Debt: When will it return to 60% of GDP – “Snowball” Stournara and the Greek Bell

By 2064, as things stand, and provided primary surpluses are no less than 2% of GDP, we will see debt fall to 60% of GDP, the levels of the early post-colonial era in 1974.

So, the hard times regarding debt are still ahead, as according to the Governor of the Bank of Greece, Yiannis Stournara, another 40 years are needed for the country to reduce it to 60% of GDP. That is, as it was at the beginning of the post-colonial period in 1974 – provided that the threshold for generating primary surpluses is not less than 2% of GDP, and that major reforms are implemented to ensure the desired primary surplus and an adequate spread between the interest rate on public debt and the economic growth rate. According to him, this difference in technical language is called the “avalanche effect”.

Highest debt in the eurozone

Our country still has the highest public debt in the euro area. According to Eurostat data, at the end of the first quarter of 2024, Greece’s debt to GDP ratio was 159.8%, followed by Italy with 137.7%, France with 110.8%, Spain with 108.9%, Belgium with 108.2% and Portugal with 100.4%. %. The lowest ratios were recorded in Bulgaria with 22.6%, Estonia with 23.6% and Luxembourg with 27.2%.

“50 years ago, Greece’s public debt was well below the 60% of GDP limit set by the EU treaty. We owe it to future generations to bring it back to this level,” the central bank governor stresses in his article in the 50th anniversary issue of the Third Hellenic Republic, the Greek parliament’s magazine “Epi tou.” He stresses that the 60% of GDP debt target is achievable and should be passed on to our children and grandchildren.

How much is the debt?

In absolute terms, according to the Hellenic Statistical Authority, public debt in the first quarter of 2024 is approaching €356 billion, compared to €355.732 billion in the corresponding period last year. The 2024 budget targets a debt of 152.7% of GDP in 2024 from 161.9% in 2023, and the stabilization program expects a further decline to 146.3% of GDP in 2025, giving a positive signal to markets and rating agencies to support the budget campaign. New credit rating.

“While the post-colonial era saw the creation of an ideal democracy, from an economic point of view, and especially from a financial point of view, we did not perform well, which is why we reached near-bankruptcy in 2010,” Yannis Stournaras asserts. Nothing bad, pure good though. Greece, despite the division and false dilemmas between supporters and opponents of the memorandum, and despite the great adventure in the first half of 2015, finally succeeded. And not only succeeded, but in return received a great “gift”. The largest financial aid ever granted to a country. It received loans of 289 billion euros to refinance its public debt at an interest rate of 1.1%, for 20 years, and in fact the debt is held by official bodies. This creates a sense of security for many years” but on two conditions, he asserts: that the primary surplus moves to 2% of GDP on a cyclical basis, and secondly, that some fundamental reforms that improve the quality of the republic boost the economy. And change the lives of Greeks for the better.

►Read also: Out of court: KYA is coming to include people with disabilities among vulnerable debtors

The biggest issue

Yannis Stournaras also notes that “most people think that our problem in the previous period was mainly the public sector deficit. It was not the most important thing. It was inflation because we had an economy that started with interest rates at 19% and then went down to about 4%. This big reduction in interest rates overheated the economy and pushed all values ​​up.”

The Governor of the Bank of Greece, in conclusion, emphasizes that one of the main problems of the Western world is how to reconcile capitalism and democracy. “The creation of inequality is due to the nature of the free market system (…) but the free market needs a social safety net so that inequality does not arise. This net is supported by targeted social policy, effective public education and health, a fair and efficient tax system, and effective supervision of markets.”

►Read also: Merger of Attica Bank and Pakritaya: Swap relationship and timeline

Big challenge

In his article in the annual issue of the Parliament Magazine, Finance Minister Kostis Hatzidakis describes the real convergence of entry with the EU average as the biggest challenge of the coming period. This is why the government is implementing a multi-level plan: “First, with a serious fiscal policy, which is the basis of every effort. Second, with policies to enhance the competitiveness of companies and the economy. Third, by continuing to improve the performance of the financial system. Fourth, the optimal use of the funds of the Recovery Fund and the new National Rescue Fund. Fifth, the promotion of mergers and innovation. Sixth, the most efficient use of public assets.”

Follow Imerisi on Google News!