US banks are much more heavily exposed to the other Eurozone countries under

Us banks are much more heavily exposed to the other

This preview shows page 23 - 25 out of 26 pages.

U.S. banks are much more heavily exposed to the other Eurozone countries under market pressure, particularly Italy, than they are to Greece (see Figure 6). The BIS reports that while direct U.S. bank exposure to Italy was $36.7 billion in December 2010, “other potential exposures” exceeded $230 billion. Total U.S. bank exposure to Greece, Ireland, Italy, Portugal, and Spain, including “other potential exposures,” is $641 billion. 22
Image of page 23
Use of IMF Resources Of the 187 members of the IMF, the United States has the largest financial commitment to the institution. The IMF program for Greece has been supported by the Administration, but some Members of Congress have expressed concern about whether Greece’s IMF program is an appropriate use of IMF resources. The IMF program for Greece is unusual for a number of reasons. First, the IMF has not generally lent to developed countries in recent decades. Second, the IMF loan to Greece is unusually large. The IMF has general limits on the size of its programs, but reserves the right to lend in excess of these limits in “exceptional” situations. The IMF loan to Greece represents exceptional access to IMF resources, at about 3,200% of Greece’s IMF quota. IMF quotas are the main financial commitments that countries make upon joining the IMF, and are broadly related to their size in the global economy. Third, because there are questions about the solvency (the ability to pay one’s debts) of the Greek government, there is concern that the IMF is providing resources to a country that will not be able to repay its debt to the IMF and other creditors. On the other hand, others argue that the IMF program for Greece is not unusual. The IMF lends to countries facing balance-of-payment difficulties, and it is widely agreed that Greece was facing substantial balance-of-payments problems when the original rescue program was agreed to in May 2010. Greece, as a member of the IMF, is entitled to draw on IMF resources, pending approval by the IMF management. Greece followed standard IMF procedures for obtaining the loan. The IMF also points out that the size of the loan to Greece is large, but that the policy reforms required of Greece to access the funds are just as large. They add that the IMF has several safeguards in place to protect IMF resources, including making the disbursement of funds conditional upon economic reforms. They also argue that the IMF has a strong historical record of countries meeting their repayment obligations. Effect on Europe As Greece embarks on tough economic reforms it is facing the prospect of deep social unrest, with tens of thousands of workers taking to the streets this week. The Greek debt crisis is spilling over to other European economies - and threatening international prospects for economic recovery. More strikes and social unrest (Open, armed, and organized resistance to a constituted government An instance of this). Tens of thousands of disgruntled workers spilled into Greek streets on Wednesday, registering their discontent with government austerity measures ( official action by a government to reduce the amount of money it spends, or the amount of money that people in a country spend. Austerity measures are used by governments that find it difficult to pay their debts) to control Greece's spiralling public deficit and debt. Greece's economic woes have posed the
Image of page 24
Image of page 25

You've reached the end of your free preview.

Want to read all 26 pages?

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors