The prospect of a reduction in Greek debt, even under unfavorable international conditions, is indicated by a report from the European Stability Mechanism (ESM), highlighting the extent of the fiscal adjustment achieved in recent years.
The report, titled “Euro Area Stability Watch,” assesses the macroeconomic and financial risks for the euro area and the consequences they have for the fiscal positions of its countries and their bond markets. The assessment is based on an adverse scenario prepared by the ESM, which envisages a new escalation of tensions in the Middle East and rising energy prices, combined with a significant decline in US stock and bond prices, from which European investors would also suffer losses. Each of these two shocks on its own would constitute a significant challenge, but together they would push the euro area economy into recession (a 0.4% decline in GDP in 2027) and inflation close to 5% (at an average level of 3.4% in 2027).
Based on this adverse scenario, with no policy changes, public debt would increase in all euro area countries by 2035, with the exception of Greece and Cyprus, where it would decline. The increase in euro area public debt would be approximately 20 percentage points greater compared with the ESM’s baseline scenario, which is aligned with the European Commission’s latest forecasts for the economic outlook.
Under the ESM’s baseline scenario, euro area debt is projected to increase over the next decade and reach 103% of GDP, from nearly 90% last year, due to the impact of demographic ageing, the increase in defence spending to 3.5% of GDP, higher borrowing costs, and subdued growth rates. For Greece — and other countries that were under ESM programmes during the past decade — a continued reduction in debt is nevertheless expected.
In the first quarter of 2026, Greek debt declined at the fastest pace in the euro area, according to Eurostat data, falling to 143.5% of GDP, or by 9.4 percentage points compared with a year earlier (152.9%). By contrast, in the euro area as a whole, it increased to 88.9% from 87.2%, respectively.
A significant reduction in Greek debt in the coming years is also projected by the International Monetary Fund and credit rating agencies. The IMF forecasts that it will decline to 110.9% of GDP in 2031 from 145.7% last year, while it expects French debt to rise over the same period to 120.7% from 116%, and Belgian debt to 122.3% from 106.3%. For Italian debt, the IMF projects a marginal decline to 136.1% from 137.1% of GDP. In other words, the Fund forecasts that over the next five years Greek debt will be lower not only than Italian debt — something expected to happen already this year — but also lower than French and Belgian debt.
The continued rapid reduction in debt keeps the spread (the difference in yield) of Greek government bonds against German bonds at low levels, during a period of intense volatility and uncertainty caused by the war in the Middle East. Following the renewed rise in international oil prices, government bond yields increased worldwide, with the yield on German 10-year securities approaching 3.20% on Thursday. For Greek 10-year bonds, the yield stood at 3.92%, lower than that of the corresponding French and Italian bonds, which exceeded 4%.
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