With reference to the information provided and your own knowledge, discuss the likely economic benefits of a decrease in national debt, as a proportion of GDP, on the economy of Greece. (14)

Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make, but this does not imply that any of these must be included. Other relevant points must also be credited.

QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms.

Knowledge, Application and Analysis (8 marks) - indicative content
- Definition/understanding of national debt
- "After the global health crisis of 2020 Greece was able to reduce its national debt as a proportion of GDP" by 19.6 percentage points (2020 to 2022)
Benefits include:
- An improvement in Greece's credit rating and lower future borrowing costs. This leads to confidence in markets resulting in an increase in foreign direct investment (FDI) - "Greece's credit rating fell from 'A' to 'CCC'", so it will be able to improve it in the future to "B+"
- Lower national debt implies lower interest payments: there is less danger of financial crowding out. Lower interest rates may increase private sector investment due to the reduction of the crowding out effect - it eliminates the position of high risk whereby "it was unable to service its debt"
- Less need to seek assistance from international organisations e.g. IMF, EU, other countries, the ECB - "In 2010 Greece's large national debt led to significant loans by the IMF."
- Lower interest repayments represent a fall in costs to future generations. More money will be available for spending on social services, and they face lower opportunity cost of interest payments
- Falling national debts could lead to less inflationary pressures. If the debt is low, investors may buy more government securities. Thus, the government will not experience a shortfall in its revenues, and would not have to print money and increase the money supply
Evaluation (6 marks) - indicative content
- Impact depends on the magnitude of decrease in national debt: decreased by 19.6 percentage points in two years, implying a significant impact
- "its debt-to-GDP ratio is falling, it still remains the highest in the eurozone area" implying it will still be an issue to Greece
- As the current interest rate in the eurozone is high, financial crowding out may still be a significant issue - "ECB raised the base rate of interest from \(2.5 \%\) to \(3 \%\) in March 2023"
- If Greece's Government reduced its debt-to-GDP ratio by cutting spending in productive areas/key public goods and services, it will negatively impact the future generations
- Significance of national debt e.g. future generations will be highly affected as high inflationary pressures in the eurozone erode the real value of debt
- Large national debt implies that Greece may not be able to finance it internally but will have to continue relying on borrowing or future bailouts from IMF, hence remaining a cause for concern
- Greece's national debt will be a concern as it appears that its fiscal deficits are not cyclical/short-term but more structural/long-term and unsustainable
- Possibility that the value of national debt is still rising but debt-to-GDP ratio is falling due to an increase in Greece's economic growth - "in 2022 real GDP increased by nearly \(5 \%{ }^{\prime \prime}\). Over the long term, the national debt could increase as "forecast rates of economic growth for 2023 have also been reduced."