Europe’s Debt Divide Is Turning Upside Down

Greece Cuts Debt Fastest

Greece remains the EU’s most indebted country, with public debt equivalent to 143.5% of GDP. Italy follows at 138.9%, while France, Belgium and Spain also remain above the 100% threshold.

At the other end of the table, Estonia has the lowest ratio, at just 25.2% of GDP. Denmark, Bulgaria and Luxembourg follow with only slightly higher figures.

The amount a country owes, however, reveals little about the direction in which its finances are moving. Although Greece remains at the top of the rankings, it is also reducing its burden faster than any other EU member state.

Its debt-to-GDP ratio fell by 9.4 percentage points year on year. In the first quarter of 2024, it had stood at almost 160%.

Greece is benefiting from economic growth, a primary budget surplus, inflation and the favorable structure of the obligations accumulated through its bailout programs. A large proportion has long maturities and carries relatively low interest rates.

Similar trends can be seen in Cyprus, Portugal and Spain. These countries have benefited from stronger growth, tourism, investment from the European recovery fund and healthier budget balances.

ING economist Bert Colijn says the 2020s have brought a strong revival in southern European growth, initially driven by the recovery in tourism.

But the momentum “has branched out much broader than that”, he said, adding that “reforms in the 2010s have definitely helped to lay a stronger foundation for growth, which has been compounded with further reforms as part of the Recovery and Resilience Facility”.

Colijn nevertheless warned that southern European economies appear less prepared to adopt new technologies such as generative AI, while productivity remains weaker than in the northern eurozone.

France Struggles With Weak Growth and a High Deficit

France tells a very different story. Its debt rose year on year to 117.6% of GDP and exceeded €3.5tn in nominal terms. Meanwhile, the European Commission expects the French economy to grow by only 0.8% in 2026 and forecasts a budget deficit of approximately 5% of GDP.

The problem is not merely the amount owed, but its combination with weak growth, a persistently high deficit, political uncertainty and rising interest costs.

Olivier Blanchard, a former chief economist at the International Monetary Fund, argues that investors are less concerned about the absolute level of debt than about the possibility that the government has lost control of its trajectory.

“The priority for the years ahead is to stabilize it”, he writes.

Blanchard says France needs a credible plan that would stabilize its debt-to-GDP ratio within four to seven years. Without one, investors could demand higher interest rates, further worsening the country’s public finances.

Italy Could Soon Overtake Greece

Italy’s debt has also increased, reaching 138.9% of GDP. The country could soon replace Greece as the EU’s most indebted member state.

The crucial difference lies in the direction of travel. While Greece is rapidly reducing its ratio, Italy’s is stagnating or edging higher.

Italy has benefited from relative political stability, while its budget balance excluding interest payments is moving closer to equilibrium. The Commission nevertheless expects the economy to grow by only 0.5% in 2026.

The country has long been held back by low productivity, unfavorable demographics, weak investment and deep disparities between the north and south.

“An austerity policy without growth cannot, by definition, reduce the debt-to-GDP ratio”, economist Veronica De Romanis told Le Monde. “The risk is a vicious circle, since this very austerity comes at the expense of structural reforms or investments in education and innovation.”

Debt Pressures Spread North

Finland recorded the largest year-on-year increase in public debt anywhere in the EU. Its ratio is approaching 90%, placing it above both the EU and eurozone averages.

The country is struggling with weak growth, an aging population, higher social and defense spending and weaker exports. When an economy expands only slowly, its debt-to-GDP ratio can increase even without an exceptionally sharp rise in borrowing.

Denmark remains an exception in northern Europe. Its debt ratio is among the lowest in the EU, supported by a strong economy, budget surpluses and a robust pharmaceutical sector.

Poland’s debt is also rising rapidly. Its ratio has moved above the 60% threshold, climbing by approximately ten percentage points in two years.

Unlike France or Finland, however, Poland remains one of the EU’s fastest-growing economies. The Commission expects it to expand by 3.5% in 2026.

Defense spending, social transfers and public investment are the main drivers of the increase. Rapid economic growth gives the government greater scope to borrow, but only as long as expenditure does not rise even faster.

Romania presents an even riskier combination. Although its debt stands at around 60% of GDP and remains below the EU average, it is increasing rapidly. At the same time, the economy is close to stagnation and the budget deficit exceeds 6% of GDP.

The latest figures challenge the traditional division between the supposedly irresponsible south and the disciplined north. While Greece, Portugal and Cyprus are steadily improving their public finances, France, Belgium and Finland are combining weak growth with rising debt.

Debt sustainability therefore depends on far more than the amount a country owes. What matters is how quickly its economy is growing, the size of its budget deficit, the cost of servicing its obligations and whether borrowed money is being used for investment or current spending.