The prospect of a reduction in Greek debt, even under adverse international conditions, shows a report by the European Stability Mechanism (ESM), highlighting the extent of the fiscal adjustment that has occurred in recent years.
The report, entitled: Euro Area Stability Watch, assesses macroeconomic and financial risks for the Eurozone and the consequences they have on its country's budgetary positions and bond markets. The assessment is based on an adverse scenario drawn up by ESM, which provides for a new escalation of tensions in the Middle East and an increase in energy prices with a significant reduction in prices of American shares and bonds, from which European investors will suffer damage. Each of these shocks would in itself pose a major challenge, but both together would push the Eurozone economy into recession (reduction of GDP by 0.4% in 2027) and inflation by close to 5% (to 3.4% in average levels in 2027).
Based on this adverse scenario, without a change of policy, public debt would increase in all Eurozone countries in 2035, with the exception of Greece and Cyprus, where it would decrease. The increase in the euro area’s public debt would be around 20 percentage points higher than the ESM’s baseline scenario, which is in line with the European Commission’s latest forecasts for the progress of the economy.
With the key scenario of the ESM, the Eurozone debt is projected to increase over the next decade and reach 103% of GDP from nearly 90% last year, due to the impact of demographic ageing, the increase in defence spending to 3.5% of GDP, the increase in lending costs and under-growth rates. For Greece – and other countries in ESM projects over the last 10 years – the debt reduction is expected to continue.
In the first quarter of 2026, Greek debt fell at the fastest rate in the Eurozone, according to Eurostat figures, by falling to 143.5% of GDP or by 9.4 percentage points over a year ago (152.9%). On the contrary, in the Eurozone as a whole it increased to 88.9% from 87.2%, respectively.
Source: RES
A significant deescalation of Greek debt in the coming years also provides for the International Monetary Fund and credit rating agencies. The IMF expects it to decrease to 110.9% of GDP in 2031 from 145.7% last year, while expects French debt to rise at the same time to 120.7% from 116% and Belgian to 122.3% from 106.3%. For Italian debt, the IMF plans to reduce marginally to 136.1% from 137.1% of GDP. The Fund predicts that in the next five years the Greek debt will fall not only from Italy, which is expected to happen this year but also from French and Belgian.
The continued rapid debt reduction keeps at low levels the spread (the difference in return) of Greek public bonds against German, in a period of strong instability and uncertainty caused by the war in the Middle East. Following the new rise in international oil prices, government bond yields increased internationally, with German 10-year titles approaching 3.20% on Thursday. For Greek 10-year bonds, the yield was set at 3.92%, lower than the corresponding French and Italian bonds that exceeded 4%.
