Greek Public Debt Sustainability: Progress and Persistent Risks
Greece’s public debt is falling as a percentage of gross domestic product, continuing a multi-year trend of fiscal consolidation. Yet the country still holds the highest debt-to-GDP rgratio in Europe, and that distinction may remain unchanged through 2036, according to the latest European Commission debt sustainability report.
The headline numbers show improvement. The underlying risks, however, tell a more complicated story.
While short- and long-term risks are assessed as low, medium-term risks remain elevated. The reasons include the size of Greece’s outstanding debt, the long maturity profile of its loans, future repayments to the European Stability Mechanism and the European Financial Stability Facility, and the economy’s sensitivity to external shocks.
In a period marked by global economic uncertainty, those vulnerabilities matter.
Why the Size of Greek Public Debt Still Matters
The European Commission ranks Greece among the countries facing the highest risk in reducing public debt, largely because of its sheer scale.
Even under the baseline debt sustainability scenario, Greece’s public debt is expected to decline but remain high in the medium term, reaching around 124% of GDP by 2036.
That projection assumes that Greece will maintain a structural primary surplus (SPB) of 1.8% of GDP from 2026 onward, excluding additional demographic-related costs. The report notes, however, that such performance would be ambitious compared with Greece’s historical fiscal record.
Questions also loom over economic growth after 2026, when funding from the European Union’s Recovery and Resilience Facility is set to wind down. Many analysts point to this period as a potential turning point for GDP performance, and, by extension, debt dynamics.
Growth, Interest Rates and Debt Dynamics
Debt sustainability depends heavily on the relationship between economic growth and borrowing costs.
Under a more adverse interest rate–growth differential scenario -in which the gap worsens by one percentage point compared with the baseline- the debt-to-GDP ratio in 2036 would exceed the baseline projection by roughly 10% points.
Other stress scenarios show similar vulnerabilities:
- If the structural primary surplus were 0.5 % lower than in the baseline scenario, the debt ratio would be about 6% higher by 2036.
- In a financial stress scenario, where interest rates temporarily rise by 4.5% compared with the baseline, debt would exceed the baseline by about 2%.
- By contrast, if the structural primary balance returned to its 15-year historical average of 4.9% of GDP, the debt ratio would be approximately 26% lower than the baseline by 2036.
Stochastic simulations -projections that factor in uncertainty- point to a moderate level of risk due to the high starting debt level and wide uncertainty bands around forecasts. There is a 15% probability that the debt ratio in 2030 could be higher than in 2025. Moreover, the forecast range spans roughly 40%, underscoring the unpredictability of long-term debt trajectories.
What Analysts See: Guarded Optimism, With Conditions
Despite the elevated medium-term risks, most analysts consider the overall sustainability outlook to be manageable, provided key conditions are met.
These include preserving fiscal credibility and effectively absorbing European funds. Greece’s debt profile also benefits from favorable repayment terms on official-sector loans, which make up the largest share of total debt. In addition, interest rate swap agreements signed in previous years have locked in historically low borrowing costs, reducing exposure to sudden rate increases.
Rounds of early repayments of bilateral loans have further strengthened the debt profile.
However, these favorable characteristics are not permanent. As global financial conditions evolve, the protective buffer they provide could gradually weaken.
Greek Debt Outlook for 2025 and 2026
The near-term trajectory remains positive.
According to the 2026 budget, Greece is expected to record the largest reduction in debt as a share of GDP in the European Union for a sixth consecutive year. The debt-to-GDP ratio is projected to fall below 140% in 2026, reaching 138.2%, its lowest level since 2010.
More specifically:
- At the end of 2025, general government debt is estimated at €362.8 billion, or 145.9% of GDP, down from €364.965 billion, or 154.2% of GDP, in 2024, a decline of 8.3%.
- In 2026, debt is forecast to fall further to €359.3 billion, or 138.2% of GDP, another drop of 7.7% compared with 2025.
These figures reflect a steady fiscal consolidation effort and continued economic normalization.
