Executive Summary
Introduction
Eurozone debt crisis, which is also known as European Sovereign debt crisis is an on-going financial crisis that the countries within the Eurozone such as Ireland, Italy, Portugal, Greece and Spain varying a certain degree that faces struggles to repay or refinance their government debt without the assistance of third parties. This has caused much worries faced by the European Unions and hence to the above crisis, thus causing a great impact beyond the borders to the world as a whole.
We will look into various roles undertaken by the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF) in helping to solve the euro zone Debt Crisis.
European Central Bank (ECB)
The ECB is one of the seven institutions of the European Union which was listed in the Treaty on European Union where it administers the monetary policy of the 17 EU members’ states where euro zone is consider one of the largest currency areas in the world.
Founded in 1998, the central bank is one of the most important in the world with more than 500 billion euros in its reserves. Currently, the bank is based in Frankfurt, Germany and led by Jean-Claude Trichet.
The primary function of ECB is basically to implement monetary policy for Euro zone, responsible for the care of foreign reserves of the European System of Central Banks, and to promote and conduct smooth operating of the financial markets and foreign exchange functions.
In addition, ECB also handles exclusive right to authorize issuance of banknotes and member states can issue euro coins only prior to ECB approval.
The European Central bank, or ECB for short, is the European Union’s institution in charge of monetary policy

European Commission (EC)
European Commission (EC) is the executive body of the European Union (EU) responsible for proposing legislation, implementing decisions upholding the union’s treaties and day-to-day running on the European Union.
The Commissions have several responsibilities such as to develop medium-term strategies, draft the legislation and arbitrate in the legislative process, represent the EU in trade negotiations, make rules and regulations. For example in the competition policy, they had drawn up the budget of the European Union and to scrutinize the implementation of the treaties and legislation.
International Monetary Funds (IMF)
The IMF supports its membership by providing policy advice to governments and central banks based on analysis of economic trends and cross-country experiences; research, statistics, forecasts, and analysis based on tracking of global, regional, and individual economies and markets; loans to help countries overcome economic difficulties; concessional loans to help fight poverty in developing countries; and technical assistance and training to help countries improve the management of their economies.
An adapting IMF
The IMF turned out to be a better institution after struggling to restore growth and jobs because of the worst since the Great Depression.
During the crisis, it mobilized on many fronts to support its member countries. It performs as a leader by increased its lending, used its cross-country experience to advise on policy solutions, operated as a support role in global policy coordination, and restructured their decision making strategy.
Causes and Evidence on how Euro Crisis started
The Euro zone crisis started transmission from the U.S financial crisis of 2007-2009 due to the sub-prime crisis, which has exposed the unsustainable fiscal policies of countries in Europe and around the globe.
The first who failed to undertake fiscal reform was Greece where it has experience weaker growth and high budget deficits on tax revenues was affected. When growth weakens, so do tax revenues – making high budget deficits. In addition, high public sector wage and pension commitments helped drive the debt to increase.
Cost of the country’s debt burden and necessitated a series of bailouts by the European Union and European Central Bank (ECB). The markets drove up bond yields in the other heavily indebted countries in the region, anticipating problems similar to what occurred in Greece.
Besides, several countries’ private debt arise from a property bubble were transferred to sovereign debt as a result banking system bailouts and government responses to slow economic post-bubble.
This creates a series of ‘contagion’ which is also referred to as vicious cycle which sets into place with the respective countries with similarly weak finances such as Spain, Italy, and Portugal and to a certain extent of that to Ireland.
Confidence level was hit and Investors immediate requested for higher yield for the risk in buying their bonds and sets in to much depression to the crisis.
The European Union (EU) has taken actions to cub this series of problems with the help of the International Monetary Fund, the European Central Bank and as well as the European Commission.
Measures taken by European Commission (EC)
More loans for Greece
A sustainable solution to help Greece to recover includes an up to €100 billion new loan from the EU and IML. Private creditors and the banks have come to an agreement to write off 50% of the Greece’s debt. This aims is to help Greece decrease its public debt to 120% of the gross domestic product by 2020.
Better Crisis Support
Leaders had agreed to enlarge the EU’s main debt support fund which is the European Financial Stability Facility (EFSF), without extending member countries’ commitments.
The EFSF only raises funds after an aid request made by a country. By end of July 2012, it has been activated various times.
In November 2010, it financed €17.7 billion of the total €67.5 billion rescue package for Ireland and the rest was loaned from individual European countries, European Commission and the IMF.
In May 2011, it contributed one third of €78 billion package to Portugal.
As part of the second bailout for Greece, the loan was then shifted to the EFSF, amounting to €1644 billion.
On July 2012, European finance ministers sanctioned the first tranche of the partial bail-out worth up to €100 billion for Spanish banks. This leaves the EFSF with €148 billion or an equivalent of €444 billion in leverages firepower.
Bank Reform
Government agrees to provide guarantee for the banks which was being affected by the sovereign debt crisis. All the guarantees will be coordinated at the EU level. They allow the banks to continue providing loans needed for growth and job creation.
Stronger economic growth
Eurozone countries also approved measures to improve economic governance. There will be more coordination on economic and national budget policies and also increased monitoring to ensure all the measures are implemented.
Measures taken by Europe Central Bank (ECB)
Bond Purchase
In August 2011, ECB purchase government bonds in order to keep yields from spiraling to a level that countries such as Italy and Spain could no longer afford. The purchase of Italian bonds by the central bank was intended to reduce international speculation and strengthen portfolios in the private sector and also the centralbank.

Long Term Refinancing Operation (LTRO)
ECB has launched a 3 year program, which it will lend money at a very low interest rate of 1% to euro zone banks, which has led to the term “free money’ with the acceptance of collateral. Loans totaling €489.2 billion ($640 billion) were announced. The loans were not offered to European states, but government securities issued by European states would be acceptable collateral as would mortgage securities and other commercial paper that can be demonstrated to be secure. The injection of these monies means that banks can use it to buy higher-yielding assets and make profits, or to lend more money to businesses and consumers which would help the real economy return to growth as well as potentially yielding returns.
On 29 February 2012, ECB held a second 36 months LTRO which provide euro zone banks further approximate euro530 billion in cheaper loans.
Banks uses assets such as sovereign bonds as collateral for the loans, although they can no longer use Greece's bonds as collateral as credit rating from S&P was being downgraded.
This eventually has helped to boost some of the more troubled sovereign bonds, such as Spain and Italy, as their yields have fallen because they are being used as collateral for the operations. The largest buyers in this OO, Spanish and Italian banks, used their holdings of their own sovereign bonds as collateral for the LTROs. This helped reduce sovereign bond yields, which were threatening to stay at unsustainable levels that would make debt repayments impossible which help out the entire country.
Measures taken by International Monetary Fund (IMF)
The International Monetary Fund (IMF) was involved in the rescue actions of the European Union (EU) to fight the sovereign debt crisis that emerged end of 2009 in several European Monetary Union (EMU) countries.
The IMF participated in the financial assistance and economic adjustment programs for Greece, Ireland and Portugal by contributing around one third to the emergency funds. In a “Troika”, together with the European Commission (EC) and the European Central Bank (ECB), the IMF elaborated the economic adjustment programs for these economies and closely monitored their progress through quarterly reviews based on economic missions.
IMF stepped up crisis lending by reacted swiftly to the global economic crisis, with lending commitments reaching a record level of more than US$250 billion in 2010. This figure includes a sharp increase in concessional lending which is a subsidized lending at rates below those being charged by the market to the world’s poorest nations.
When a country joins the IMF, it agrees to subject its economic and financial policies to the scrutiny of the international community. It also makes a commitment to pursue policies that are conducive to orderly economic growth and reasonable price stability, to avoid manipulating exchange rates for unfair competitive advantage, and to provide the IMF with data about its economy.

The IMF's regular monitoring of economies and associated provision of policy advice is intended to identify weaknesses that are causing or could lead to financial or economic instability. This process is known as surveillance.
After the crisis, IMF is contributing to the ongoing effort to draw lessons from the crisis for policy, regulation, and reform of the global financial architecture.

The IMF shares its expertise with member countries by providing technical assistance and training in a wide range of areas, such as central banking, monetary and exchange rate policy, tax policy and administration, and official statistics. The objective is to help improve the design and implementation of members' economic policies, including by strengthening skills in institutions such as finance ministries, central banks, and statistical agencies. The IMF has also given advice to countries that have had to re establish government institutions following severe civil unrest or war.
They also improved its lending flexibility by overhauled its lending framework to make it better suited to countries’ individual needs. By helping to prevent new crisis, IMF also working with other regional institutions to create a broader financial safety net.
A country in severe financial trouble, unable to pay its international bills, poses potential problems for the stability of the international financial system, which the IMF was created to protect. Any member country, whether rich, middle-income, or poor, can turn to the IMF for financing if it has a balance of payments need—that is, if it cannot find sufficient financing on affordable terms in the capital markets to make its international payments and maintain a safe level of reserves.
IMF loans are meant to help member countries tackle balance of payments problems, stabilize their economies, and restore sustainable economic growth. This crisis resolution role is at the core of IMF lending. At the same time, the global financial crisis has highlighted the need for effective global financial safety nets to help countries cope with adverse shocks. A key objective of recent lending reforms has therefore been to complement the traditional crisis resolution role of the IMF with more effective tools for crisis prevention.

References * http://www.imf.org/external/about.htm * The economist. (October 6th 2012) http://www.economist.com/node/21564254 * http://internationalinvest.about.com/od/glossary/a/What-Is-Ltro-Long-Term-Refinancing-Operations.htm * European Commission Website : http://ec.europa.eu/europe2020/europe-2020-in-a-nutshell/priorities/economic-governance/index_en.htm