**Greece Among Eurozone Economies Least Affected by Prolonged High Interest Rates**
A recent report by Morningstar DBRS has highlighted Greece as one of the eurozone economies least vulnerable to the repercussions of sustained high interest rates, despite its significant public debt. The analysis indicates that Greece's robust economic growth, consistent primary budget surpluses, and an anticipated decline in public debt relative to its economy will help mitigate the impact of rising borrowing costs.
The report examines the effects of a prolonged "higher for longer" interest-rate environment on government borrowing costs and debt dynamics across nine eurozone countries, including Greece, Germany, France, Italy, Spain, Portugal, Belgium, Austria, and the Netherlands. While the increase in bond yields has placed pressure on public finances throughout the eurozone, the effects have varied significantly among the countries assessed. Greece, along with Spain and Portugal, has emerged as one of the least affected nations.
In 2022, government borrowing costs surged following an inflation spike and the European Central Bank's tightening of monetary policy. Although inflationary pressures have since moderated, government bond yields have continued to rise, reaching levels reminiscent of the early 2010s. Morningstar DBRS attributes the persistence of these higher yields to structural changes rather than inflation alone.
The report notes that many advanced economies are issuing a greater volume of bonds as they grapple with large budget deficits while also needing to refinance substantial amounts of existing debt. Additionally, increased corporate borrowing is competing for investment funds, and demand for long-term government bonds has weakened due to central banks reducing their bond holdings and shifts in the behavior of institutional investors, such as pension funds. Consequently, investors are seeking higher returns to accommodate a larger share of new government debt.
Morningstar DBRS anticipates that these supply and demand dynamics will persist over the medium term, implying that government financing costs are likely to remain elevated. Under the agency's central scenario, interest rates are expected to hold at current levels through the end of the decade.
The report projects a rise in interest payments as a percentage of GDP in various countries between 2025 and 2030. For instance, France is expected to see an increase of 0.9 percentage points, while Belgium may face a rise of 0.6 points. In contrast, both Spain and Portugal are projected to experience a modest increase of only 0.1 points. Remarkably, Greece is forecasted to reduce its interest burden by 0.2 percentage points of GDP during the same period, despite the prevailing high-rate environment.
While the level of existing debt is a critical factor—countries with larger debt stocks face greater exposure when maturing debt must be refinanced at higher rates—Morningstar DBRS emphasizes that debt alone does not dictate vulnerability. Economic growth and the trajectory of public finances can significantly alter the landscape.
Greece, Spain, and Portugal are anticipated to benefit from an average nominal GDP growth rate of 4.4 percent annually from 2026 to 2030, in contrast to the 3.1 percent growth projected for the other six countries analyzed. Furthermore, Greece, Spain, and Portugal are expected to maintain primary budget surpluses throughout the 2026-2030 period, thereby reducing their future borrowing requirements. Conversely, all other countries in the study, with the exception of Italy, are expected to operate with persistent primary deficits.
In conclusion, the report from Morningstar DBRS underscores that higher bond yields present the most significant risk to countries that combine high debt levels with weak public finances and sluggish growth. Conversely, stronger economic growth and improved fiscal positions can serve as crucial buffers against the challenges posed by a prolonged global interest-rate shock. As Greece continues to navigate its economic landscape, it appears well-positioned to withstand the pressures of rising interest rates compared to many of its eurozone counterparts.