Debt Reduction in Greece Comes at a Cost for its Citizens

Greece GDP

Greece GDP
Greece’s finance ministry has committed to early repayment of some $8 billion in bilateral debt in 2026, 2027, and 2028. Credit: Adam Jones, CC BY 2.0

Greece aims to accelerate its debt reduction strategy, slashing roughly 20 percentage points off its debt-to-GDP ratio over the next four years, and will proceed with early repayment of outstanding debt for a third time later this year.

Greece’s finance ministry has committed to early repayment of some $8 billion in bilateral debt in 2026, 2027, and 2028, estimating that this would push down the country’s debt-to-GDP ratio – Europe’s highest – from 162 percent this year to 149 percent in 2025 and 133.4 percent by 2028.

The early repayment is to the country’s creditors for loans initially acquired at the beginning of the debt crisis in May 2010. Originally, these payments were scheduled for 2026-2028. By advancing this repayment, the Finance Minister aims to further reduce Greece’s public debt.

Greece debt reduction
Credit: Enterprise Greece

Forecasts on Greece’s debt reduction

The International Monetary Fund (IMF) forecasts that Greece’s public debt, which includes deferred interest from institutional bailout loans, will decrease from 168.9 percent of GDP in 2023 to 159 percent this year while easing to 139.4 percent by 2029—a decrease of nearly 30 percentage points.

Analysts from the credit rating agency Scope are even more optimistic, projecting the debt-to-GDP ratio to fall to 132.8 percent by 2029. Based on Scope’s forecast, Greece could hand over the “red light” of the EU’s highest public debt percentage to Italy by 2028.

During the almost decade-long crisis, Greece received hundreds of billions of euros in special support from its Eurozone partners and the IMF. Its sovereign rating was reduced to junk status and the country’s debt-to-GDP ratio peaked at over 200 percent in 2020.

Since then, however, Greece has twice repaid loans ahead of schedule – in December 2022 and December 2023 – and has regained investment grade status.

Economy booms, but people get poorer

Over the same period, the Greek economy has boomed, outpacing growth in the rest of the Eurozone and supported by strong public and private investment.

The government is forecasting 2.2 percent growth for 2024 and the IMF forecasting 2.3 percent. This is well above the weak overall 0.8 percent IMF growth forecast for the euro zone, where industrial economies including Germany and Italy are struggling.

“This solid performance is expected to continue, despite the challenging external environment, with projections indicating a continued positive trajectory in 2024 and 2025,” according to the Greek projections.

“Real GDP is projected to grow by 2.2 percent in 2024 and 2.3 percent in 2025, supported by rising disposable income, increased investment, strengthening foreign demand and the waning impact of monetary policy tightening.”

The paradox is that as the Greek government boasts about Greece’s economic growth Greek citizens remain at the “bottom of Europe” in terms of real purchasing power. Despite the ongoing economic recovery, Greeks are becoming poorer., according to the latest OECD data.

While the Greek economy’s upturn has slightly raised living standards compared to the EU average, this improvement is minimal. It has not lifted Greece from its position as the poorest country in the Eurozone.

It is worth noting that until 2009, Greece’s GDP per capita was close to the EU average. However, since then, 10 countries have surpassed Greece in living standards. Now, Greek people rank as the second poorest in Europe, only ahead of Bulgaria.

“Greece must learn the lessons of the previous decade”

Speaking to Reuters last month, Greek Finance Minister Kostis Hatzidakis said any accommodation for wage increases must not put at risk the downward trajectory of the country’s debt-to-GDP ratio.

“We learned the lessons of the previous decade. Greece was living beyond its means,” Hatzidakis said. He added that it was important to maintain primary surpluses and a headline deficit, after debt service, “close to zero.”

“We have the surveillance of the markets and investors. So we know that fiscal prudence is a precondition for us to convince everybody – the markets, the investors – that we are a credible government and credible country,” he said.



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