Greece, a debt cut champion
Markets are rewarding the country for its credibility with lower bond yields, says Moody’s
The already very important performance recorded by Greece internationally in terms of debt-to-GDP ratio reduction will continue over the next seven years, as Moody’s estimates, thanks to the strong growth of the Greek economy, the very favorable public debt profile, as well as the very good management strategy.
Despite the fact that in absolute terms the Greek debt remains high, its sustainability is particularly strong, with the “consolidation” of its downward trajectory supporting the continuation of the upward trajectory of the country’s assessment, which the market has spotted and rewarded.
With Greek bond yields having “beaten” Italian bond yields for a long time, the next targets, which are Spanish and Portuguese yields, are looking more and more attainable. From around 206% of GDP in 2020, Greek debt is expected to decline this year to around 160% of GDP and further by 9 percentage points in 2024.
According to Moody’s, between 2023 and 2030 Greece will also register a world record reduction in the debt ratio, by 26 percentage points, with Portugal second with a 15% drop and the UK third with a 6% drop, while countries such as France (+6%) and the US (+12%) will see their debt ratios increase in the next decade.
The combination of strong nominal growth, primary surpluses and a relatively stable interest burden puts Greece’s public debt ratio on a steady downward trajectory, Moody’s notes.
“The average debt interest rate moves to just 1.5% compared to 4.5% in 2011 and the weighted average duration is approximately 20 years, compared to 6.3 years in 2011,” the agency emphasizes.
As a result, interest payments as a share of government revenue will remain low for a long time, even after taking into account the fiscal impact of the pandemic, monetary tightening by the ECB and the subsequent rise in yields. Also, according to Moody’s, the manageability of Greece’s debt will remain stronger than Italy’s. Therefore at 3.9%, the yield on the Greek 10-year bond is close to the lowest historically recorded levels compared to its Italian peer (at 4.55% on Monday).
