Latest ‘stress test’ on Greek debt shows high degree of sustainability

S&P proceeded with “stress tests” on various countries this month to ascertain the repercussions on borrowing costs from a potential hike in yields.

Specifically for Greece, the basic scenario shows that servicing interest rates, as a percentage of GDP, will increase by 2.7 percent in 2021; by 2.6 percent in 2022 and 2.5 in 2023.

Nevertheless, given that the larger portion of Greece’s debt is linked with a fixed interest rate, the country’s exposure to a possible hike in yields is limited, while a long maturity period translates into smaller annual payments – roughly 5.5 billon euros per annum, for many successive years.

In relation to the country’s GDP, Greece’s annual payments are roughly half of what other European countries pay. Moreover, Greece’s Public Debt Management Agency (PDMA) has mostly fixed yields for 22 years at approximately 200 basis points lower than thresholds to ensure the sustainability of Greek debt.