The paper 'International Economics' is a perfect example of a Macro and Microeconomics Assignment. When ECB went out for bailout then in 2010, two different rescue programs had been started by ECB which are called the European Financial Stability Facility and the European Financial Stabilization Mechanism. As a result of the bailout of ECB, Greece has been receiving the financial assistance from ECB since the May of 2010. In the August of the year 2015, a third program had also been launched under the European Financial Stabilization Mechanism framework. However, when ECB was going for the bailout then the interest rates in Greece were expected to decline and reach to low levels.
This is because, Pre-Euro, the devaluation of the currency had helped the country to finance the Greek government spending. Thereafter, later on this tool disappeared. But still Greece was able to borrow because of the lower interest rates especially for the euro bonds and the GDP growth of the country had also been strong. Athens especially was required to dramatically reduce the level of the deficit by cutting the minimum wage and squeezing the pensions.
The overall impact of the bailouts was a huge decline in the interest rates and the passing of the debt from the private sector to the public sector. This is depicted in the graph shown in exhibit 1 in appendix. Comment on the expected outcome of this policy on behalf of ECB. Provide diagram and detailed explanation on output and prices. (10 points)During the outbreak of the financial crisis, there are a number of the euro area governments have provided the financial assistance to a number of the countries around the world in order to avoid a credit crunch.
All of these measures, however, had caused an increase in the euro area general government debt and this had risen by around 28% between 2008 and 2014.As a result of this rapid increase in the debt levels, the southern euro zone member states had become unable to repay their total government debt which was euro denominated and they also failed to finance the bail out of the troubled financial sectors without the required assistance from the third parties.
Commission, E., 2016. Financial assistance to Greece. [Online] Available at: http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/index_en.htm [Accessed 6 October 2016].
Nedergaard, 2015. "'As I drifted on a river I could not control': the unintended ordoliberal consequences of the Eurozone crisis". Journal of Common Market Studies, 53(5), pp.1094–109.
Pettinger, T., 2009. Impact of Expansionary Fiscal Policy. [Online] Available at: http://www.economicshelp.org/blog/617/economics/impact-of-expansionary-fiscal-policy/ [Accessed 6 October 2016].