Greece retains capacity to service debt, European Commission report says

Greece retains the capacity to service its debt, the European Commission has said in its fourth post-program surveillance report released on Wednesday.

“Greece retains the capacity to service its debt. Greece was upgraded to investment grade by a third major rating agency in December 2023. According to the debt sustainability analysis, Greece is deemed to face low risks in the short term, high risks in the medium term and low risks in the long term,” the report’s executive summary said.

“Government gross financing needs for 2024 and 2025 are low, on the back of projected primary surpluses and moderate debt amortization, which is also due to the earlier partial pre-payment of the Greek Loan Facility.

“Greece retains a sizeable cash buffer and has maintained continuous market access amidst narrowing yield spreads following recent upgrades to investment grade.”

The report’s macroeconomic and budgetary projections, including those underlying the debt sustainability analysis, are “in line with the Commission’s Spring 2024 Economic Forecast released on 15 May 2024 (with cut-off date of 30 April 2024),” the Commission said.

The summary also said that economic activity is expected to pick up slightly, with growth continuing to exceed the long-term potential in 2024-2025.

“Greece registered 2% real GDP growth in 2023, well above the EU and euro area average of 0.4%. Output growth is expected to regain momentum, while inflation is expected to decrease at a moderate pace reaching 2.8% in 2024 and 2.1% in 2025.”

It expected the headline budget deficit “to improve further to 1.2% of GDP in 2024 and 0.8% in 2025.”

The commission recommended to seven nations, including France, that they start a so-called “excessive deficit procedure,” the first step in a long process before any member state can be hemmed in and moved to take corrective action.

“Deficit criteria is not fulfilled in seven of our member states,” said EU Commission Vice President Valdis Dombrovskis, pointing the finger at Belgium, Italy, Hungary, Malta, Slovakia and Poland, in addition to France.

For decades, the EU has set out targets for member states to keep their annual deficit within 3% of Gross Domestic Product and overall debt within 60% of output. Those targets have been disregarded when it was convenient, sometimes even by countries like Germany and France, the biggest economies in the bloc.

This time, however, Dombrovskis said that a decision “needs to be done based on, say, facts and whether the country respects the treaty, reference values for a deficit and debt and not based on the size of the country.” [AMNA, AP]