Greece will pay €6.9 billion early to push debt ratio below Italy’s

In 2010, Greece was surviving on emergency loans from its eurozone neighbours. Now it holds roughly €40 billion in cash and is voluntarily repaying those loans a decade early. The next instalment, €6.9 billion due 15 June, will push Greek public debt below Italy's for the first time — a reversal that would have seemed absurd not long ago (Capital.gr, Fortune Greece).

The strange part: the debt Greece is rushing to retire is among the cheapest on its books.

The paradox of repaying a bargain

The loans in question belong to the Greek Loan Facility (GLF), the bilateral rescue package extended by 14 eurozone governments during the first bailout. After multiple restructurings, the GLF now carries a fixed interest rate of about 2.4% (ESM). Greek 10-year government bonds, by contrast, recently priced at around 3.7% (euro2day.gr, World Government Bonds).

On pure arithmetic, this looks like a bad trade: retiring 2.4% debt when the market charges 3.7%. Finance Minister Kyriakos Pierrakakis has stressed the repayment comes entirely from Greece's cash reserves, not new borrowing (thetoc.gr). That changes the calculation. Greece isn't swapping expensive debt for cheap debt. It is spending down cash to shrink its overall debt pile, and betting the knock-on benefits are worth the foregone interest savings.

The bet works like this. Every billion repaid pulls down Greece's debt-to-GDP ratio (total government debt as a share of the economy). After June, that ratio should land at about 136.8%, just below Italy's 138.6% (Capital.gr, Fortune Greece). A lower ratio means better credit ratings, which compress borrowing costs on everything Greece issues in the future. All three major rating agencies now grade Greece as investment-grade for the first time since 2010 (Greek Reporter). Each notch higher shaves basis points off every bond auction.

Athens is also buying something that doesn't show up in a spreadsheet: sovereignty. GLF loans came with political strings and the memory of troika supervision. Clearing them removes that institutional baggage.

Who pays, who profits

The creditor countries lose a quiet income stream. As Bruegel has documented, several lenders funded their GLF contributions at treasury-bill rates well below 2.4%, meaning they earned a spread on what was sold domestically as "solidarity" lending. Early repayment ends that arrangement.

Greek taxpayers gain a cleaner balance sheet and, eventually, cheaper borrowing. The government has signalled it will use part of the fiscal space for income tax cuts and pension increases, estimated at roughly 0.6% of GDP by the European Commission (European Commission).

The trade-offs are real, though. Spending €6.9 billion from a €40 billion buffer shrinks the cash cushion that protects Greece against market shocks. And the strategy only pays off if rating upgrades and lower future borrowing costs more than compensate for retiring loans that charged just 2.4%. If credit conditions tighten again before those upgrades arrive, Greece will have swapped cheap certainty for expensive hope.

What the numbers don't capture

The IMF's latest review of Greece flagged a structural concern underneath the fiscal headline: the economy still depends heavily on tourism and EU recovery funds, with productivity growth lagging behind the rest of the eurozone (IMF). Running large primary surpluses (government revenue minus spending, excluding interest payments) in a country with above-average poverty raises a distributional question the debt charts don't answer. Fiscal discipline is funding debt reduction, but the cost to public investment and services is harder to measure.

Rating agency reviews between September and November will test whether the strategy delivers. A move to BBB+ would compress borrowing costs further, validating Athens's gamble that paying more today buys a cheaper tomorrow. Until then, Greece is the rare debtor choosing to overpay on principle, wagering that credibility compounds faster than interest.