For a country like Greece, with a debt-to-GDP ratio of around 146% in 2025, the ways to further reduce it are well known. Fiscal discipline, with or without satisfactory growth rates, for many years. To a certain extent, the country has succeeded, resulting in a decline in the debt-to-GDP ratio from over 200% to 146% last year and to approximately 137% this year, according to official estimates.Although Greece has been growing faster than the European Union (EU) and eurozone averages in recent years, it cannot boast about this. This is because growth rates are not strong enough, even though the country is emerging from a deep, prolonged GDP slump that is typically followed by a spring-like rebound.
Unfortunately, there are serious reasons not to be optimistic about the growth rate in the coming years. Greece’s population is aging, and fixed capital investment will not have the same momentum without grants from the Recovery Fund, while it has not yet reached the EU average (18% of GDP versus 21%-22% in the EU).
Even more importantly, Greece needs reforms in many sectors to increase productivity. However, the political system—and to a large extent Greek society—does not want them.
Consequently, there are serious reasons why Greece may not achieve the high growth rates it could under different circumstances. This is why international organizations project the long-term growth rate of the Greek economy to be below 1%.
Under these circumstances, fiscal discipline is the only way forward for an over-indebted country that wants to reduce its public debt. As is well known, Greece has made use of the flexibility provided by the €30–40 billion “liquidity buffer” to accelerate debt reduction by repaying older loans, e.g., to the IMF and the bilateral loans (GLF) from the first memorandum to EU countries.
Most people may not know this, but some things were not that simple. The “cash buffer” of the third memorandum was intended for the repayment of ESM loans, and specifically from 2060 2059, moving forward, e.g., 2026–2027. Negotiations with the ESM and others were required in 2023 to allow Greece to use this money for the early repayment of its bilateral GLF loans. Of course, it helped that several countries had budget deficits, e.g., France, and wanted the money to reduce their deficits. The cash buffer was part of the €30–40 billion “cushion.”
And while one might expect there to be no objections, suddenly some found a pretext to oppose it, in accordance with standard Greek political practice. In fact, one of the arguments was that Athens should repay cheaper loans and take out more expensive new ones. However, a glance at the data would show that Greece was repaying loans at 3-month Euribor plus 50 basis points for an average term of 6to 7 years, while it could borrow on the market for 6 to 7 years at an average interest rate of 3-month Euribor plus 35 basis points.
Therefore, early debt repayment, to the extent that there is a “large liquidity buffer,” is the right move that will benefit Greece.