How the Debt Threat Returns Through Another ‘Door’ for Greece

At the two-day annual NATO summit in The Hague (June 24-25), which may last just a few hours, the major issue is the U.S. demand for an increase in annual spending on armaments and defense to 5% of each member country’s GDP. This requirement has been enthusiastically taken up by NATO Secretary-General Jens Stoltenberg. According to international media reports, Spain has already secured an exception due to its strong opposition, with Belgium potentially following suit. Greece appears to have managed a similar exemption but not entirely. In a ‘United (?) Europe,’ where economies face different fiscal capabilities amid current crises, trade conflicts, and uncertainty, adding an extra 3.5% to 2.5% of GDP annually could be financially disruptive—a significant shift in economic policy with serious consequences. For Greece, this is doubly critical as this ‘addition’ during the 2030s will impact the most sensitive phase of repaying debts from the second and third bailouts. Currently, Greece’s budget operates under the terms of the third bailout, ensuring good credit ratings through annual primary surpluses of over 2% of GDP and bank recapitalizations via programs like Hercules I, II, III. By 2030-32, successful debt management should clear the first tranche of loans worth €52 billion. Payments to ESM/EFSF will begin thereafter for several decades. A NATO decision, if accepted by the government and Parliament, would burden Greece’s budget during this crucial repayment period with an additional 2.5% of GDP annually for defense costs, alongside maintaining primary surpluses to ensure safe debt repayment. Given that Greece relies heavily on European funding rather than foreign direct investment (FDI) and must prepare for ‘wartime readiness,’ resources must be diverted from the economy, leading to more public borrowing to cover non-productive expenses. Historically, Greece’s inability to meet such demands without increasing debt suggests a resurgence of the debt threat. Without internal resources to handle this new massive increase in defense spending, Greece risks re-entering risky market territory just as it begins to recover. If Athens accepts the doubling of current defense spending by 2035, urgent planning must start now at the Ministry of Finance and Public Debt Management Agency to manage this new debt threat, potentially resembling a fourth Memorandum focused on defense against rising public borrowing.