Greece continues “close” contacts with the markets, showing that it wants to build a level of confidence, in an effort to further improve conditions for Greek public debt, which may be declining as a percentage of GDP, but remains almost unchanged as an absolute magnitude.
Yesterday’s exit of the country and the undoubtedly great interest of investors in it Greek 30-year bond show that the markets perceive Greece in a completely different way compared to the crisis period when there was a huge confidence gap.
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After the exit from the memoranda, the country’s debt profile is improving more and more, with the public debt decreasing as a percentage of GDP, while there is also a capital reserve of 36-37 billion, which is a reinforcing factor of the confidence that exists, which briefly explains yesterday’s interest of foreign investors towards Greece.
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In this context, the government has worked out and is gradually implementing a plan to improve the profile of the Greek debt, which goes through the “expenditure” of the famous “cushion”, which accompanies Greece from the agreement on the Greek debt reached in 2018.
A first step will be the disbursement of the approximately 15.5 billion euros of the last installment of the ESM loan from the third memorandum. This amount was given from the loan of 85 billion from the third memorandum with the aim of enabling Greece to restore its contact with the markets.
The use of this amount, which corresponds to approximately 40% of the cushion of public funds, was linked to restrictions. Before using the amount for debt reduction, Greece would first have to secure the relevant permission from the ESM.
After the recovery of the investment grade, and the continuous and ongoing access of Greece to the markets, this clause is considered excessive.
With this flexibility, the Ministry of National Economy and Finance and ODDIX will be able to choose and repay early and other previously expensive loans, further reducing the cost of servicing the public debt.
The loans
It should be noted that the loans of the first memorandum from the eurozone amount to 52.9 billion. euros with a repayment period from 2020 to 2040 and with a 3-month Euribor rate + 0.5%, which makes them expensive as the 3-month Euribor is 3.412%. Also starting this year is the servicing of the EFSF loans amounting to 141.8 billion euros with repayment in 2056, while from 2034 the 86 billion euros from the ESM will be added until 2060.
It is worth recalling that in the spring of 2022, 2.645 billion euros were returned to the partners, while in the same year the country’s obligations to the International Monetary Fund were zeroed out (1.86 billion euros were paid, which would normally be paid at the beginning of 2024).
Greece is preparing to repay loans of up to 5 billion euros to Eurozone countries in order to return to normality. Greece plans to repay up to 5 billion euros (or $5.34 billion) of loans to eurozone countries early as the country seeks to return to normalcy after a decade-long debt crisis, two government officials told Reuters. .
Debt reduction
Greece will have to reduce its debt-to-GDP ratio below 100% by 2034 in order to be able to borrow based on the interest rates that will apply as analysts estimate. For 2024, general government debt is expected to shrink again to 152.3% of GDP from 160.3% of GDP in 2023 (ie €355 billion in absolute terms).
However, there is already a reduction. According to the most recent ELSTAT data for 2023, the Debt to GDP ratio decreased from 172.7% in 2022 to 161.9% in 2023. However, it is worth noting that the decrease in the debt to GDP ratio is almost exclusively due to the change of the nominal GDP by 6.6% while the nominal debt decreased by only 100 million euros!
