The pandemic may have led to an increase in the Greek national debt and the long-term risks, but the country is not going through another debt crisis, the European Stability Mechanism’s chief economist Rolf Strauch stressed in an article.
Greece appeared more resilient at the start of the pandemic than at the beginning of the debt crisis of the 2010s, thanks to the fiscal efforts it had made, he noted. Furthermore, the structure of the Greek debt has improved significantly, he argued, and the country now also benefits from the environment of very low interest rates and particularly favorable funding conditions, which slashes the cost of debt servicing, as history has shown.
The senior ESM economist underscored that what matters most is not the ratio of the debt to gross domestic product, but rather the budget flows and future risks: The universal reduction of interest rates and the shrinking of risk premiums have reduced the real interest rate of the Greek debt from 7.3% in 2000 to about 1.5% in 2020, with Greece locking in this favorable rate through the extension of maturity dates in its debt issues and via bond swap programs.
He also highlighted that Greece currently enjoys broader access to the monetary policy measures of the European Central Bank, which also contains the cost of servicing the national debt.
Against this backdrop, the state budget and the Greek debt will remain sufficiently manageable for the coming years, stressed Strauch, despite the risks.