Early debt repayment: how much does Greece benefit?

Kyriakos Pierrakakis stated that everyone 1 billion euros early repayment of public debt saves Greece near 30 million euros per year.

Minister of National Economy and Finance of Greece spoke at Βουλή (Greek Parliament) during reappointment hearings Yiannis Stournaras for the post of head Τράπεζα της Ελλάδος (Bank of Greece). According to Pierrakakisthe early repayment strategy has already reduced the risks associated with 2032 and obligations for Greek Loan Facility.

We are talking about loans received Greece during the years of the debt crisis. As previously reported Protothemathe country is preparing the next early repayment of interstate GLF loans in the amount of 6.9 billion euros.

“How much do we gain from every early repayment of one billion euros? We win 30 million a year. How much have we repaid so far? We have repaid 26.5 billion euros. This is approximately 800 million.”said the minister.

There are savings. Victory is controversial

Paying off debt early actually reduces future interest costs and improves the picture for the markets. Here Pierrakakis He’s not lying. But he only tells a convenient part of the truth.

If the savings are approx. 3% per annum, and inflation remains approximately at the level 3.5%then the real value of such debt becomes negative – about minus 0.5%. In other words, the old debt is already partially depreciated in terms of inflation.

In such a situation, early repayment no longer looks like an unconditional economic victory. This is a political choice: the state takes real money from the budget today in order to quickly please the markets tomorrow.

For rating agencies, this is discipline. This is a good signal for creditors. For citizens – less money for the economy, medicine, infrastructure, housing, family support and reduced tax pressure.

Inflation helps the state, but hits people

For the budget inflation is convenient: nominal GDP is growing, old debt is relatively decreasing, statistics are becoming more beautiful. But for households, the same inflation means rising prices, rents, bills and a constant decrease in purchasing power.

This creates an unpleasant picture: the state improves debt indicators, and citizens pay for it through expensive life. On paper, the country is becoming more resilient. For some reason this stability is not felt in the supermarket, pharmacy and when paying rent.

Primary surplus is money taken out of the economy

Money for early repayment does not come out of thin air. One of the main sources is primary surplusthat is, a situation where the state collects more than it spends on current needs before paying interest.

This is a good sign for investors. For society – often bad. Because a surplus means the actual withdrawal of money from the economy. These funds do not become salaries, hospitals, roads, schools, social programs or tax cuts.

This is where government rhetoric begins to crack. You cannot simultaneously talk about enormous savings and pretend that it has nothing to do with the standard of living. If billions are spent on early repayment of debt, they do not work here and now for people.

Banks are out of touch again

Separately Pierrakakis rejected the idea of ​​an additional tax on banks. According to him, such a measure would limit financing of the economy and would give a bad signal to the markets after the return Greece to an investment rating.

“Banks now need smaller reserves because the risk of default has decreased and the economy has improved”said the minister, referring to data Bank of Greece.

He also recalled measures on bank commissions and said: “We want the system to work. If we think we should interfere, we intervene.”. Sounds solid. But the average bank customer, who pays a commission on almost any money movement, is unlikely to feel particularly protected.

The price of politics is new emigration

But the main blow of such a policy is visible not only in the budget tables. It is visible in demographics. When the government has been focusing on primary surpluses, market confidence and early payments to creditors for years, while low wages, expensive rent, poor healthcare and a high cost of living persist within the country, young people draw a simple conclusion: there is little future here.

Greece I have already paid a huge price for this. During the years of the crisis and after it, hundreds of thousands of Greeks, especially young and educated ones, left the country. According to various estimates, we are talking about 600–680 thousand people, and in a broader calculation – almost about 800 thousand. For a country with a population of about ten million and a difficult demographic situation, this is not a statistic, but a national loss.

And this loss has already come back to haunt the country. Schools are closing, the population is aging, labor shortages are growing, the tax base is shrinking, and the pension system is increasingly dependent on fewer and fewer workers. The state first pushes out its young citizens with a low standard of living, and then begins to talk about the need to import labor from abroad. This is no longer an economic strategy, but an admission of failure.

Therefore, a conversation about early repayment of debt cannot be conducted only in the language of interest and ratings. If a country pays creditors faster but loses youth, families, fertility and human capital, then such a policy can only look successful when reported to markets. For the most Greece this is a much more dangerous deal: the debt is reduced, but the country loses those who were supposed to build its future.

Editorial comment

This story has another uncomfortable layer. Early repayment of Greek debt is beneficial not only Athenswhich get beautiful statistics for the markets. It is also convenient for lenders, whose own budgets are bursting at the seams today.

Europe have already spent huge sums on support Ukrainemilitary assistance, refugee support and social programs. According to Council EUthe total amount of support for Ukraine from the European Union includes hundreds of billions of euros financial, humanitarian and military assistance, as well as expenses for Ukrainian refugees within the EU.

At the same time, countries EU increasing defense spending, purchasing weapons and restructuring budgets to suit the new military reality. Added to this are energy risks around Strait of Hormuz: restrictions on shipping are already putting pressure on the oil and petroleum products market, and European Commission warns of a possible tightening of the situation on the aviation fuel market if the crisis is not lifted.

Against this background, the early return of Greek money looks not only as a manifestation “responsible politics”but also how very timely assistance to creditors. Even if it is not formalized as a public demand, the interest is obvious: getting money (with interest) earlier is always nicer, especially when your own budgets are overloaded with war, migration, defense and the energy crisis.

This is why the government version sounds too smooth. They tell us: “we save 30 million euros per year for every billion”. But with inflation around 3.5% contingent debt 3% It’s already getting cheaper. Its real value becomes negative. So the question is not whether there are accounting savings. She is.

The question is, why is the state in a hurry to give away real money, when this money could work within the country, raising the standard of living, and stopping the motivation of young people to leave Greece?

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