Surpluses are not politically viable indefinitely, Moody's believes

Moody's has issued a warning regarding Greece's fiscal policy, suggesting that the country's current strategy of running large primary surpluses is unlikely to be politically sustainable indefinitely. This assessment raises questions about whether Greece can significantly reduce its public debt in the future. The rating agency emphasizes that this issue will become particularly critical ahead of the 2027 elections, as the government faces pressure to adjust its fiscal policies.

The Greek government has been following a path of fiscal consolidation since the pandemic, which has led to significant reductions in public debt. Moody's points out that this reduction has been supported by strong historical reforms, robust economic growth, and a rapidly declining debt burden. These factors have been bolstered by substantial primary surpluses recorded after the pandemic, along with improved tax compliance and anti-tax evasion strategies implemented by the authorities.

The Recovery Fund has also played a role in reinforcing these trends by linking reforms to investment support. Additionally, the government has remained committed to both domestic and EU expenditure rules, using excess revenues primarily for debt repayment or increasing cash reserves. This approach seems to have strengthened the outlook for stabilizing the debt over the next two years, even as overall fiscal performance gradually moderates from recent exceptional levels.

According to Moody's, the primary surplus reached 4.9% in 2025, up from 4.8% in 2024. It forecasts that this figure will remain high at around 3.3% of GDP during 2026-2027. However, the agency notes that there is clear recognition that such high primary surpluses are unlikely to be politically viable in the long term. As the debt ratio decreases, pressures for easing fiscal conditions and allocating more resources to public investments and social priorities are expected to increase.

As time passes, the central question will shift from whether there is fiscal discipline to how much it will moderate once spending pressures intensify and the debt further declines, potentially reaching 120% of GDP—a threshold that appears to be an informal reference point for the government aiming to achieve by 2029.

The political dynamics surrounding the upcoming elections, scheduled by July 2027, will thus serve as a crucial test for the resilience of Greece's fiscal culture. A gradual transition toward more moderate surpluses is considered the most likely medium-term trajectory, although this casts doubt on the continuation of debt reduction efforts.

Beyond fiscal considerations, another factor that will be increasingly important for assessing Greece's creditworthiness is productivity. Moody's highlights that prospects for growth will continue to be one of the main pillars supporting the country's economic strength in the coming years, provided that implementation of investments remains strong and the momentum of reforms continues.

Growth slowed to 2.1% in 2025, and the agency predicts a modest slowdown to 1.7% this year and in 2027. This deceleration reflects the transition from a period of strong catch-up growth post-pandemic to an expansion increasingly constrained by supply-side factors, including labor market tightness in service and construction sectors.

The fundamental credit issue for Greece will therefore no longer be the level of short-term debt but rather the ability to sustain economic growth and maintain fiscal discipline amid evolving political and economic challenges.