Handelsblatt: "What is the Greek economy like? Greece’s debt is huge, and in 2032 it will only have to pay interest on 25 billion euros"

Image created by AI

The German publication Handelsblatt, in an article by Geert Holler, warns that 2024 could be a turning point for the Greek economy due to a sharp increase in Greek debt in absolute terms and geopolitical risk, which is increasing due to the wars in Ukraine and Israel.

In fact, as he notes, the only reason Greek debt is sustainable is that the country will not have to pay interest on its EFSF loans until 2032. Then the interest will amount to… 25 billion euros per year and will be payable! What the newspaper writes, and what everyone in Greece seems to have forgotten, is that the consequences of the memoranda will bind Greece for many decades.

Image created by AI

In particular, as the newspaper notes: “Eight years ago, Greece was on the verge of bankruptcy. Now the former bankruptcy candidate appears to be back on track, regaining its investment grade rating – and it’s a remarkable comeback.”

But politicians in Athens should not rest on their laurels. The country still bears a heavy burden from the legacy of the crisis years. The heaviest burden is a huge mountain of debt, 1.6 times this year’s GDP.

Of course, the debt is considered sustainable since more than 70% of the liabilities are borne by public creditors such as the euro bailout funds, the ESM and the EFSF. Loan terms are long and service rates are low.Moreover, since 2013, the country has still not paid a single interest on EFSF loans totaling 97 billion euros. Their service is suspended until the end of 2032. But then the Greeks may have another rude awakening.

The interest payments that will accrue by then will be around 25 billion euros! If taken into account at the start of 2033, Greece’s debt ratio would likely suddenly increase by eight to ten percentage points. Accordingly, the need for refinancing will increase.

It can be assumed that creditors will continue to provide Athens with new deferments. It is quite possible. But, Greeks, you shouldn’t count on it, because no one knows what the political balance of power in the Council of Euro Finance Ministers will look like in eight years.”

Image created by AI

To mitigate the looming interest rate shock, Greece should reduce its debt as quickly as possible in the coming years, according to Handelsblatt. A necessary condition for this is sound fiscal policy to ensure budget surpluses and investments that contribute to sustainable economic growth.

“On average EU investment accounts for 23% of gross domestic product. In Greece this figure is only 14%.”

To close this gap, the government in Athens needs to carry out further reforms, especially in education, public administration and the judiciary. Investors need qualified officials, simple and time-consuming bureaucratic approval procedures and guarantees of security from the point of view of justice, the conclusion says.

Source link