Greece to repay €6.9 billion early to push debt ratio below Italy's

Greece once lived from one emergency loan payment to the next. In 2010, it was being kept afloat by its eurozone neighbours. Today, it has about €40 billion in cash and is choosing to repay some of those same bailout loans years ahead of schedule.

The next payment, €6.9 billion due on 15 June, should push Greek public debt below Italy’s for the first time. Not long ago, that would have sounded fanciful (Capital.gr, Fortune Greece).

The oddity is that Athens is rushing to repay some of the cheapest debt it has.

The paradox of repaying a bargain

The loans are part of the Greek Loan Facility (GLF), the bilateral rescue package extended by 14 eurozone governments during Greece’s first bailout. After several restructurings, the GLF carries a fixed interest rate of about 2.4% (ESM). Greek 10-year government bonds, meanwhile, have recently been trading at around 3.7% (euro2day.gr, World Government Bonds).

On the face of it, that is an expensive piece of tidying up: paying off 2.4% debt when the market would charge 3.7%. Finance Minister Kyriakos Pierrakakis has stressed that the repayment will come entirely from Greece’s cash reserves, not from fresh borrowing (thetoc.gr). That is the crucial distinction. Greece is not replacing cheap money with dearer money. It is using cash to reduce the headline debt burden, while betting that the wider benefits will outweigh the lost advantage of holding on to cheap loans.

The mechanism is straightforward. Each billion repaid lowers Greece’s debt-to-GDP ratio, meaning total government debt as a share of the economy. After the June payment, that ratio is expected to fall to about 136.8%, just below Italy’s 138.6% (Capital.gr, Fortune Greece). A lower ratio should support better credit ratings, and better ratings mean lower borrowing costs on future bond sales. All three major rating agencies now rate Greece as investment grade for the first time since 2010 (Greek Reporter). Each further upgrade trims the price Athens pays at auction.

There is another prize too, harder to put in a budget table: autonomy. The GLF loans carry the memory of troika oversight and the politics of crisis-era conditionality. Irish readers will recognise why clearing that kind of debt is about more than interest rates.

Who pays, who profits

The creditor countries lose a modest but useful income stream. As Bruegel has shown, several lenders funded their GLF contributions at treasury-bill rates below 2.4%, earning a spread on loans presented at home as solidarity.

Greek taxpayers get a cleaner sovereign balance sheet and, in time, the prospect of cheaper borrowing. The government has signalled that some of the fiscal room will go towards income tax cuts and pension increases, estimated by the European Commission at about 0.6% of GDP (European Commission).

The cost is not imaginary. Taking €6.9 billion from a €40 billion buffer reduces the cash cushion that protects Greece if markets turn. The strategy pays only if ratings improve and future borrowing costs fall enough to justify retiring loans priced at just 2.4%. If credit conditions tighten before that happens, Athens will have exchanged cheap certainty for a more expensive bet on credibility.

What the numbers don't capture

The IMF’s latest review of Greece points to the weakness beneath the fiscal success story. The economy still leans heavily on tourism and EU recovery funds, while productivity growth trails the rest of the eurozone (IMF). Large primary surpluses, meaning government revenue minus spending before interest payments, also carry a social cost in a country with above-average poverty. Debt reduction is being funded through discipline, but the effect on public investment and services is harder to capture in the debt charts.

The rating agency reviews between September and November will show whether the gamble works. A move to BBB+ would push borrowing costs lower and strengthen Athens’s argument that paying more now can buy cheaper money later. Until then, Greece is doing something rare for a former crisis state: voluntarily overpaying to make a political and financial point, and hoping credibility compounds faster than interest.