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From default to investment grade: A brief history of Greek debt
In 2009, Greece’s ballooning budget deficit raised concerns about the sustainability of the country’s debt. This triggered a crisis that lasted almost a decade.
It led to three adjustment programmes agreed with the European Commission, the ECB and the International Monetary Fund (IMF), led to the largest sovereign default in history, cost around a quarter of Greek GDP and pushed the unemployment rate to a peak of 28 per cent.
Given that Greece’s general government debt has exceeded 350 billion euros in recent years and the debt-to-GDP ratio reached 160 per cent of GDP in 2023, the question is often asked whether the country is still vulnerable and at risk of another crisis.
This paper, written for the Friedrich Ebert Foundation, outlines the reasons why the current situation is different from 2009. It also presents the key variables that show that Greece’s public debt is not such a pressing concern as long as prudent fiscal policies remain in place.
Read the paper here: https://library.fes.de/pdf-files/bueros/athen/21215.pdf
1 Comment(s)
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Is Greece still vulnerable and at risk of another crisis? I am not sure that this is entirely up to the Greek government. Greece's external debt has always been high as a percentage of GDP. Since termination of the program in 2018, external debt has increased by about 150 BEUR and now stands at 553 BEUR, an staggering relation to GDP! Owing to Greece's 'success story', money is again flowing into the country in huge amounts. It seems that the bulk of it goes to the private sector and there the bulk to the banking sector. One should remember what happened in Spain: the state was in good shape but the private sector was over-indebted and had to be bailed out by the state. After that, the state was no longer in good shape. Conclusio: with so much funds flow from abroad, it is important to monitor how that money is spent/used/invested. If something ever goes wrong, the private sector's problems are likely to become the state's problems.