Greece has cut its debt as a share of economic output faster than almost any country in Europe, yet that progress alone will not secure its public finances, the Hellenic Fiscal Council said in its spring report.
The council, Greece’s independent fiscal watchdog, said the country still carries the heaviest debt load in the European Union, and that servicing it continues to drain a large part of the state budget. As Greece leans more heavily on international markets for financing, borrowing costs are set to climb, making sustained primary surpluses and solid growth all the more important.
Interest costs rival defense spending
The steep decline in Greece’s debt-to-GDP ratio since 2021 tells only part of the story, the council said. Even with the ratio falling, Greece still pays far more in interest than most of its eurozone peers.
Those payments run to roughly 3.2% of GDP, about the same share the country spends on defense. A further rise in interest rates, or in the cost of new borrowing, would squeeze public finances harder and leave less room to maneuver, the council warned.
Greece’s cushion is structure, not size
The country’s main protection, the report stressed, lies less in the size of its debt than in how that debt is put together.
Since the crisis years, the bulk of Greek government debt has sat with European institutions, which extended long-dated loans at unusually low interest rates. That structure has kept servicing costs manageable even as the headline debt figure stayed high.
How the debt changed hands
The makeup of Greece’s debt has shifted dramatically over the past 15 years. Figures from the Public Debt Management Agency, cited by the council, show that official European creditors still hold most of it, though their share has been shrinking steadily as private investors return.
In 2010, before the bailout programs, private investors held 84% of Greek government debt and official creditors just 16%. Within two years the picture flipped. After the first and especially the second rescue program, along with the 2012 PSI, the debt restructuring in which private bondholders accepted heavy losses, most of the debt moved onto Europe’s support mechanisms. By 2012, official creditors held 82% and private investors only 18%.
That arrangement held for years. Between 2012 and 2019, official lenders kept roughly 82% to 85% of the total. During this stretch Greece benefited from the generous terms of loans from the European Financial Stability Facility and the European Stability Mechanism, the eurozone’s bailout funds, whose long maturities and low rates held down servicing costs despite the sheer scale of the debt.
A new trend took hold from 2020. As investor confidence recovered and Greece issued bonds more regularly, private participation began to grow, rising from 20% in 2020 to 23% in 2021, 24% in 2022, 25% in 2023, 26% in 2024 and 27% in 2025. The official creditors’ share fell from 80% to 73% over those five years.
Obligations stretch to 2070
At the end of 2025, Greece still owed about 220 billion euros to European institutions, equal to roughly 88% of GDP and about 55% of central government debt, the council noted.
Those obligations will be repaid gradually, in uneven annual installments, through 2070. Greece has committed to pay down its ESM loans between 2034 and 2060, while repayments on EFSF loans have already begun and will likewise continue until 2070.
Costlier borrowing ahead
The report’s central warning is about what comes next. As the weight of official loans eases, Greece will have to borrow more from international markets, issuing a growing share of new debt at today’s rates, which sit well above those on its rescue loans.
For that reason the council views strong primary surpluses, on the order of 2% of GDP over the medium term, as essential. That is also what the European Commission recommends. A primary surplus is the budget balance before interest payments are counted.
The council cautioned that its debt sustainability projections rest on assumptions carrying considerable uncertainty, including the future path of interest rates, the pace of economic growth, tax revenue and, above all, the terms on which Greece will be able to sell new debt to international investors.
Source: OT.gr
