Greece Passes Debt Stress Test, Projections Indicate Continued Reduction

The European Stability Mechanism (ESM) has released a report indicating that Greece's public debt is projected to decrease over the next decade, even under an adverse scenario. The ESM's 'Euro Area Stability Watch' report assesses macroeconomic and financial risks for the euro area and their impact on countries' fiscal positions and bond markets.

The report outlines an adverse scenario in which tensions escalate in the Middle East, energy prices rise, US stock and bond prices decline, causing losses for European investors. This would push the euro area economy into recession by 2027, with a 0.4% GDP decline, and inflation close to 5%, averaging 3.4% in 2027.

In this scenario, public debt would increase in all euro area countries except Greece and Cyprus by 2035. Greece's debt is projected to decrease due to the country's fiscal adjustments achieved over recent years.