Medium-term fiscal risks for Greece expected - EU report shows debt decline, but challenges remain
The European Commission identifies high risks to Greece's medium-term fiscal sustainability in the "Public Debt Sustainability Monitoring Report" for EU member states. In contrast, short- and long-term risks are characterized as low.
More specifically, regarding the medium-term period and according to the baseline scenario for fiscal developments reviewed in the report, debt is projected to decrease, but remain high in the medium term, reaching around 119% of GDP in 2035.
The reduction in the public debt ratio is based on the assumption of a structural primary surplus of 1.7% of GDP after 2025, with unchanged fiscal policy from 2026, excluding changes in aging costs.
Debt reduction also benefits from another favorable effect during 2034. Gross government financing needs are expected to decline until 2027, before rising to around 14% of GDP in 2035.
Regarding short-term fiscal risks, which are generally assessed as low, this assessment comes as the government's gross financing needs are expected to remain low, at around 10% of GDP in the period 2025-2026, while Greece maintains an investment-grade credit rating from three of the four major rating agencies.
Regarding the long-term, where low fiscal sustainability risks are also anticipated, it is estimated that Greece will not need to improve the structural primary balance compared to the baseline scenario to ensure debt stabilization in the long term.
However, according to the Commission, several additional factors that increase fiscal risk should be taken into account, which are related, firstly, to state guarantees and, secondly, to non-performing loans in the banking sector. Although their weight has decreased significantly in previous years, it remains at the highest level in the EU. Another factor is the unresolved court cases against the state with potential fiscal implications.
However, according to the Report, there are also mitigating factors related to the debt structure. First, the bulk of the debt is still held by official lenders at low interest rates. Second, the debt structure is particularly outdated (compared to peer Member States) and, third, the fact that public debt is denominated in euros excludes exchange rate risks.
In addition to the baseline scenario, the Commission also examined debt evolution scenarios in more extreme situations.
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