Why Early Debt Repayment Pays Off

Greece is preparing to repay €12.84 billion to its creditors this year, the biggest early repayment of public loans since 2019. Most political parties and analysts have viewed the move as broadly positive, although its scale has also prompted debate over whether the money could be used elsewhere.

The Public Debt Management Agency’s basic scenario calls for early repayment to continue over the next three years, particularly for bilateral loans under the Greek Loan Facility. The goal is to repay all such loans from the first bailout program 10 years ahead of their scheduled maturity in 2041.

The agency also wants Greece to fall from its current position as the most highly indebted country in the group to fourth place by 2030. With debt expected to reach 137% of gross domestic product by the end of this year, Greece is projected to rank second, behind Italy. The steps remaining this year include a €2.5 billion repayment of European Financial Stability Facility loans in October, the €2.2 billion repayment of a bond maturing in 2027 on Dec. 15, and a further €100 million reduction in treasury bills in December. These follow June’s €6.94 billion repayment of bilateral loans and a €1.1 billion reduction in treasury bills.

Cash reserves are expected to stand at €32 billion to €33 billion at that point, compared with €34.5 billion to €35 billion today. The government says reducing debt will improve Greece’s standing with markets. It points to borrowing costs that have remained below those of Italy and France, arguing that lower government borrowing costs also help businesses and support growth. The Finance Ministry called criticism of the policy “groundless.”

Syriza and economic analysts have questioned the size of the repayment and suggested directing more resources toward public investment or housing. They argue that this could accelerate growth and lower debt as a share of GDP. The government responds that using the funds for public spending would conflict with agreed European Union spending targets and increase debt. The larger repayment will also cut €2.2 billion from 2027 maturities, a year the article describes as unpredictable because elections are scheduled in Greece, France, Italy and Spain.

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The criticism is groundless.