Rate rise will slash debt ratio
Soaring inflation and the forced normalization of the European Central Bank’s monetary policy are creating significant challenges for the Greek economy, with stagflation being the most probable scenario.
Worries are growing about the impact on the cost of money for the state and corporations, as well as macroeconomic developments, a couple of months ahead of the certain rate hike by Frankfurt, and the equally certain end of negative interest rates far earlier than late 2022, thereby increasing pressure on the cost of borrowing.
Analysts explain to Kathimerini that the high inflation does have certain benefits for the economy, too, as it boosts public finances with an increase in revenues while also slashing the debt ratio – although such benefits are only temporary.
The rise in prices helps ease a country’s debt ratio, more than offsetting the impact from the increase in rates, with the overall momentum representing for now a net reduction in the national debt index.
Scope Ratings estimates therefore that Greece’s index of public debt will be reduced below 180% of gross domestic product by 2026, from 193% last year.
