the question as to whether Greece is being saved or not (Ronald, 2010, p. 8). It is also noted that there exist a precise role played by European nations in the matter. A majority of Greeks sovereign debt is not in the hands of the Greek financial systems. The bonds are on the balance sheet of German, UK, and French banks. European Union together with IMF are therefore not so much into providing Greece with fresh financial input (Ronald, 2010, p. 7). Their goal is to shield the European financial system from the losses that could occur as Greece default. Notably, almost one-quarter of Greek debt is located in the United Kingdom and Irish economic sectors. Solutions to the Greece economic status have been proposed. The prominent one is that Greece should withdraw from the European financial corporation. According to Michael, this will destabilize its economy for only a short time after which it will gain back its stability (International Monetary Fund, 2012, p. 46). Greece will be able to use their old currency, the drachma, which they can devalue in order to make their goods competitive in the European market. International corporations have explicitly failed to help Greece out of the economic turmoil just as explained in this text. Continuous involvement of these corporations risks putting Greece in more problems that it has now. There is the need for re-consideration of small economies in Europe in relation to the use of Euro currency. Euro has been pointed out as the biggest obstacle preventing Greece from returning to fiscal health. This will give the government of Greece control to manipulate its currency for its economic revival. Democracy deficit has also jeopardize the efforts of Greece to solve its economic woes. There are strict rules that are pegged on penalties. For example, member's withdrawal from Eurozone cannot be allowed, and this undermines freedom of countries like Greece. References Affairs Dept, I. 2013. Greece. Washington: International Monetary Fund. Aristidis Bitzenis, A. ,. P. I. a. V. A. V., 2013. Reflection on Greek Sovereign Debt Crisis: The EU Institutional framework, Economic Adjustment in an Extensive Shadow Economy. 1 ed. Newcastle: Cambridge Scholars Publishers. Belkin, P. &. M. E. D., 2011. Greece’s Debt Crisis: Overview, Policy , Washington: Congressional Research Service . BIBLIOGRAPHY Chris, R., 2012. The IMF and European Economies: Crisis and Conditionality. 1 ed. New York: Palgrave Macmillan. Bitros, G. C. &. A. D. K., 2013. Creative Crisis in Democracy and Economy.. Berlin: Springer Science & Business Media. International Monetary Fund, 2012. Greece: Request for Extended Arrangement Under the Extended Fund Facility, Washington DC: International Monrtary Fund Publication Services. International Monetary Fund,. 2013. Greece: 2013 Article IV Consultation. IMF Staff Country Reports, 13(154), 1. doi:10.5089/9781484358511.002 International Monetary Fund.,. 2011. Greece. [Place of publication not identified]: International Monetary Fu. Marjolein, V., 2013. Greece and the Crisis of Europe: Which Way Out?. [Online] Available at: http://dollarsandsense.org/archives/2013/0513vanderveen.html [Accessed 4 May 2014]. Nicole, S., 2012. Democracy in a state of emergency: Greece, the EU and the eurozone debt crisis. [Online] Available at: https://www.opendemocracy.net/nicole-scicluna/democracy-in-state-of-emergency-greece-eu-and-eurozone-debt-crisis [Accessed 4 May 2014]. Pettinger, T., 2014. Euro Debt Crisis Explained. [Online] Available at: http://www.economicshelp.org/blog/3806/economics/euro-debt-crisis-explained/ [Accessed 4 May 1025]. Ronald, J., 2010. Greece and the IMF: Who Exactly is Being Saved?, Washington, D.C. : Center for Economic and Policy Research. Thomas, S. F. &. J., 2012. The Role of the IMF in The European Debt Crisis. HAW im Dialog-Weidener Diskussionspapiere., Volume 32, p. 36. Verleger, P. 2011. Oil exporters to the Euro's rescue?. Washington, D.C.: Peterson Institute for International Economics. Read More
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