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

In 2010, Greece depended on emergency loans from its eurozone neighbours. It now sits on about €40 billion in cash and is choosing to repay those loans a decade 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, a reversal few in the eurozone would have taken seriously during the bailout years (Capital.gr, Fortune Greece).

The oddity is that Greece is hurrying to retire some of the cheapest debt it has.

The paradox of repaying a bargain

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

On the face of it, that is an expensive choice: paying off 2.4% debt when markets would charge 3.7%. Finance Minister Kyriakos Pierrakakis has said the repayment will come entirely from Greece’s cash reserves, not from fresh borrowing (thetoc.gr). That is the mechanism. Athens is not replacing cheap debt with dearer debt. It is using cash to reduce the total debt stock, in the hope that the political and market gains outweigh the loss of cheap financing.

Each billion repaid lowers Greece’s debt-to-GDP ratio, meaning total government debt as a share of the economy. After June, that ratio is expected to fall to about 136.8%, just below Italy’s 138.6% (Capital.gr, Fortune Greece). That matters because credit ratings shape the price a state pays when it borrows. All three major rating agencies now rate Greece as investment grade for the first time since 2010 (Greek Reporter). Further upgrades would cut the yield Greece pays at future bond auctions.

Athens is also buying back political room. The GLF loans came with conditions and with the memory of troika oversight. Paying them down removes part of that institutional shadow.

Who pays, who profits

The creditor countries lose a modest but steady income stream. As Bruegel has shown, several lenders financed their GLF contributions at treasury-bill rates below 2.4%, then earned the difference on loans presented at home as eurozone solidarity. Early repayment brings that spread to an end.

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

There is a cost. Taking €6.9 billion from a €40 billion reserve reduces the buffer that protects Greece if markets turn. The strategy works only if ratings upgrades and lower future borrowing costs more than compensate for retiring loans priced at just 2.4%. If credit conditions tighten before those benefits arrive, 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 pointed to a deeper weakness behind the fiscal improvement: the economy still relies heavily on tourism and EU recovery funds, while productivity growth trails the rest of the eurozone (IMF). Large primary surpluses, meaning government revenue above spending before interest payments, raise a distributional question in a country with above-average poverty. Debt reduction is being funded by fiscal discipline, but the effect on public investment and services is harder to show in the debt charts.

Rating agency reviews between September and November will show whether the calculation pays off. A move to BBB+ would push borrowing costs lower and strengthen Athens’s case that paying more now can buy cheaper financing later. Until then, Greece is doing something rare for a former bailout state: overpaying on today’s arithmetic to rebuild tomorrow’s credibility.