	Introduction

Since early 2010, the Eurozone has been facing a major debt crisis. The governments of several countries in the Eurozone have accumulated what many consider to be unsustainable levels of government debt, and three—Greece, Ireland, and Portugal—have turned to other European countries and the International Monetary Fund (IMF) for loans in order to avoid defaulting on their debt. Additionally, the United States has the largest financial commitment to the IMF of all the IMF members. It concludes with an analysis of issues of particular interest to Congress, including the impact of the Greek debt crisis on the U.S. economy, the exposure of U.S. banks to Greece and other distressed Eurozone economies, and IMF involvement in the crisis. An influx of capital at low interest rates during the 2000s and the global financial crisis of 2008-2009 further exacerbated these problems, straining public finances to an unsustainable degree. EU policies that had been put in place to provide a check on the accumulation of public debt failed to do so. Higher interest rates compensated investors for the higher risk involved in holding Greek government bonds, but they also drove up Greece's borrowing costs, exacerbated its debt levels, and caused Greece to veer towards default. Fear of contagion and financial turmoil drove a major policy response by the Europeans, the IMF, the Greek government, and central banks in May 2010 to avoid a Greek default. When Greece again veered towards default more than a year later, a second crisis response was announced in the summer of 2011. IMF and EU programs were subsequently provided to Ireland and Portugal (see Table 1 ). More Financial Assistance

In July 2011, European leaders announced a second financial assistance package for Greece totaling €109 billion ($157 billion). The policy measures aimed to prevent a disorderly Greek default, to restore debt sustainability in Greece, and to prevent the spread of the crisis to other Eurozone countries and the global economy. The inclusion of bondholders in the crisis response in July 2011 signaled a major shift in the approach to responding to the crisis, which previously had focused primarily on the provision of financial assistance to Greece and economic reforms in Greece. However, fostering short-term growth in the Greek economy has not been a central feature in the policy response to date, and growth in the economy is proving elusive, with the economy contracting at a faster rate than expected. As a member of the Eurozone, it cannot depreciate its currency against its major trading partners to help spur exports. In the late summer of 2011, interest rate spreads on Spanish and Italian bonds started to rise. Greece's crisis has also raised a number of more specific economic and political implications, detailed below:
First, the policy responses to Greece's debt crisis have set precedents for how the debt crises in other Eurozone countries have been handled. Third, Greece's debt crisis has created new financial liabilities for other European countries. Issues for Congress

The Greek debt crisis has been an ongoing source of concern for some Members of Congress. Impact on U.S. Economy

The bilateral economic relationship between the EU and the United States is one of the largest and strongest in the world, and economic turmoil in Greece and the broader Eurozone could have negative implications for the U.S. economy. At the start of the crisis, it was expected that austerity measures would slow growth in Europe and lead to a loss of confidence in the euro, causing a depreciation of the euro relative to the U.S. dollar. As the crisis has continued, however, increased perceptions of risk have affected U.S. financial markets. If the crisis does spread, the impact on the U.S. economy could be greater. Exposure of U.S. Banks

Given the interconnectedness of the U.S. and European financial sectors, another source of concern is how much U.S. banks could lose if Greece or other Eurozone countries were to default on their debts, or, in other words, how "exposed" U.S. banks are to Greece and other vulnerable Eurozone countries. However, U.S. banks may be more heavily exposed to Greece through what the BIS calls "other potential exposures." The BIS defines "other potential exposures" as derivative contracts, guarantees, and credit commitments. 111-203 ). For example, H.R. 2313 ) and Senate ( S.Amdt. The Senate voted against the amendment on June 29, 2011.
The Eurozone is facing a serious sovereign debt crisis. Several Eurozone member countries have high, potentially unsustainable levels of public debt. Three—Greece, Ireland, and Portugal—have borrowed money from other European countries and the International Monetary Fund (IMF) in order to avoid default. With the largest public debt and one of the largest budget deficits in the Eurozone, Greece is at the center of the crisis. The crisis is a continuing interest to Congress due to the strong economic and political ties between the United States and Europe.
Build-Up of Greece's Debt Crisis
In the 2000s, Greece had abundant access to cheap capital, fueled by flush capital markets and increased investor confidence after adopting the euro in 2001. Capital inflows were not used to increase the competitiveness of the economy, however, and European Union (EU) rules designed to limit the accumulation of public debt failed to do so. The global financial crisis of 2008-2009 strained public finances, and subsequent revelations about falsified statistical data drove up Greece's borrowing costs. By early 2010, Greece risked defaulting on its public debt.
Policy Responses with Limited Success
EU, European Central Bank, and IMF officials agreed that an uncontrolled Greek default could trigger a major crisis. In May 2010, they announced a major financial assistance package for Greece, and the Greek government committed to far-reaching economic reforms. These measures prevented a default, but a year later, the economy was contracting sharply and again veered towards default. European leaders announced a second set of crisis response measures in July 2011. The new package calls for holders of Greek bonds to accept losses, as well as for more austerity and financial assistance.
These responses have prevented a disorderly Greek default, but the prospects for Greek recovery remain unclear. The economy is contracting more severely than expected, and, as a member of the Eurozone, Greece cannot depreciate its currency to spur export-led growth. Unemployment is close to 16%.
Additionally, the policy responses have not contained the crisis. Ireland and Portugal turned to the EU and IMF for financial assistance. In the summer of 2011, interest rates on Spanish and Italian bonds rose sharply.
Broader Implications
Greece's economy is small, but its crisis exposes the problems of a common currency combined with national fiscal policies. Additionally, its crisis set precedents for responding to crises in other Eurozone countries; highlighted concerns about the health of the European financial sector; created new financial liabilities for other Eurozone countries struggling debt; and sparked reforms to EU economic governance. It has also revealed tensions among EU member states about the desirability of closer integration.
Issues for Congress
Impact on the U.S. economy: U.S. exports to the EU could be impacted if the crisis slows growth in the EU and causes the euro to depreciate against the dollar. Through the first quarter of 2011, growth in the Eurozone was strong, but it may be starting to weaken. There has not been a clear depreciation of the euro against the dollar since the start of the crisis. As the crisis continues, increased perceptions of risk are impacting U.S. financial markets. If the crisis spreads in the Eurozone, the impact on the U.S. economy could be much greater. Exposure of U.S. banks: U.S. banks have little direct exposure to Greece ($7.3 billion), but other potential exposures (derivative contracts, guarantees, and credit commitments) to Greece are much higher ($34.1 billion). U.S. banks are more heavily exposed to Spain and Italy, with direct and other potential exposures totaling nearly $450 billion. IMF involvement: Some Members of Congress are concerned about IMF involvement in the Greek crisis. In 2010, Congress passed legislation aimed at limiting IMF support for advanced economies (P.L. 111-203). In 2011, legislation was introduced in the House and the Senate to rescind some U.S. contributions to the IMF (H.R. 2313; S.Amdt. 501). The Senate voted down this legislation in June 2011.