Greece Moves to Repay Bailout Loans Early, Signalling Fiscal Recovery and Market Confidence

Greece has taken another step in shedding the legacy of its sovereign debt crisis by repaying a portion of its eurozone bailout loans well ahead of schedule, a move aimed at strengthening investor confidence and reducing long-term borrowing costs.

This week, Athens completed the early repayment of €5.3bn in loans issued under the first eurozone bailout programme. These obligations were originally set to mature after 2031, with some extending into the 2040s. Paying them down sooner represents a milestone in Greece’s long-running effort to stabilise its public finances and move further away from crisis-era dependence on external support.

The repayment was coordinated by the European Commission and underscores Greece’s reduced reliance on emergency loans, while also lowering the burden of future interest payments. The loans were issued under the Greek Loan Facility (GLF), the first emergency rescue mechanism created within the euro area, at a time when no permanent bailout framework yet existed.

The GLF was established before the creation of the European Stability Mechanism and formed part of a broader set of adjustment programmes during the eurozone sovereign debt crisis. When Greece lost access to international financial markets in 2010, the facility helped prevent an immediate default and limited contagion risks to other EU member states.

According to local media reports, retiring this portion of the debt ahead of schedule is expected to save Greece roughly €1.6bn in interest payments through to 2041. By directly reducing future budgetary pressures, the move is projected to help bring the country’s debt-to-GDP ratio below 120% by 2029. This is a notable development for a country that still carries the highest public debt ratio relative to GDP in the euro area.

A financial crisis in three chapters

Between late 2009 and 2018, Greece endured a severe sovereign debt crisis rooted in years of fiscal mismanagement, persistent budget deficits, and weak economic competitiveness. The turmoil ultimately required three international bailout programmes from the European Union and the International Monetary Fund, each accompanied by stringent austerity measures and far-reaching structural reforms.

The first phase of the bailout unfolded between 2010 and 2012, relying on emergency bilateral loans from euro area countries through the GLF, alongside IMF support. A second phase began in 2012 with a major debt restructuring that imposed losses on private investors and shifted a large share of Greek debt onto public institutions. The final phase came in the form of a stabilisation programme under the European Stability Mechanism, which concluded in 2018.

Although the GLF is no longer active as a lending facility, Greece continues to service the remaining loans. The effects of this debt extend beyond public finances, influencing borrowing costs for private businesses, investor sentiment, and the country’s credit ratings.

By around 2023, Greece had regained investment-grade credit ratings from major rating agencies, reflecting stronger fiscal performance and improved institutional stability. This recovery has helped drive borrowing costs lower. At times, yields on Greek 10-year government bonds have fallen below those of larger economies such as Italy and France, a dramatic reversal from the crisis years when Greek debt was widely viewed as a high-risk “junk” asset.

The case for paying early

In 2023, Prime Minister Kyriakos Mitsotakis committed to making an early repayment of €5.3bn in bailout-era debt. As of June 2025, Greece’s total public debt stood at approximately €403.2bn, equivalent to about 151% of gross domestic product, representing the full stock of outstanding government liabilities.

To proceed with the early repayment, Greece sought and obtained approval from its eurozone lenders. After the European Stability Mechanism and the European Financial Stability Facility agreed to waive the usual procedures earlier in December, the government drew on funds already held in a special savings account, rather than issuing new debt to finance the payment.

“Greece continues to make significant progress in strengthening its economy. This additional early repayment of the GLF loan sends another positive signal to financial markets, improves Greece’s debt structure and reflects the country’s improving fiscal position,” Pierre Gramenia, ESM managing director and EFSF CEO, said at the time.

Not everyone is convinced that accelerating debt repayments is the best use of public funds. Critics argue that while the move improves Greece’s debt profile on paper, it reduces domestic liquidity at a time when households and businesses are still grappling with high living costs.

Opposition parties have argued that the money used for early repayments could instead be directed toward public investment, wage support, or targeted relief measures, potentially delivering a more immediate boost to incomes and economic activity.

By fLEXI tEAM