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Greece National Debt – How They Forced A 50% ‘Haircut’ In 2011


The Bailout deal ends August 2018

Source: Greece's statistics service.

Last Updated: July 17, 2024

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The National Debt Of Greece

Greece is a member of the EU, and so, under the terms of the Maastricht Treaty, the country has to include all public debt in its national debt figures.

However, there are some categories of obligations that the government is not obliged to include in its debt figures. These include guarantees to the nation’s bank depositors, unpaid invoices, and pension system obligations.

What Figures Are Included In The Greek National Debt?

The table below explains what is included in the national debt figure and what isn’t:

Greek Government ObligationGovernment DepartmentIncluded in National Debt?
Government-issued bondsPublic Debt Management AgencyYes
Short-term debt instrumentsPublic Debt Management AgencyYes
Intergovernmental loansPublic Debt Management AgencyYes
Civil Service pension obligationsAllNo
National Pension obligationsIKANo
ECB financingPublic Debt Management AgencyYes
National bank guarantee schemeMinistry of FinanceNo
Accounts Payable (unpaid bills)AllNo

Other factors worth noting are:

  • The state pension system is called Ίδρυμα Κοινωνικών Ασφαλίσεων, which is abbreviated to IKA.
  • Civil service pensions are not provided through a fund, but are paid out directly from the government budget each year.

Who Manages Greece’s National Debt?

The national government is responsible for all public debt in Greece. The ministry that is specifically tasks with managing the national debt is the Ministry of Finance.

The Ministry delegates the implementation of debt raising to the Public Debt Management Agency. This is an independent organization, but it is legally obliged to answer to direction from the Ministry of Finance.

The Ministry appoints all of the agency’s directors and also has the right to sack any of them.

The Greek Financial Crisis: What Role Did Debt Play?

The 2008 global financial crisis hit the Greek government hard. In order to remain within EU requirements on debt, the government hid some of its borrowings in special debt-holding corporations.

The debts held by these government-owned companies were not recorded as part of the country’s public debt.

Secretive loans to off-balance companies cost more in interest payments that the government would have paid on bonds of the equivalent amount.

So, in trying to source more money for government spending, this scheme actually consumed more of the national budget in debt servicing costs.

This resulted in a widening budget deficit, which, in turn, required even more creative methods to finance.

National Government Deficit Of Greece

In 2009, the country came clean on its true debt levels. The recalculation of Greece’s national debt brought it up from €269.3 billion to €299.7 billion — an initial rise of 11%.

Source: OECD (2019), General Government Deficit, Data (accessed on 12/8/20)

The total debt and the interest that it obliged the government to pay was calculated to be unsustainable.

Greece’s Debt Haircut: What Is It And How Did It Happen?

When a country isn’t able to service its debts, investors won’t buy its bonds and banks won’t lend it money. In those circumstances, governments have to turn to the IMF for a bailout.

The IMF usually puts conditions on its loans.

Those conditions reign in government spending and reduce budget deficits and they play a bigger role in resolving the debt crisis than the actual loan amount.

If a country is not able to balance its books and relies on ever-increasing debt to continue its government policies, there comes a point when no one will lend any more money because it becomes clear that the country can never pay it back.

Why Did Greece Refuse Additional IMF Loans?

Adding IMF debt to an unpayable mountain does not resolve the problem.

The Greek government refused to accept IMF loan conditions and threatened to default on all of its existing debts — many countries have done this in the past.

However, as Greece is part of the Eurozone, other European would have suffered a damaged credit rating if that had happened.

When faced with a government that refuses to pay its debts, creditors are often prepared to negotiate a compromise. This is called a debt restructuring.

How Does Debt Restructuring Work?

Creditors may be prepared to lengthen the maturity terms of bonds or reduce the loan amount in exchange for higher interest.

When bondholders propose a change in terms of debt it is called a “restructuring,” when the credit event is forced on creditors by the debtor, it is called a “haircut.”

The holders of Greek debt were forced to accept a 50% haircut in 2011. This measure reduced Greece’s national debt by €100 billion.

How Does the Greek Government Raise Loans?

Owing to the Greek debt crisis, the funding sources of the national debt of Greek is complicated. A large proportion of the country’s debt is owed to supranational organizations, such as the IMF and a range of EU schemes.

According to the Greek Public Debt Management Agency, the sources of the Greek national debt are:

Debt PercentageDebt Source
35.88%European Financial Stability Facility (EFSF)
16.41%European Stability Mechanism (ESM)
14.38%Greek Loan Facility (GLF)
2.13%European Investment Bank Loans
1.45%International Monetary Fund (IMF)
0.64%European Central Bank Bonds (SMP)
0.41%European Central Bank Bonds (ANFAS)
0.39%Bank Of Greece Loans
0.14%Hold Out Bonds
0.09%Other Loans

Data Source: – Greek National Debt Composition by Funding Instrument

Among these sources are traditional methods that most governments use to raise finance:

  1. Benchmark Bonds: long-term debt instruments that have maturity dates of more than a year. They pay an interest rate that is written on the bond certificate and the Greek government promises to repay the full amount of the loan on the maturity date of the bond.
  2. Treasury Bills: short-term debt instrument that has a maturity of less than a year. These do not pay any interest, but are sold at a discount and redeemed at full face value.

Despite problems with debt, the Greek government still issues both bonds and Treasury bills.

Both devices are tradeable and can be bought and sold on the open market.

Has Debt Restructuring Reduced the Greek National Debt?

Despite Greece getting €100 billion of its debts cancelled, the debt has continued to increase.

The haircut removed the need for the Greek government to reduce its generous social security system, which was the major cause of its permanent budget deficit.

Furthermore, the Greek constitution bans parliamentary scrutiny of the national defense budget, which means many expenses of the government can be hidden and run through the military.

It turned out that the defense budget incurred massive unpaid debts, including a withheld payment to a German manufacturing syndicate for four submarines that didn’t work.

Were There Any Other Hidden Debts In Greece?

Once more hidden spending was revealed, the official national debt figure increased.

The IMF and the ECB insisted on the government ceasing to offer subsidies to state-owned enterprises. The result of these measures was a collapse in infrastructure investment and an increase in charges for utilities.

These two factors both increased the figure of the national debt and reduced the country’s GDP.

How Are Greece’s Debt-GDP Ratios Measures?

Economists are not so interested in the absolute value of a country’s debt, but examine debt as a proportion of the nation’s income, which is called Gross Domestic Product, or “GDP.”

To learn about Greece’s GDP health, their most exported and imported products, and how the nation’s economy stands on a global scale, see our Economic Overview Of Greece.

Higher debt, combined with lower GDP greatly increased Greece’s debt-to-GDP ratio. The graph below shows how the Greek debt-to-GDP ratio has risen since the “bail out” began.

greek government debt-to-gdp ratio
Source: OECD (2019), General Government Debt, Data (accessed on 12/8/20)

In 2007, before the crisis struck, the nation’s debt to GDP ratio was 103.7%. This could be considered high.

However, after the creditor haircut, the IMF assistance, and the ECB loans, Greece’s debt to GDP ratio reached 178.6%, having reached 180.8% in 2016.

Who Does Greece Owe The Most Money To?

Now, the majority of Greece’s national debt is owed to the IMF, the ECB, and various EU schemes. One condition of these loan contracts was that the Greek government will not be allowed to demand a haircut from those creditors.

The Greek bailout didn’t offer the country a way out of its debt, which, in terms of a percentage of GDP is now the second-highest in the world after Japan.

What facts should you know about Greece’s national debt?

  • You could wrap $1 bills around the Earth 1,971 times with the debt amount.

  • If you lay $1 bills on top of each other they would make a pile 55,288 km, or 34,354 miles high.

  • That's equivalent to 0.14 trips to the Moon.

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Further Reading

To see the live debt clocks of other countries with information on debt management, see our guides on:

Or, you can explore the economic profiles of countries like Sweden, Australia, Austria, Spain, Indonesia, and Poland.

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