Greece is among the eurozone economies least exposed to the impact of prolonged high interest rates, despite its heavy public debt burden, according to a report by Morningstar DBRS.

The rating agency said stronger economic growth, continued primary budget surpluses and an expected further fall in public debt relative to the economy should shield Greece from much of the pressure created by higher borrowing costs.

The analysis examines the effects of a “higher for longer” interest-rate environment on government borrowing costs and debt dynamics in nine eurozone countries, including Greece, Germany, France, Italy, Spain, Portugal, Belgium, Austria and the Netherlands.

While higher bond yields are putting pressure on public finances across the bloc, their effects vary considerably between countries, with Greece, Spain and Portugal emerging as the least affected among those examined.

Government borrowing costs rose sharply in 2022 following the inflation shock and the European Central Bank’s subsequent tightening of monetary policy.

Although inflationary pressures have since eased, government bond yields have continued to rise in most countries and are now broadly around levels last seen in the early 2010s.

Morningstar DBRS said the persistence of higher yields increasingly reflects structural changes rather than inflation alone.

Governments are issuing substantially more bonds as many advanced economies run large budget deficits while also having to refinance bigger amounts of existing debt.

At the same time, increased corporate borrowing is competing for investment funds, while demand for longer-term government bonds has weakened following central banks’ reduction of their bond holdings and changes in the behaviour of institutional investors such as pension funds.

The result is that investors are demanding higher returns to absorb a larger share of new government debt.

Morningstar DBRS expects these supply and demand conditions to remain in place over the medium term, meaning government financing costs are likely to stay higher for longer.

Under its central scenario, interest rates remain at current levels through the end of the decade.

The agency estimates that, between 2025 and 2030, interest payments will rise by 0.9 percentage points of GDP in France and 0.6 points in Belgium, compared with increases of just 0.1 points in both Spain and Portugal.

Greece stands out even further, with the agency forecasting that its interest burden will fall by 0.2 percentage points of GDP over the same period despite the higher-rate environment.

The level of existing debt remains important because countries with larger debt stocks are more exposed when maturing debt has to be refinanced at higher rates.

However, Morningstar DBRS said debt alone does not determine vulnerability, with economic growth and the direction of public finances capable of significantly changing the picture.

Greece, Spain and Portugal are expected to benefit from average nominal GDP growth of 4.4 per cent a year between 2026 and 2030, compared with 3.1 per cent for the other six countries examined.

All three are also expected to record primary budget surpluses throughout 2026-2030, reducing their future borrowing needs.

By contrast, all the other countries in the study except Italy are expected to run persistent primary deficits.

Morningstar DBRS concluded that higher bond yields pose the greatest risk to countries combining high debt with weak public finances and slower growth, while stronger growth and improved fiscal positions can provide an important buffer against a prolonged global interest-rate shock.