With Union and IMF would provide financial

With the possibility of default closing
in, the European Union, European Central Bank and International Monetary Fund
agreed that “an uncontrolled, disorderly default on Greek debt would be
extremely risky and should be avoided at all costs.” (Nelson, 2011) To this
point, no other country aside from Greece has experienced harsh pressure from
the markets, therefore worried that other Eurozone members with high debt
levels may not be able to handle the possible draught in the fixed income
market. (Nelson, 2011)

In May 2010, the Troika, consisting of the European Union, European Central Bank and
IMF began to financially assist Greece through their first bailout package.
Each individual institution had their own objective; The European Union and IMF
would provide financial assistance; the Greek government would comply and
implement the austerity measure and reforms; and the Central Banks would
provide the liquidity. The financial assistance allotted to the European Union
members contributing €80 billion and the IMF pledging €30 billion, totaling up
to €110 billion. In result of the bailout, the European Union created the
European Stability Mechanism, funded with €500 billion, to ensure that
countries will be aided if needed. (Nelson, 2011)

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With the EU and IMF following through on
their end, the Greek government had a long list of austerity measures to
implement. These sought to reduce government’s deficit by 11%, cut public
spending, increase revenue growth with tax reforms, raise taxes on commodities
(fuel, tobacco, alcohol, etc.), and increase contribution for tax evaders. The
government also must conform to healthcare, pension and structural reforms,
consisting of lower total expenses and consolidation of hospitals, cutting back
on the exceedingly generous pension plans, and increase focus on a struggling
labor market. (Nelson, 2011)

The only player left is the European
Central Bank, who bought European government bonds totaling to €78 billion (€45
billion were Greek bonds) in the secondary market to increase confidence and
lower bond spreads for Eurozone bonds under market pressure. (Nelson. 2011) Liquidity
supports thanks to the ECB increased from €47 billion to €98 billion, roughly
40% of Greece’s 2011 GDP. The Fed re-established temporary current agreement to
increase dollar liquidity in the global economy. What was supposed to be a
short-term agreement extended into 2012 with continuing concerns of the
Eurozone. (Nelson, 2011)

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