“ When expenditures systematically out-run gross the ensuing rising prices may hold the consequence of converting the populace and authorities that revenue enhancement must be raised to finance public investing. In the advanced industrial states income revenue enhancement and large jets in revenue enhancement by and large, have become possible merely under the impact of major exigency and crisis, largely in wartime. In a figure of developing states rising prices has acted as an equivalent of war in puting the phase for more forceful revenue enhancement. ” ( Albert Hirschman, 1985 p. 76 )
Much ink has been spilled on the economic crisis of 2007-09, and its subsequent roiling of universe recognition and stock markets. Yet, historiographers and economic experts have merely begun to check the surface of the causes of this crisis, and hence there is plentifulness of land for deep survey. Europe is the concluding phase of this universe economic crisis. While the crisis still takes topographic point, holding really bad effects on the employment rate, European Union applies diametrically opposed policies from the 1s Obama authorities patterns. Strict asceticism policies and cuts in the authorities disbursals comment the official European Union ‘s economic policies, at the same clip when Washington invites all authoritiess of the developed states to magnify the economic system with expansive measurings of financial policy. Namely, this research will concentrate to the execution of a non asceticism policy during a fiscal crisis. Europe moves wholly towards a financial policy that sacrifices development for shortages lessening. In other words as Paul De Grauwe ( 2010 ) has mentioned, Europe allows to the fiscal markets to order the financial policies they are traveling to follow. Harmonizing to Paul De Grauwe ( 2010 ) this state of affairs is taking topographic point because the European authoritiess are non disposed to respond to the force per unit area the fiscal markets put. This was obvious in the beginning of the crisis, and as a consequence the markets eliminated the more weak members of the EU, such as Greece and “ attacked ” them. Continuing, the EU in the instance of Greece reacted really tardily and so markets targeted Portugal and Spain. The job harmonizing to Paul De Grauwe is the deficiency of political brotherhood and political leading, something that was obvious during a large crisis like this one.
Greece being a member in the EU follows the same policies and it would non hold any affair to analyze about this specific state if she had non asked fiscal aid from the International Monetary Fund ( IMF ) every bit good as from the remainder of the members of the EU because of her economic troubles she is faced with. On April 11 the finance curates of the EU admitted that this twelvemonth will supply Greece with 30 billion Euros of three- twelvemonth loans if the state requests the hard currency. In a statement, IMF Managing Director Dominique Strauss-Kahn said the negotiations “ could supply the footing for fund fiscal aid, under a multi-year plan, in the instance that the governments decide to inquire for such aid. ” Greece ‘s determination to originate “ fund plan battle is consistent with the understanding among European leaders that fiscal support from members of the euro country should travel hand-in-hand with IMF battle and fiscal aid, ” he said.
But what is the IMF and which is his function? In 1944, 44 states signed the Bretton Woods understanding which established the IMF to keep exchange rates for international free trade. When the US went off the gilded criterion in 1973, the old exchange system collapsed. The new system did non necessitate the IMF, and the organisation faced a crisis of intent ( Pastor, 1987, 14 ; de Vries, 1986, 222 ) . However, the IMF ‘s intents besides included ”providing members with chance to rectify maladjustments in their balance of payments without fall backing to steps destructive of national or international prosperity ” , Articles of Agreement. Harmonizing to this map, the IMF transformed itself from a currency modulating establishment to an international organisation involved in the national policies of much of the 3rd universe, peculiarly from 1982.
However, many people claim that the IMF plans introduce merely asceticism policies and the consequences they have are merely abruptly termed. These conditions typically entail financial asceticism such as cutting authorities outgos and increasing revenue enhancements. But those that are in favour of these plans claim that one time the economic system is stabilized, shortages are eliminated or reduced, and the balance of payments is improved. Contrary to Conway ( 1994 ) , states that emerge from IMF plans do non turn faster than they did before holding entered them or faster than states that ne’er entered. Governments confronting economic troubles adopt IMF plans either because they are despairing for foreign militias, or because they want to utilize the IMF as a foil to cut down budget shortages, or both ( Adam Przeworski, James Raymond Vreeland, 2000 ) . During 1994, the twelvemonth of the IMF ‘s 50th day of remembrance, NGOs put together a alliance claiming that “ Fifty Years Is Adequate ” ( Graham Bird, 1996 ) , because they argued that IMF policies did more good than bad in the states. Another unfavorable judgment has been that the fiscal plans the IMF utilizations are excessively inactive, without sing the clip slowdowns and uncertainnesss that exist in the accommodation procedure. Furthermore, the theoretical account clearly is oriented toward Balance Of Payments ( BOP ) stabilisation instead than toward economic growing ( Graham Bird, 1996 ) .
The end of this survey is to oppugn whether the IMF ‘s asceticism policy program for Greece will hold better and long lasting consequences than a more expansive financial policy. Will this be valid merely for Greece, or the whole European Union should alter the manner of moving in crises like these? In kernel, EU has two options: the first “ chacun pour soi ” beggar-thy neighbour solutions ; or the 2nd – enhanced, matter-of-fact, reasonable European cooperation for the benefit of all to continue an unfastened universe economic system ( Jacques de Larosiere, 2009 ) . This will convey undoubted economic additions, and this is what everyone favours ( Jacques de Larosiere, 2009 ) . Europe suffers from a job in comparing to all individual legal powers: the deficiency of a consistent set of regulations ( Jacques de Larosiere, 2009 ) .
Sing the current economic state of affairs in Greece, was the International Monetary Fund and its policies the best solution for the state?
In the thesis there will be described the measurings IMF suggested to Greece in order to better her today state of affairs. This program as it is clear includes asceticism policies but the thing that it will be discussed is whether or non austerity policies are necessary to reconstruct growing. A mention will besides be done in other states that IMF has helped or “ non ” and hence do a comparing between them and Greece today. July 2007 the universe faced an economic crisis, and still does, and it is considered to be one of the most serious and riotous fiscal crisis since 1929. It will besides be discussed the jobs Europe faces with the ways of leading she follows and if there are effectual in an economic crisis like this. To forestall the return of this type of crisis, a figure of critical policy alterations are called for. In order to turn out if a alteration in policies would be successful I will mention to Keynesian theory every bit good as Neoclassical theory. Extended concentration will be given on Graham Bird ‘s thoughts and suggestions about the IMF ‘s operations from his article: “ The International Monetary Fund and developing states ”
The first and chief thing authoritiess should care about is the enacting of short and long tally economic marks that will be quantitative every bit good as qualitative. In other words there should be a long tally plan for the economic policies as to be waies to the whole economic system state of affairs and to the authoritiess ‘ outlooks besides. Unfortunately, really frequently there is no such plan because there are people who faulty believe that the unfastened economic systems can give waies or enact marks. We should non bury what Keynes said about the “ carnal prints ” that beat the outlooks and take the markets, holding a behaviour of herd. The function of the authorities and of the populace sector is important to the effectual execution of the economic marks, everyplace in the universe. However, now many states have enacted financial stimulation programs in response to the planetary, on-going recession. The IMF normally advocates austerity policies, increasing revenue enhancements even when the economic system is weak, in order to bring forth authorities gross and convey budgets closer to a balance, therefore cut downing budget shortages. States are frequently advised to take down their corporate revenue enhancement rate ( Friedman, 2002 ) . Different sorts of combinations have been used from all states all over the universe, such as authorities disbursement and revenue enhancement cuts to hike their weak economic systems. Most of these programs are based on the Keynesian theory that shortage disbursement by authoritiess can set otherwise some of the demand lost during a crisis, as the one we are confronting now, and forestall the waste of economic resources caused by a deficiency of demand.
Mentioning to Keynes it is clip to explicate his theory and why authoritiess should follow with her in a period of a fiscal crisis and increasing shortage, but by no agencies returning to an old signifier of statism. Many articles have hence been written sing the ingestion map ; many macroeconomic policies rely on the ability to act upon the aggregative demand in an economic system without straight increasing authorities outgo ( Tim Miller, 1996 ) . The most celebrated paper is J Keynes ‘ General Theory of Employment, Interest and Money, published in 1936, during the Great Depression. For the better account of the Keynesian theory we used Tim Miller ‘s article about the Explanation of Keynesian theory, every bit good as Wikipedia. Harmonizing to Keynesian theory, some microeconomic-level actions can take to inefficient aggregative macroeconomic results, where the economic system operates below its possible end product and growing rate. Such a state of affairs had antecedently been referred to by classical economic experts as a general oversupply ( Wikipedia, 2010 ) . Keynes contended that a general oversupply would happen when aggregative demand for goods was deficient, taking to an economic downswing ( Wikipedia, 2010 ) . In such a state of affairs, authorities policies could be used to increase aggregative demand, therefore increasing economic activity and cut downing unemployment and deflation. Keynes argued that the solution to the Great Depression was to hike the economic system through some combination of two attacks: a decrease in involvement rates and authorities investing in substructure ( Blinder, 2002 ) . Investing by authorities helps income to be increased, which consequences in more disbursement in the general economic system, which in bend leads to more production and investing affecting still more income and disbursement and so on.
A sample of states that IMF has lend is stated below: Argentina, Kenya, Brazil, Romania, Serbia, Hungary, Ukraine, Iceland, Philippines, Gambia, Ghana and many others all over the universe. The IMF considered Argentina to be a exemplary state before sing a ruinous economic crisis in 2001, which some believe that this crisis has been caused by IMF-induced budget limitations and denationalization of national resources. Argentina and other South American states blame the IMF for the part ‘s economic jobs ( Wikipedia, 2010 ) . Another illustration of where IMF Structural Adjustment Programs did non hold the expected consequences was in Kenya. As stated in Wikipedia, before the IMF got involved in the state, the Kenyan cardinal bank oversaw all currency motions in and out of the state. The IMF mandated that the Kenyan cardinal bank had to let easier currency motion. However, the accommodation resulted in really small foreign investing, but allowed to business communities such as Kamlesh Manusuklal Damji Pattni, with the aid of corrupt authorities functionaries, to steal one million millions of Kenyan shillings ( Goldenberg dirt ) , go forthing the state worse off than it was before the International monetary fund reforms were implemented ( Wikipedia, 2010 ) . Another indicant of the IMF plans is in an interview of the former Romanian Prime Minister TA?riceanu, who stated that “ Since 2005, IMF is invariably doing errors when it appreciates the state ‘s economic public presentations ” ( Mediafax, 2005 ) .
It is interesting to see that in the period 1980-90 IMF has negotiated around 266 plans and the 52 per centum of them did non stop as they were planned. In kernel, IMF-backed plans are based on a pecuniary ( as opposed to monetarist ) theoretical account of the BOP ( Graham Bird, 1996 ) . This theoretical account non merely supports the stableness of the demand for money, but besides leads to a grade of policy control beyond the abilities of many developing states for either proficient or political grounds ( Graham Bird, 1996 ) . Malcolm Knight and Julio Santaella besides province that, “ a balance of payments shortage normally reflects an surplus of aggregative domestic demand relation to domestic supply ” and that “ Fund plans, which are dedicated to reconstructing a sustainable external place, must stress steps of demand restraint… as indispensable… elements of a stabilisation plan. ” ‘ IMF plans hence continue to concentrate on asceticism policies that increase financial grosss, cut down authorities outgos, and “ control ” the exchange rate.
Bird in his article proposes some alterations for the better execution of the IMF plans. Some of them are stated below. The Fund should promote authoritiess to do their ain plan for which they would so inquire for Fund support. Furthermore, the plans from the IMF should hold a strong growing orientation and structural accommodation. More research should be done by the organisation for the causes of the economic instability every bit good as the economic growing in the state that asks for aid and maybe it is necessary to spread out the state ‘s clip program ( Graham Bird, 1996 ) . In the following subdivision we will depict the method with which we are traveling to continue in the survey and do some first decisions.
In this survey we are traveling to analyze how the IMF program will be in a place to “ salvage ” Greece and if other policies, non the asceticism, conduct a better solution non merely for Greece right now, but besides for states that are said to be in a similar place, such as Spain or Italy. The former fiscal history of Greece will be analyzed so as to better understand why today the state is inquiring the aid of the IMF and if this was the best thing to make. In order to make something like this we will necessitate the aid of the experts. In my sentiment, expert in a state of affairs like this is person who has specialized in the economic theories and policies. This individual is mister Yannis Stournaras who has offered to assist me with my survey. Below I will give a short description of the experience that Mister Stournaras has on topics like my survey and hence why he is the right individual to assist me.
Mister Stournaras graduated from the Department of Economics, University of Athens in 1978. He obtained his post-graduate grades ( MPhil 1980, DPhil 1982 ) from Oxford University, specialising in Economic Theory and Policy. He worked as a Particular Advisor to the Ministry of Economy and Finance ( 1986-1989 ) on Public Enterprises and Incomes Policy issues and to the Bank of Greece ( 1989-1994 ) on Monetary Policy issues. During that period he represented the Bank of Greece as an alternate member in the Meetings of the Governors of European Union ‘s Cardinal Banks. He is Professor of Economics at the Department of Economics, University of Athens and from 1994 to July 2000 he was Chairman of the Council of Economic Advisers at the Ministry of Economy and Finance. He participated in the design of macroeconomic and structural policies ( particularly in the design and execution of the Convergence Programmes ) and represented the Ministry of Economy and Finance at the Monetary Committee ( now Economic and Financial Committee ) of the European Union. In this capacity, he participated in the dialogues for the entry of Greece in the Economic and Monetary Union. He was responsible for the audiences with international organisations, such as the International Monetary Fund, the European Commission and the Organization for Economic Cooperation and Development ( OECD ) . All the above information was taken by www.iobe.gr.
For the development of the survey the method of the questionnaire will be used. The content of the questionnaires will include inquiries about the former fiscal state of affairs in Greece and what led the state to inquire aid from the IMF but besides from the European Union. Taking a farther measure it will be besides questioned the effectivity of the steps the IMF has implemented to the state every bit good as seeking to propose solutions that will give a encouragement non merely to the economic growing of the state but besides in all sectors. A comparing will besides take topographic point for former programs from the IMF in states that have been stated above. The analysis of the inquiries will seek to give to the readers a description about what Greece is confronting now and what other states should avoid to make in order non to be in her topographic point. I besides hope that Mister Stournaras will be able to urge other people of the bank sector to finish the questionnaire every bit good, because in that manner it will be given a clearer position and the consequences of the study will be more accurate. Developing a questionnaire is non an easy undertaking. Person should be really careful with the manner the inquiries are being expressed, so as the individual who completes it to be in a place to hold a clear head and sentiment about the inquiry and non be confused. Besides, in topics that concern fiscal political relations of a state it is non rare the respondent to give a political sentiment as good, something that makes the consequences non so accurate. Furthermore, for a better consequence it would be helpful if more than one individual completes the questionnaire, so to hold different sentiments on the topic. On the other manus, who is more able to state an sentiment of that topic but non people who have worked in Bankss and by and large in the fiscal sector and cognize how the whole system works. These people can give a different position non merely to do this survey better but besides to show thoughts and sentiments that will be truly helpful and combined all these together in a instance survey as this one will give hopefully a great consequence.
This instance survey and its consequences will give thoughts to many people in the manner a fiscal crisis should be handled. The Grecian instance is a new one and hence there is non much research for the specific state. There are many other mentions to states but non yet for Greece. Greece may be a little state, but we must non bury that is a member of the European Union and as a consequence the whole Europe is affected by her state of affairs. Other states members is said to be in a similar place, such as Spain, Portugal or Italy. As a consequence, this instance survey could give waies as to what should be done, or non to states that face the same jobs. Further research could besides be done, non merely for these states and the policies they use, but besides to the policies the whole European Union and its members follow. Possibly some research is needed for the policies EU utilizations and how these policies can be changed for a more unite and strong brotherhood. As I have stated above, we need to travel to a new signifier of the theory of Keynes, without an old signifier of statism. The thought of a better province, a watchdog province, is welcomed every bit good as a societal province but, by no agencies, a province as enterpriser.