The duration of the energy crisis, which began about three months ago with the war between the US and Israel with Iran, is emerging as the greatest risk to the economy of the European Union and Greece. The Greek economy is expected to come under both direct and indirect pressure from high energy prices, at a time of increased uncertainty for markets, public finances and growth.
In its spring forecast, the European Commission estimates, based on current data, that the crisis and turmoil in the Strait of Hormuz will be over by the end of the year. Under this assumption, it predicts growth of 1.1% for the EU this year and 1.4% in 2027.
In other words, without taking into account a possible regime change in Iran or a change in the conditions around the Strait of Hormuz, the Commission considers that in 2027 Europe will return to growth rates similar to those of 2025, before the crisis. At the same time, in the same forecasts, he acknowledges that the blockade of the Straits has removed 17 million barrels of oil from circulation, an amount that corresponds to 10% of global needs, while noting that energy demand from the countries of the East has peaked.
This optimistic approach can only be explained by the EU's intention to avoid opening the debate on the possible activation of the general escape clause, which would overturn the new fiscal rules. Such a development would magnify the problems already faced by the three largest economies of the Union: Germany, France and Italy. After all, the Commission itself admits that the margins for support measures are much smaller than in 2022, while the financing conditions are now stricter.
At the same time, markets are watching Europe's problems worsen due to the energy crisis, dependence on fossil fuel imports and the ECB's intentions to raise euro interest rates even three times in 2026. As a result, they have taken an aggressive stance towards European bonds. Yields on the Italian and French ten-year bonds moved close to 4% throughout last week, while the German ten-year bond, which is the benchmark bond of the Eurozone, reached 3.2% for the first time in about 20 years.
Athens' concern
The anxiety of Athens is also part of this environment. Greek debt may have decreased in the first quarter by €2.5 billion, to €360.5 billion. However, it remains the highest in Europe. The main concern of the Ministry of National Defence is that a strong nervousness in European bonds will also affect Greek securities issues.
The problem, according to the same approach, does not concern exclusively the level of returns, but mainly the volatility that prevails in the markets. Investors in Greek bonds need stability and predictability, so that the prices of the securities do not change uncontrollably for a long time.
Athens estimates that the prospect of raising euro interest rates by up to 0.75% from June will intensify the pressure on bonds, especially in high-debt countries. This category includes Greece, Italy, France, Belgium, but also countries of the European South, such as Spain and Portugal, which are currently closely following the rise in yields in the major economies.
In terms of growth forecasts, the European Commission revised its estimate for Greece to 1.8% from 2.2% for this year and to 1.6% from 1.7% for 2027. Competent sources attribute the revision to the fact that the EU did not take into account the development plans for 2027 and the following years, as reflected in the revised medium-term plan submitted by Greece in April to Brussels. However, Greek concerns are not limited to debt.
The fiscal problem
The prolongation of the crisis also increases the need for support measures for households and businesses. Greece received a positive assessment from the Commission, as the measures amounting to €800 million. euros that have been announced to date are targeted and can be lifted relatively easily.
The crucial question, however, is what will happen if the same problem persists a year later. In such a case, Greece will come under more pressure to support the economy and society. At the same time, EU countries with already excessive deficits, more than 3% of GDP, will be forced to borrow to finance new measures, further increasing both their deficit and their debt.
This scenario becomes even more difficult if the EU slides into stagflation, with zero growth and persistent inflationary pressures.
For Greece, an additional source of concern is the evolution of the current account deficit. Based on the Commission's forecasts, the deficit is expected to increase from 4.9% of GDP, where it reached in 2025, to 7.1% of GDP, mainly due to energy imports. This development is gnawing away at the growth of the economy at a critical time.
The burden of inflation
Added to the already difficult environment is the issue of high inflation, which is of particular importance for Greece, as the country is among the highest performing in the EU.
The European Commission predicts that inflation will reach 3.1% in the EU and 3.7% in Greece, to fall to 2.4% in both cases in 2027.
However, no one can guarantee that the crisis will be over in 2026. Along with high inflation, Greece and Europe will be called upon to face increased needs for support measures, lower exports and higher cost of money. The ECB will not be able to easily suspend rate hikes until inflation returns close to the 2% target, whenever that happens.
Capital.gr
