The rapid recovery of the Greek economy and the return to primary surpluses after the coronavirus pandemic were the two main factors that led to the steady and significant reduction in public debt as a percentage of it GDPwith the result that Greece will regain investment grade from 2023 and continue to be upgraded by credit rating agencies.

The latest figures for the first quarter of 2024 show thatGeneral government debt decreased to 159.8% of GDP from 169.4% a year ago and from 207% that had jumped due to the pandemic and measures to support the economy at the end of 2020.

Greek debt is still the highest in the Eurozone, but has fallen to its lowest level since 2012, when it fell to 157.2% of GDP following a 53.5% haircut on Greek government bonds in framework of the PSI. In addition, according to all rating agencies, it has a clear downward trajectory, with Scope Ratings to predict that as early as 2026 it will be lower than Italian debt as a percentage of GDP.

After 2012, general government debt increased until 2014, when it reached 180% of GDP, and then hovered close to that level until 2019. The quadrennial 2016-2019 saw fiscal surpluses – not only primary but also the inclusion of interest on the public debt – which contributed to the stabilization of the debt, but the very low rates of growth and growth of nominal GDP in this period did not allow any significant reduction of it as a percentage of GDP.

An additional reason that the debt was not reduced in the above period was that Greece borrowed the amount of 15.7 billion euros from the ESM in 2018, in order to have an equal fiscal “cushion” that would facilitate its exit to the markets after the exit from the memoranda in August of the same year.

In 2020, debt increased as the pandemic led to the need to support households and businesses, and the European Commission suspended the application of fiscal rules in the EU to deal with the emergency situation that had been created.

However, as the pandemic receded and related financing needs were gradually eliminated, the debt returned to a downward trajectory, especially from 2022, despite the fact that this year saw new spending to support households and businesses from the impact of the energy crisis.

In absolute terms, the debt had fallen to €303.9 billion in 2012, after the bond haircut, to rise to €317 billion in 2017 and €334 billion in 2018. In 2022, it rose further to 356, 8 billion euros to decrease to 335.9 billion at the end of the first quarter of 2024.

However, as the reason why Greece had to maintain the fiscal cushion has now disappeared, since the country has regained investment grade and is borrowing on good terms from the markets, the ESM is expected, according to information, to give its consent in order to to be used to reduce debt. The beginning is expected to take place from this year with the early repayment of additional installments of loans that Greece had taken from Eurozone countries (GLF) in the context of the first memorandum.

In its recent (July 12) upgrade of the Greek debt outlook to positive from stable, rating agency Scope predicted that debt would fall to 151.9% of GDP at the end of 2024 and fall to 130.7% in 2029, in lowest level since the beginning of the Greek crisis (first quarter of 2010).

The Bank of Greece anticipates, as its governor recently reported Giannis Stournarasthat Greek debt will be reduced to 60% of GDP in about 40 years, as long as primary surpluses are kept close to 2% of GDP and economic reforms are continued to ensure an appropriate spread between the debt repayment rate and the rate of economic development.