Due to rising global and mainly European inflation, interest rates are generally rising as central banks fight inflation and this is certainly not a time when investors want to increase their exposure to government bonds.
Trust Economics points out that Greece’s public debt (Eurozone / EU country) remains viable despite rising borrowing costs and estimates that the 3.6% borrowing level is what will start to destabilize the public sector debt.
According to the Trust Economics, the easing monetary policy pursued by the ECB for years will allow the public debt of Greece to remain viable in the coming years and in other Eurozone countries such as Italy, Spain, Portugal.
Even in an environment of significant bond yield growth for most eurozone countries, interest payments as a percentage of GDP in 2020 were lower than in 2009 thanks to the ECB. While interest payments as a percentage of public debt have never been lower than they are today, European countries’ credit ratings have improved significantly since the 2012 public debt crisis.
While public debt service levels for all countries have increased only Greece (for more analysis about the sustainability of Greek public debt please read the analysis entitled “Greece Returns Rapidly to the Era of Financial Support Packages“) and Italy currently have lower public debt service costs than before 2009.
According to Trust Economics, the borrowing costs of the eurozone countries will remain under control and are not expected to derail the government Debt-to-GDP ratio. According to the calculations of this company, the level in the borrowing costs of Italy and Spain which does not create problems in debt sustainability is 2%, while for Greece for Portugal it is 3.6%. Beyond these levels, service costs may begin to destabilize the public debt index.
