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Efforts of the European Union to Help Combat the Greek Financial Crisis

Decent Essays
European Union (EU) plays a major part in facing this Greek financial debt crisis, which requires a major restructuring in the economic sector and to tighten stronger integration among EU member country. The primary focal point is on restoring the sustainability of public finances and addressing other macroeconomic imbalances by fostering fiscal discipline. In addition, new rules are set to ensure stronger and more effective economic governance, particularly in the euro zone area, with adequate mechanisms to monitor progress and ensure enforcement.

Facing the crisis, Greece has received two bailout packages from the EU, European Commissions (EC) and International Monetary Fund (IMF). The first package (May 2010) is worth €110
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For example, the fiscal rule is conceived to be adopted if the annual structural balance is coherent with the country specific medium-term budgetary objective (MTO) which as stated in the Stability and Growth Pact (SGP) to lower limit of structural deficit of 0.5% of Gross Domestic Product (GDP) and part of preventive arm and plus it also require a “rapid convergence” in order to confront the crisis. (European Central Bank 2012)

Moreover, a higher deficit of at most 1% is only allowed if the government debt-to-GDP ratio is under 60% and risks to long term financial stability and sustainability are much lower and at the same time, it puts a numerical benchmark for debt reduction for the member state of Monetary Union. In summation, the Commission also submitted that it should take in consideration, a specific country to keep the risk based on the capabilities of each individual area. (European Central Bank 2012)

Correction mechanism such as the European Financial Stabilization Mechanism (EFSM) and The European Financial Stability Facility (EFSF), which is automatically activated in the case of significant, observed deviations from the MTO or the adjustment path towards it. Both mechanisms aim at correcting such deviations, including their cumulated impact on government debt dynamics, and also apply to temporary deviations justified by exceptional circumstances. As good as a strengthening of the automaticity of the excessive deficit procedure within
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