General government debt rose to 117.2 percent of GDP in 2005

Greece’s general government debt increased by 14.17 billion euros during 2005 to reach 215.41 billion, or 117.2 percent of Greece’s gross domestic product (GDP). By comparison, in 1980, Greece’s debt was the equivalent of 7.7 billion euros, or 22.9 percent of the country’s GDP. Greece’s debt, as a percentage of GDP, is the highest in the European Union and servicing it is very costly. Between 1994 and 2005, Greece spent about 280 billion on interest and principal payments, while in 2006 alone it will pay 27.7 billion euros, or about 60 percent of the net revenues the government expects to get this year (40.6 billion). The remaining revenues from the budget (12.9 billion euros) are only enough to cover about two-thirds of civil servants’ wages and pensions. As for the rest, the state will have to borrow again, as it also will to subsidize pension funds and transport organizations, finance all state programs and co-finance the Public Investment Program, which is also financed with European Union funds. Greece will spend this year 9.6 billion euros on debt-related interest, a sum worth far more than the Public Investment Program (8.4 billion). In 2005, it paid foreign creditors (including holders of Treasury bonds) about 8 billion euros in interest and principal payments, while it received only 4.6 billion in EU aid. A related issue is that of state guarantees for public enterprises’ borrowing. the state has guaranteed 15.7 billion euros of this sort of debt which can become part of the public debt if the borrowers (the state enterprises) fail to pay back their debt. Other state actions that can impact the size of the debt include the armaments procurement programs, the financing of state hospital debt and the underwriting of social security funds’ debt. The debt issue is not purely financial but also political. Its reduction or expansion is closely related to political decisions and the development strategies chosen. For too long, the debt ballooned since the prevailing wisdom was that states do not go bankrupt. However, in 1993, then PM Andreas Papandreou, one of those most responsible for the debt explosion, told Parliament that it was the Greek economy’s biggest problem and that it ought to be tackled immediately. Since then, many financial instruments have been devised and utilized, not to really reduce the size of the debt, but to hide it.