Greece is among the eurozone economies least exposed to the impact of prolonged high interest rates, despite carrying one of the region’s heaviest public debt burdens, according to a new report from Morningstar DBRS.
The rating agency said Greece’s stronger economic growth, continued primary budget surpluses and an expected further decline in public debt relative to the size of the economy should help cushion the country from much of the strain created by elevated borrowing costs.
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A Broader Test For Europe’s Fiscal Landscape
The analysis assesses the effect of a “higher for longer” interest-rate environment on government borrowing costs and debt dynamics across nine eurozone countries: Greece, Germany, France, Italy, Spain, Portugal, Belgium, Austria and the Netherlands.
While higher bond yields are weighing on public finances across the currency bloc, Morningstar DBRS said the impact varies sharply by country. Greece, Spain and Portugal emerged as the least affected among those examined.
Government borrowing costs surged in 2022 after the inflation shock and the European Central Bank’s subsequent tightening cycle. Although inflation has since eased, sovereign bond yields have continued to rise in most markets and are now broadly back at levels last seen in the early 2010s.
Why Yields Are Staying Elevated
Morningstar DBRS said the persistence of higher yields increasingly reflects structural changes rather than inflation alone.
Governments are issuing substantially more debt as many advanced economies run large budget deficits and must also refinance bigger volumes of existing obligations. At the same time, corporate borrowing is competing for the same pool of investment capital, while demand for long-dated government bonds has weakened after central banks scaled back their holdings and institutional investors such as pension funds adjusted their behavior.
The result is clear: investors are demanding higher returns to absorb a larger share of new sovereign debt. Morningstar DBRS expects those supply-and-demand pressures to persist over the medium term, keeping government financing costs elevated.
Greece Stands Out In The Forecast
Under the agency’s central scenario, interest rates remain at current levels through the end of the decade.
Between 2025 and 2030, Morningstar DBRS estimates that interest payments will rise by 0.9 percentage points of GDP in France and by 0.6 points in Belgium. By comparison, the increase is expected to be just 0.1 points in both Spain and Portugal.
Greece stands out even more sharply. Despite the higher-rate environment, the agency forecasts that the country’s interest burden will fall by 0.2 percentage points of GDP over the same period.
Debt Matters, But It Is Not The Whole Story
Existing debt levels remain a key factor because countries with larger debt stocks are more exposed when maturing liabilities must be refinanced at higher rates. But Morningstar DBRS said debt alone does not determine vulnerability. Economic growth and the direction of public finances can significantly alter the outlook.
Greece, Spain and Portugal are expected to benefit from average nominal GDP growth of 4.4% a year between 2026 and 2030, compared with 3.1% for the other six countries in the study.
All three are also projected to post primary budget surpluses throughout 2026 to 2030, which would help reduce future borrowing needs. By contrast, all of the other countries in the comparison, except Italy, are expected to run persistent primary deficits.
The Countries Most At Risk
Morningstar DBRS concluded that higher bond yields pose the greatest risk to countries combining heavy debt loads with weak public finances and slower growth. Stronger expansion and improved fiscal balances, by contrast, can provide an important buffer against a prolonged global interest-rate shock.
