The next two years will be critical for Greece’s fiscal stability

Greece faces its first major test in maintaining its fiscal performance over the next two years, as the European mechanisms and incentives that helped stabilize the economy after the crisis begin to disappear.

The sustainability of that stability will be tested as temporary advantages fade. These include strong nominal growth, inflation-driven revenues and money from the Recovery Fund. At the same time, debt financing will increasingly depend on market conditions. A study by the Center for Liberal Studies identifies four pressures that could sharply reduce the country’s fiscal room between 2026 and 2028.

The first is the completion of the Recovery Fund. The study estimates that the fund contributed about 1.5 percentage points to Greece’s annual growth rate during its five-year operation. The International Monetary Fund expects public investment to fall by about 2.5 percentage points of GDP once the fund ends, without a corresponding rise in private investment. Private investment remains 24% below pre-crisis levels, and the economy has not yet demonstrated that it can grow by more than 2% without European support.

The second challenge is the expansionary package planned for 2026 and 2027. It includes tax cuts, higher public-sector wages and increased pensions, with a projected cost of 0.6% of GDP in 2026 and 0.8% in 2027. The study describes these as permanent expenses funded by revenues that may not be guaranteed in future years. It also highlights banks’ continued reliance on deferred tax claims, which equal 44.6% of the core CET1 capital ratio at the four systemic banks. Finally, pension spending accounts for about 14% of GDP, with roughly 43% financed directly through the state budget.