Why Three Rescues Didn't Solve Greece’s Debt Problem

In August, Greece is due to graduate from its third and last international rescue program. Yet the country is still saddled with a towering public debt — nearly 190 percent of national income. After months of acrimonious talks, Greece reached a landmark deal with Europe’s other governments on June 22 to ease the burden. It gives Greece a decade or more to start repaying most of its loans in return for assurances that it won’t go back to the spending that brought its economy to the brink of collapse in 2009. While the agreement was hailed as a lifeline for the Greek people, it leaves questions about the country’s ability to repay over the longer term.

It’s come a long way. Between 2008 and 2016, the Greek economy contracted by 28 percent — one of the deepest recessions in modern history. Now output is on course to grow by 1.9 percent this year, according to the European Commission. Investors are becoming more confident, allowing Athens to return to the government-bond market in July 2017. S&P Global Ratings upgraded Greece’s sovereign debt to B+ after the agreement. The interest rate on the benchmark 10-year bond has fallen from 4.6 percent a year ago to roughly 4.1 percent, though that compares with 2.84 percent for similar Italian notes and 0.35 percent for German bunds. Still, Greece’s recovery is fragile.