Introduction

This paper will examine the social welfare and economic implications of the recent 2015 referendum on Greek bailout conditions offered by the ECB and IMF, starting with and examination of the history behind the crisis, the resulting series of financial bailouts along with the conditions imposed and their economic and social welfare ramifications, and the potential irrelevancy of the recent 2015 referendum on the actual outcome of the negotiations.

The Background to the Greek Debt Crisis

The Greek debt crisis essentially started in late 2009, after economic reports about the Greek government’s current deficit and debt levels made clear that the Greek government had deliberately under-reported their current deficit and financial situation in 2008 and 2009, with the deficit at the end of 2009 estimated independently at 12.5% of Greek GDP, twice the amount reported by official Greek governmental figures during that time (Simitis, 2014). These issues were further exacerbated by the revelation that Greek sovereign debt exceeded the 91.4% of Greek GDP previously reported, and actually stood at 126.8% of total Greek GDP due to a number of debts and liabilities within the Greek public sector that had been over-looked during the previous reports issued by the Greek Ministry of Finance (Simitis, 2014). These discrepancies in reporting raised serious concerns over Greece’s ability to accurately report its current financial situation, and the resulting sovereign debt ratio of 128% of GDP raised serious questions over the government’s ability to meet its current financial obligations (Ardagna and Caselli, 2014). The results of the revelations, occurring during the aftermath of the recent global financial crisis, led to a downgrading of Standard and Poor’s credit rating of Greece to BB+, a rating which indicates a significant possibility of default on borrowing (Standard and Poor, 2015). This caused the interest rates of 5 year bonds issued by the Greek government to rise to 5.385% in November 2009, a figure 1.42% higher than the average rate of all other similar Euro-zone government bonds during that time (Simitis, 2014). This also occurred at a time where the Greek government was running a significant structural deficit, with governmental spending at 53.2% of GDP, and public revenue of only 37.8% (Ardagna and Caselli, 2014). In other words, only further borrowing would be able to sustain the current level of Greek public services, borrowing which had just became exponentially more expensive to maintain.

Given the developing crisis in the Eurozone, the European Central Bank (ECB) chose to step in and offer assisted bailouts and loans using funds appropriated from other EU member states and the IMF (Baimbridge and Whyman, 2014). To this end, the Commission, the ECB and the IMF established the European Financial Stability Fund (EFSF, 2015). The EFSF issued a bailout loan of €110bn in 2010 to the Greek government, which came with the condition that tight austerity measures be put into place, including a number of cuts across a broad spectrum of public services and a series of tax increases to boost governmental revenue (Ardagna and Caselli, 2014). Similar conditions were given to other recipients of bailout loans from the EFSF, including Ireland and Portugal, who as of 2014 have successfully reduced their national debt levels and current account deficit to that specified by the bailout conditions (Baimbridge and Whyman, 2014). However, the Greek government was hit with a further recession in 2011, with GDP growth contracting by 9.6% in the 4th quarter of 2010, and then a fu