Italy poised to become the euro area’s most indebted economy, overtaking Greece

Since 2020, Greece’s debt-to-GDP ratio—once the highest in the euro area for two decades—has fallen by more than 45 percentage points to 145% in 2025. Over the same period, Italy’s debt-to-GDP ratio has been about 17 percentage points lower.

Reuters reports that by the end of this year Greece is unlikely to remain the eurozone economy with the highest debt-to-GDP ratio, as its government debt continues to decline rapidly. Italy’s debt load, by contrast, is forecast to rise slightly.

Greece’s debt trajectory

Two senior Greek officials said Greece’s debt-to-GDP ratio is expected to fall from 145% of GDP in 2025 to around 137% in 2026.

The new projections are expected to be incorporated into Greece’s medium-term fiscal plan, which is due to be submitted to the European Commission by the end of the month.

Greece remains on the road to recovery following the financial crisis and three euro-area rescue packages, together totalling around €280 billion.

Last year, the government of Prime Minister Kyriakos Mitsotakis exceeded fiscal targets for the fourth consecutive year. Greece is projected to post a primary budget surplus of about 0.6% of GDP (a surplus before interest payments). Previously, Athens forecast a 2025 primary deficit of 0.6% of GDP.

Italy’s medium-term plan

Italy’s medium-term budget plan published on Thursday, 23 April, shows the debt-to-GDP ratio rising from 137.1% in 2025 to 138.6% in 2026. If implemented, this would imply Italy could overtake Greece to become the euro area’s most indebted economy.

Italy’s debt-to-GDP ratio is projected to be nearly flat in the coming years, at about 138.5% in 2027, before easing to 137.9% in 2028 and 136.3% in 2029.

“Greece will no longer be the eurozone’s most indebted country — starting this year,” a Greek official told Reuters.

Growth outlook and key drivers

The shift in ranking reflects different debt-reduction speeds. Since 2020, Greece’s debt-to-GDP ratio has fallen by more than 45 percentage points to 145% last year, while Italy’s has declined by about 17 percentage points.

The IMF projects Greece’s real GDP growth at about 2.1% in 2025 and forecasts a slowdown to 1.8% in 2026. The economy is supported by strong public investment and recent fiscal measures, including cuts to personal income taxes. Greece has also regained investment-grade ratings and prepaid IMF loans, signaling continued improvements in its fiscal position after the crisis.

By year-end, Athens plans to prepay roughly €7 billion of bilateral loans from Europe under the 2010 rescue package via the Greek Loan Facility (GLF). Previously, it prepaid €7.93 billion in December 2024, €5.29 billion in 2023 and €2.65 billion in 2022.

For Italy, the IMF projects real GDP growth of 0.5% this year, well below Greece’s pace. Italy’s economy is supported in part by spending under the National Recovery and Resilience Plan (NRRP), EU-backed reforms, a relatively stable labor market and positive contributions from net exports.

Risks and policy constraints

Greece’s growth outlook faces headwinds. The IMF notes that high energy prices keep inflation elevated and that external demand softness linked to the Middle East conflict could restrain consumption and tourism—two key drivers of the Greek economy. The IMF also flags downside risks if global conditions worsen or energy prices remain high.

Italy’s outlook is constrained by persistent weaknesses, including high debt, weak productivity growth, a rapidly aging population and regional disparities. It also faces the ongoing fiscal costs of the “Superbonus” tax credits for home renovations, which Prime Minister Giorgia Meloni has described as a “disaster.”

Additional risks for Italy include weaker growth, higher defense spending and greater market volatility amid the Middle East conflict. The IMF stresses that Italy must maintain fiscal discipline to ensure a sustainable downward path for the debt-to-GDP ratio.