The basic plan envisages the steady reduction of debt at an average annual rate of 10% of GDP and the prospect of reducing the amount of debt below 120% of GDP in the next four years, while also reducing the net balance by approximately 20 billion euros.
This reduction will come from consistently positive growth rates exceeding 3.5% annually in nominal terms (ie real GDP if annual inflation is added), consistently high primary surpluses of around 2.5% of GDP and the gradual reduction of cash reserves, which still remain at 35 billion euros, by 5 billion euros per year for the next 4 years. At the same time, we will also have the gradual reduction of the remaining debt which will officially start this year, since the net borrowing needs of the State for the next three years will be similar to this year’s, i.e. they will exceed just 5 billion euros.
In addition to the reduced borrowing needs, the balance of the debt will be reduced for the next year also through the ECB. As is known, starting next year, the Central Bank will stop reinvesting maturing bonds from the total €38.5 billion it has accumulated in Greek securities through the PEPP program during the pandemic. These bonds will be repaid at maturity and will be permanently written off from the debt. For the next year, 3.5-4 billion euros of bonds are expected to expire.
The profits
These performances, especially for 2025, are expected to bring the next upgrade of the credit from the minimum investment grade of BBB- which is currently in the BBB grade. Then the Ministry of Economy expects a new upgrade until 2028 which will raise the country’s creditworthiness to the BBB+ level, bringing the country to the verge of the A level. This will in turn lead to lower State borrowing costs through the concentration more conservative investors who will increase their position in Greek bonds which they will hold as savings products.
At the same time, in combination with the reduction in interest rates by the ECB, we will have a cumulative reduction in interest rates of around 5%, especially for Greece. The 3% is expected to come from the reduction in borrowing costs which will also drag down bank lending, while 2% will be the reduction of the euro interest rates by the ECB, from the current 4% to 2%.
The reduction in interest costs will give a deep breath to the budgets that will move from next year amid the constraints of the new fiscal framework. While the significant reduction in bank lending rates is considered to stimulate lending and, by extension, investments, through which unemployment will also decrease to close to 6%, the same as the European average.
December is the “zero point” of the project
The “zero point” for the more intensive management effort with the aim of reducing the debt faster is expected to come around mid-December.
Until then, all the formal approvals for the early repayment of the 3rd tranche and the release of the €15.7 billion “cushion” from the ESM (European Stability Mechanism) will come. The debt will be reduced at the end of the year to 153% of GDP. However, from next year Eurostat is likely to increase the debt ratio slightly by writing off half of the deferred interest on the €95 billion loan that Greece took out from the ESM’s predecessor, the ESM, in the years from 2012 to today. EFSF (European Financial Stability Fund) in the second memorandum. The amount will concern 11 billion euros.
The effort will begin in September for the drastic reduction of the debt with the early repayment, for the first time, of a triple installment of 8 billion euros from the loan that Greece took from the eurozone at the beginning of the first memorandum, directly from the eurozone countries .
From the beginning of autumn, Athens will start officially sending to the institutions the request for the early repayment of the triple installment from the GLF. The request must first be approved by the Eurogroup working group and ratified at one of the meetings of the Eurozone Finance Ministers’ Council. Another long process will be the approval of the Greek request by the national parliaments of Germany, Finland, the Netherlands, Austria and Slovakia.
Once the process of the national parliaments is over, it will be the turn of the ESM. In addition to the -formal- approval of the Greek request, the right to claim as Greece’s largest creditor the repayment of its own loans should also be waived, at the moment when Greece will prematurely repay 3 installments of the GLF. The official procedures will be preceded by a long-term dialogue with all stakeholders. This means that the procedures that will run in the coming months are already known to everyone and all that remains is the formal approvals.
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