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Trends and prospects for the economy in 2008
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07GreekEconomy&Markets
Trends andprospects for theeconomy in 2008
Strategic companies guarded by new law
Private funds for ports
Strategy set for tourism
7th issue - December 2007
(3.1*)
4
Sectors
Real Estate: Dika Agapitidou, George Papageorgiou, Dr Aristotelis Karytinos, Aris Vovos Finance: Gikas A. Hardouvelis, Dinos Kamaris Insurance: Petros Papanikolaou, Eric Kleijnen, Doukas Palaiologos Telecoms: Babis Mazarakis, George Tsaprounis, Ruggero GramaticaSecurities: Alexandros Billis, Manos Hatzidakis, Konstantinos VergosThemes: Dimitris I. Vidakis, Dr Panagiotis AvramidisInternational trade relations: Yanos Gramatidis, Harilaos Goritsas, Constantine N. Yannidis
Greek Economy & Markets 07A publication of the “Agora Ideon” forum.
Project manager: BusinessOnMedia
118 Kremou str, Kallithea, 17675
Athens, Greece
tel: +30-210.953.3095
fax: +30-210.953.3096
Greek Economy & Markets 07 is also distrib-
uted along with the International Herald Tribune
(IHT) and Kathimerini English Edition newspa-
pers in Greece, Cyprus and Albania. The content
of the magazine does not involve the reporting or
the editorial departments of the IHT.
Contents
7th issue - December 2007
Trends and prospects for the economy in 2008Cover Story
George Alogoskoufis Strong growth for 2008 (page 17)
Plutarchos Sakellaris Economic reform to enhance growth page (page 18-19)
Dimitris Maroulis Economy shows growth stamina as external sector lags (page 20)
Loukas K. PapazoglouFiscal developments, reforms and privatizations take center stage (page 21-23)
Aris SpiliotopoulosQuality twist for tourism (page 24-25)
Giorgos VoulgarakisGreece strengthens its role in international shipping (page 26-27)
Spyros Capralos Greek capital market outlook (page 28-29)
Vassilis TheodorouA stock-picking year (page 30)
Panagiotis DrossosForeign investment multiplies (page 31)
Kostas AxarloglouEconomic openness and competitiveness (page 32)
Leonidas KorresPPP projects point to new deals on the investment map (page 33)
5
Facts & figures
An impressive reduction in the unemployment rate has been observedin the third quarter of 2007, as it fell to 7.9 percent compared to 8.1percent in the previous quarter. Furthermore, the gross domesticproduct increased by 3.8 percent on an annual basis in the thirdquarter of the year. However, building activity is still sluggish. InSeptember building activity displayed an 8.6 percent drop compared tothe same period in 2006. Greece’s inflation rate in November picked upto 3.9 percent from 3.1 percent in the previous month.
Period Value
Consumer Price Index (CPI)1 November 07/November 06 3.9
Harmonized Index of Consumer Prices (HICP)1 November 07/November 06 3.9
Producer Price Index in Industry1 October 07/October 06 5.9
Industrial Production Index (excluding construction)3 October 07/October 06 -0.1
Turnover Index in Retail Trade1 September 07/September 06 4.1
Gross Domestic Product (provisional data)1 Q3 2007 3.8
Unemployment Rate2 Q3 2007 7.9
Population (2001 Census)4 2001 -
Building Activity)3 September 07/September 06 -8.6
1Annual rate of Change, 2Rate, 3Periodical rate of change, 4Value
Latest Statistical Data
The profile of the Greek economy
6
Participating
in the Balkan development
STOMANA INDUSTRY SA, with an active presence of more
than 50 years in the Balkans and the international steel mar-
kets, is a leading company in Bulgaria.
In June 2001, SIDENOR SA acquired the majority of the
STOMANA INDUSTRY SA shares and subsequently realized a
large investment program for the modernization of the plant and
the total restructuring of the company.
Since 2001, as a part of SIDENOR Group, STOMANA
INDUSTRY SA continuously has been investing in new tech-
nologies, in order to produce high added-value products and to
ensure optimum customer service.
The company’s established position in the global market,
combined with the wide sales network of SIDENOR SA through-
out Europe, ensure the future development of STOMANA
INDUSTRY SA in the years to come.
STOMANA INDUSTRY SA produces and sells
a wide range of steel hot-rolled products, such
as: steel plates, both of standard, shipbuilding,
and pressure vessel qualities; merchant bars
mainly used for metal structures (rounds, flats,
UPN and equal angles); special profiles (boron
flats, THN, ploughshare blades and railway
joints); grinding balls; semi-finished products
(billets, blooms and slabs).
A substantial investment for the production of
concrete reinforcing steel bars, is being completed
and the new manufacturing unit will have an annual production
capacity of 800,000 tons. These products will supply the devel-
oping markets of Bulgaria, Romania and the Western Balkans.
Moreover, through TEPROSTEEL SA, STOMANA INDUSTRY
SA produces and sells a wide range of quality, high-accuracy
steels, for special applications.
The company’s products meet the quality requirements of
strict international standards such as EN, DIN, ASTM, JIS, BS,
Lloyd’s Register and Germanischer Lloyd.
STOMANA INDUSTRY SA applies a Quality Assurance Sys-
tem, certified according to EN ISO 9001:2000, as well as an
Environmental Management System certified according to EN
ISO 14001:2004.
SOFIA MED SA, a company active in the produc-
tion and processing of copper and copper alloy prod-
ucts, is a subsidiary of HALCOR SA and is based in
Sofia, Bulgaria. SOFIA MED thus benefits from the
accumulated experience and worldwide presence of
its parent company. Today, the company has estab-
lished its position in the European market as one of
the major manufacturers of copper and brass prod-
ucts such as strips, sheets, discs and profiles.
The company employs 460 specialized technical
and administrative personnel. The plant which is sit-
uated in Sofia comprises three manufacturing depart-
ments - casting shop, rolling and extrusion, while the
facilities occupy an area of 250,000 sq.m.
Through investments and constant development,
SOFIA MED SA aims at offering high-quality prod-
ucts, so that it may fully and continually respond to
the requirements of the international markets,
where it is active and to which it exports 90% of its
production.
7
ETEM is a leading Greek alu-
minium extruder, founded in
1971. A substantial exporter
worldwide, ETEM’s products are
certified to the strictest interna-
tional standards.
During the past 30 years,
ETEM has held a leading role in
the domestic aluminium industry.
ETEM first introduced aluminium
in construction in Greece and
developed quality standards for
architectural systems as we know
them today. The second revolu-
tion was brought about with the
introduction of composite alu-
minium panels (metalbond) in
architecture. In addition to being
the only manufacturer of compos-
ite panels in Greece, ETEM is one
of the few in Europe.
ETEM also produces alumini-
um industrial profiles, including
solid bars in round, hexagonal,
flat and square form for automo-
tive and maritime applications.
Among others, ETEM is an official
supplier of the German BMW
Group for the new 3 Series.
ETEM’s industrial and com-
mercial activity has successfully
expanded in Southeastern Europe.
Steelmet is the largest manu-
facturer of extruded and architec-
tural aluminium systems in Bul-
garia. For more than 10 years,
the company has been the leader
in credit sales programs.
This enabled the company to
become a reliable partner and a
significant factor of economic
activity in Bulgaria.
Steelmet’s activity as a com-
mercial company started in
1994, while the construction of a
brand-new aluminium profiles
manufacturing plant commenced
in 1998. This plant still consti-
tutes one of the biggest greenfield
investments in the country, in the
order of US$16 million. Initially,
production comprised two extru-
sion lines of a yearly capacity of
7,000 tons. At present, as a
result of the investment program,
the plant’s capacity exceeds
15,000 tons, effected by four
modern extrusion presses.
Steelmet also manufactures
products for the automobile
industry, for construction applica-
tions, heavy industry, electrical
machinery, insulated architectur-
al aluminium profiles, sliding and
opening windows, exhibition sys-
tems, panels, custom-made sys-
tems for hundreds of small and
medium-size Bulgarian compa-
nies, active in many fields, even
the provision of services to the
advertising industry.
ETEM Systems Ukraine,
ETEM Systems SRL in Romania
and ETEM Systems S.C.G.DOO.
in Serbia are commercial com-
panies that successfully meet
the requirements of their local
markets.
PU
BL
I
ICME ECAB SA has over 50 years’ experience
in the Romanian and international cables mar-
kets. It was incorporated in 1949 and, since
1999, HELLENIC CABLES SA has been its major
shareholder.
The company is located in Bucharest, on land
of 270,000 square meters and a covered area of
70,000 square meters, and employs approximate-
ly 500 persons. ICME ECAB SA is the leading
cable manufacturer in Romania and its products
are sold in the Romanian and international mar-
kets under the registered trade mark CABLEL®.
The company distributes its products to the home
market from its facilities in Bucharest and its
warehouses in Cluj, Bacau and Timisoara. On the
international market, it distributes its products
through the HELLENIC CABLES network. The
company operates certified Quality and Environ-
mental Management Systems in accordance with
ISO 9001:2001 and ISO 14001 respectively.
The company manufactures all kinds of pow-
er, telecommunications and data cables, includ-
ing ACSR conductors. The company holds quality
certificates such as IMQ, VDE, LCIE, ELOT, UL
and ABS. ICME ECAB SA is an approved provider
to major public utilities such as ROMTELECOM,
CFR, EON and ELECTRICA.
The company invests in its human resources
through continual training of its personnel and by
creating a safe working environment.
In 2005, the advanced SAP R/3 ERP system
became fully operational, contributing to the im-
provement of organizational processes and
upgrading of collaboration with third parties.
In the coming years, the company aims to
further enhance its position on the domestic
market, in Southeastern Europe (Bulgaria, Hun-
gary, Serbia, Moldova, the Czech Republic, Slo-
vakia, Russia, Poland) and the Middle East. In
the first three quarters of 2007, the sales
turnover of the company amounted to 95 million
euors approximately (higher by 33% compared
to 2006) and EBITDA to 10.4 million euros
(higher by 30% compared to 2006). ICME
ECAB SA investments continued in 2007 and
reached approximately 4 million euros (first
three quarters). Total investments in the compa-
ny, have reached approximately 31 million
euros since 2000, with the participation of the
IFC, a subsidiary of the World Bank.
8
Facts & figures
In the last two years the Inter-Ministerial Public-Private Partnership committee has approved 24
projects with a total budget of billion euros which correspond to 140 new infrastructure
sites spreading throughout the peripheral regions of the country. The projects come under the
sectors of health, civilization, education, public sector accommodation, the environment and
ports infrastructure.
Pride of place regarding the number of public works undertaken is held by the education sector.
More than 80 new schools have been approved for construction. The budget for the realization
of these school complexes exceeds 340 million euros. The total accommodation investment
program to be undertaken through PPPs will come to 1.14 billion euros and is expected to be
implemented during the 2007-2011 period.
Among the most important projects are four new hospitals. These are the new Oncological
Hospital of Thessaloniki (330 million euros), the new General Hospital of Preveza (110 million
euros), the Paediatric Hospital of Thessaloniki (325 million euros) and the Rehabilitation and
Recovery Center of Northern Greece (103 million euros).
Public-private partnerships will also help to solve the perpetual accommodation problems faced
by almost all prefectural authorities in the country. A significant example is the remodeling of
Domboli building complex in the city of Ioannina.
Another sector where PPPs are crucial is that of ports growth. The installation of security
systems has been approved for 12 Greek ports. It is one of the costliest public projects to have
been approved by the committee, since its total budget exceeds 340 million euros.
PPP projects boost infrastructure
3.1
10
Themes
Economic calendar 2008 As expected, the Greek
economy will progress
vigorously according to plan
in the new year. Several
important meetings and
events are set to take place
either in Greece or at the
headquarters of the
European Union. Greece will
take part in many of these in
order to strengthen its
position in the market. Most
important of course are
Eurogroup-Ecofin meetings
in Brussels where the Greek
Ministry of Economy and
Finance’s chief figures will
examine forthcoming issues
and evaluate past actions.
The topics of growth and
employment will again top
the agenda. Furthermore,
the economic situation
based on the latest surveys
will be discussed by Ecofin
ministers and International
Monetary Fund proposals
will be analyzed. The latest
report of the European
Commission will be another
subject of discussion in
Ecofin meetings.
Minister George
Alogoskoufis will travel to
London to deliver a speech
at the Hellenic-British
Chamber of Commerce. This
visit demonstrates the high
regard that Greece has for its
trade relations with Britain.
Statistics subject/event PERIOD DATE
JanuaryNumber of Issued Motor Vehicle Circulation Licenses December 2007 04/01/08Industrial Production Index November 2007 09/01/08Commercial Transactions (estimates) November 2007 09/01/08Building Activity October 2007 10/01/08Movement of Museums and Archaeological Sites September 2007 10/01/08National Consumer Price Index December 2007 10/01/08Harmonized Index of Consumer Prices December 2007 10/01/08Import Price Index in Industry November 2007 11/01/08Euro-area Festivities in Malta 12/01/08Labor Force Survey (monthly data) October 2007 15/01/08Greek Merchant Fleet November 2007 16/01/08Input and Output Price Indices in Agricultural-Livestock Production November 2007 17/01/08Turnover Index in Industry November 2007 18/01/08New Orders Index in Industry November 2007 18/01/08Euro-area Festivities in Cyprus 18/01/08Eurogroup-Ecofin meetings in Brussels 21-22/01/08Material Costs Index for New Residential Buildings December 2007 22/01/08Work Categories Price Indices and Construction Costs Indicesfor New Residential Buildings 4th Quarter 2007 22/01/08
Commercial Transactions (provisional data) November 2007 25/01/08Producer Price Index in Industry December 2007 29/01/08Turnover Index in Retail Trade November 2007 30/01/08Road Traffic Accidents November 2007 31/01/08Traffic of Passengers, Goods and Vehicles by MerchantShips in Greek Ports 2nd Quarter 2007 31/01/08
FebruaryNumber of Issued Motor Vehicle Circulation Licenses January 2008 05/02/08National Consumer Price Index January 2008 07/02/08Building Activity November 2007 08/02/08Commercial Transactions (estimates) December 2007 08/02/08Industrial Production Index December 2007 08/02/08Movement of Museums and Archaeological Sites October 2007 11/02/08Eurogroup-Ecofin meetings in Brussels 11-12/02/08Labor Force Survey (monthly data) November 2007 12/02/08Import Price Index in Industry December 2007 12/02/08National Accounts (estimates) 4th Quarter 2007 14/02/08Greek Merchant Fleet December 2007 15/02/08Input and Output Price Indices in Agricultural-Livestock Production December 2007 15/02/08Turnover Index in Industry December 2007 19/02/08New Orders Index in Industry December 2007 19/02/08Minister’s speech at the Hellenic-British Chamber of Commerce in London 19/02/08Harmonized Index of Consumer Prices January 2008 20/02/08Material Costs Index for New Residential Buildings January 2008 20/02/08Commercial Transactions (provisional data) December 2007 25/02/08Road Traffic Accidents December 2007 29/02/08Turnover Index in Retail Trade December 2007 29/02/08Producer Price Index in Industry January 2008 29/02/08
MarchEurogroup-Ecofin Meetings in Brussels 03-04/03/08National Accounts (provisional data) 4th Quarter 2007 04/03/08Number of Issued Motor Vehicle Circulation Licenses February 2008 05/03/08Building Activity December 2007 07/03/08National Consumer Price Index February 2008 11/03/08Harmonized Index of Consumer Prices February 2008 11/03/08Movement of Museums and Archaeological Sites November 2007 11/03/08Turnover Indices in Motor Trade and Wholesale Trade 4th Quarter 2007 11/03/08Commercial Transactions (estimates) January 2008 11/03/08Industrial Production Index January 2008 11/03/08Import Price Index in Industry January 2008 12/03/08Labor Force Survey (monthly data) December 2007 12/03/08European Council in Brussels 13-14/03/08Turnover Indices in Post - Telecoms, Computer and Related Activities and other Business Activities 4th Quarter 2007 14/03/08Production Index in Construction 4th Quarter 2007 14/03/08Turnover Indices in Transports 4th Quarter 2007 17/03/08Turnover Index in Tourism 4th Quarter 2007 17/03/08Index of Employed in Retail Trade 4th Quarter 2007 17/03/08Input and Output Price Indices in Agricultural-Livestock Production January 2008 18/03/08Greek Merchant Fleet January 2008 18/03/08Labor Force Survey 4th Quarter 2007 19/03/08Material Costs Index for New Residential Buildings February 2008 21/03/08Turnover Index in Industry January 2008 21/03/08
Note: First column displays economic events and announcements. The second displays the period represented. The third shows the exact day of the event or the announcement.
11
The year ahead…Statistics subject/event PERIOD DATE
New Orders Index in Industry January 2008 21/03/08Commercial Transactions (provisional data) January 2008 27/03/08Turnover Index in Retail Trade January 2008 28/03/08Producer Price Index in Industry February 2008 28/03/08Regional Accounts 2004 - 2006 31/03/08Road Traffic Accidents January 2008 31/03/08
AprilNumber of Issued Motor Vehicle Circulation Licenses March 2008 04/04/08Informal Ecofin meeting in Slovenia 04-05/04/08Building Activity January 2008 08/04/08National Consumer Price Index March 2008 08/04/08Harmonized Index of Consumer Prices March 2008 08/04/08Industrial Production Index February 2008 09/04/08Commercial Transactions (estimates) February 2008 09/04/08Movement of Museums and Archaeological Sites December 2007 10/04/08Import Price Index in Industry February 2008 11/04/08Labour Force Survey (monthly data) January 2008 14/04/08Greek Merchant Fleet February 2008 17/04/08Input and Output Price Indices in Agricultural-Livestock Production February 2008 18/04/08Turnover Index in Industry February 2008 18/04/08New Orders Index in Industry February 2008 18/04/08Work Categories Price Indices and Construction Costs Indicesfor New Residential Buildings 1st Quarter 2008 22/04/08
Material Costs Index for New Residential Buildings March 2008 22/04/08Commercial Transactions (provisional data) February 2008 24/04/08Producer Price Index in Industry March 2008 30/04/08Road Traffic Accidents February 2008 30/04/08Turnover Index in Retail Trade February 2008 30/04/08Traffic of Passengers, Goods and Vehicles by Merchant Shipsin Greek Ports 3rd Quarter 2007 30/04/08
MayNumber of Issued Motor Vehicle Circulation Licenses April 2008 05/05/08Building Activity February 2008 08/05/08National Consumer Price Index April 2008 08/05/08Harmonized Index of Consumer Prices April 2008 08/05/08Industrial Production Index March 2008 09/05/08Commercial Transactions (estimates) March 2008 09/05/08Movement of Museums and Archaeological Sites January 2008 12/05/08Import Price Index in Industry March 2008 13/05/08Eurogroup-Ecofin Meetings in Brussels 13-14/05/08Labor Force Survey (monthly data) February 2008 14/05/08National Accounts (estimates) 1st Quarter 2008 15/05/08Greek Merchant Fleet March 2008 16/05/08Input and Output Price Indices in Agricultural-Livestock Production March 2008 16/05/08Material Costs Index for New Residential Buildings April 2008 20/05/08Turnover Index in Industry March 2008 20/05/08New Orders Index in Industry March 2008 20/05/08Commercial Transactions (provisional data) March 2008 26/05/08Producer Price Index in Industry April 2008 29/05/08Turnover Index in Retail Trade March 2008 30/05/08Road Traffic Accidents March 2008 30/05/08
JuneEurogroup-Ecofin Meetings in Luxembourg 02-03/06/08National Accounts (provisional data) 1st Quarter 2008 03/06/08Number of Issued Motor Vehicle Circulation Licenses May 2008 05/06/08Building Activity March 2008 06/06/08National Consumer Price Index May 2008 09/06/08Harmonized Index of Consumer Prices May 2008 09/06/08Industrial Production Index April 2008 09/06/08Commercial Transactions (estimates) April 2008 09/06/08Movement of Museums and Archaeological Sites February 2008 10/06/08Turnover Indices in Motor Trade and Wholesale Trade 1st Quarter 2008 11/06/08Import Price Index in Industry April 2008 12/06/08Labor Force Survey (monthly data) March 2008 12/06/08Production Index in Construction 1st Quarter 2008 13/06/08Turnover Indices in Post - Telecoms, Computer and Related Activities and other Business Activities 1st Quarter 2008 13/06/08Index of Employed in Retail Trade 1st Quarter 2008 17/06/08Turnover Index in Tourism 1st Quarter 2008 18/06/08Turnover Indices in Transports 1st Quarter 2008 18/06/08Labor Force Survey 1st Quarter 2008 19/06/08Input and Output Price Indices in Agricultural-Livestock Production April 2008 19/06/08Turnover Index in Industry April 2008 19/06/08
Note: First column displays economic events and announcements. The second displays the period represented. The third shows the exact day of the event or the announcement.
12
ThemesEach month the National
Statistics Service and the
Ministry of Economy and
Finance issue the latest data
on the state of the country’s
economy. Figures such as
building activity, the import
price and new order indices
in industry, the national
consumer price index as
well as the turnover index in
retail trade help analysts
and services to make the
right decisions and act on
them accordingly.
In October the draft budget
will be submitted to the
Greek Parliament followed
by the state budget for 2009
in November.
In the last month of the year
(12/08) the Hellenic Stability
and Growth Program 2008-
2011 will be updated.
Statistics subject/event PERIOD DATE
New Orders Index in Industry April 2008 19/06/08Greek Merchant Fleet April 2008 19/06/08Material Costs Index for New Residential Buildings May 2008 20/06/08Commercial Transactions (provisional data) April 2008 25/06/08Producer Price Index in Industry May 2008 27/06/08Turnover Index in Retail Trade April 2008 30/06/08Road Traffic Accidents April 2008 30/06/08
JulyNumber of Issued Motor Vehicle Circulation Licenses June 2008 04/07/08National Consumer Price Index June 2008 07/07/08Harmonized Index of Consumer Prices June 2008 07/07/08Eurogroup-Ecofin meetings in Brussels 07-08/07/08Building Activity April 2008 08/07/08Movement of Museums and Archaeological Sites March 2008 10/07/08Industrial Production Index May 2008 10/07/08Commercial Transactions (estimates) May 2008 10/07/08Import Price Index in Industry May 2008 11/07/08Labor Force Survey (monthly data) April 2008 14/07/08Input and Output Price Indices in Agricultural-Livestock Production May 2008 15/07/08Greek Merchant Fleet May 2008 17/07/08Turnover Index in Industry May 2008 21/07/08New Orders Index in Industry May 2008 21/07/08Material Costs Index for New Residential Buildings June 2008 22/07/08Work Categories Price Indices and Construction Costs Indices for New Residential Buildings 2nd Quarter 2008 22/07/08Commercial Transactions (provisional data) May 2008 25/07/08Producer Price Index in Industry June 2008 29/07/08Turnover Index in Retail Trade May 2008 30/07/08Road Traffic Accidents May 2008 31/07/08Traffic of Passengers, Goods and Vehicles by Merchant Ships in Greek Ports 4th Quarter 2007 31/07/08
AugustNumber of Issued Motor Vehicle Circulation Licences July 2008 05/08/08National Consumer Price Index July 2008 07/08/08Harmonized Index of Consumer Prices July 2008 07/08/08Building Activity May 2008 07/08/08Commercial Transactions (estimates) June 2008 08/08/08Industrial Production Index June 2008 08/08/08Import Price Index in Industry June 2008 08/08/08Movement of Museums and Archaeological Sites April 2008 11/08/08National Accounts (estimates) 2nd Quarter 2008 11/08/08Labor Force Survey (monthly data) May 2008 12/08/08Input and Output Price Indices in Agricultural-Livestock Production June 2008 13/08/08Turnover Index in Industry June 2008 19/08/08New Orders Index in Industry June 2008 19/08/08Material Costs Index for New Residential Buildings July 2008 22/08/08Commercial Transactions (provisional data) June 2008 25/08/08Greek Merchant Fleet June 2008 28/08/08Producer Price Index in Industry July 2008 29/08/08Turnover Index in Retail Trade June 2008 29/08/08Road Traffic Accidents June 2008 29/08/08
SeptemberNational Accounts (provisional data) 2nd Quarter 2008 03/09/08Number of Issued Motor Vehicle Circulation Licenses August 2008 05/09/08National Consumer Price Index August 2008 08/09/08Harmonized Index of Consumer Prices August 2008 08/09/08Industrial Production Index July 2008 09/09/08Commercial Transactions (estimates) July 2008 09/09/08Movement of Museums and Archaeological Sites May 2008 10/09/08Turnover Indices in Motor Trade and Wholesale Trade 2nd Quarter 2008 10/09/08Labor Force Survey (monthly data) June 2008 11/09/08Building Activity June 2008 12/09/08Import Price Index in Industry July 2008 12/09/08Production Index in Construction 2nd Quarter 2008 12/09/08Turnover Indices in Post - Telecoms, Computer and Related Activities and other Business Activities 2nd Quarter 2008 12/09/08Informal Ecofin meeting in France 12-13/09/08Index of Employed in Retail Trade 2nd Quarter 2008 15/09/08Greek Merchant Fleet July 2008 18/09/08Labour Force Survey 2nd Quarter 2008 18/09/08Input and Output Price Indices in Agricultural-Livestock Production July 2008 19/09/08Turnover Index in Industry July 2008 19/09/08New Orders Index in Industry July 2008 19/09/08Material Costs Index for New Residential Buildings August 2008 22/09/08Turnover Indices in Transport 2nd Quarter 2008 22/09/08Turnover Index in Tourism 2nd Quarter 2008 22/09/08Commercial Transactions (provisional data) July 2008 25/09/08Road Traffic Accidents July 2008 26/09/08Producer Price Index in Industry August 2008 29/09/08Turnover Index in Retail Trade July 2008 30/09/08
Note: First column displays economic events and announcements. The second displays the period represented. The third shows the exact day of the event or the announcement.
13
The year ahead…
SOURCE - FINANCE MINISTRY AND NATIONAL STATISTICS SERVICE
Statistics subject/event PERIOD DATE
OctoberDraft Budget for 2009 Submitted to the Greek Parliament 10/08National Reform Program 2008-2011 Submitted to EU 10/08Number of Issued Motor Vehicle Circulation Licenses September 2008 03/10/08Eurogroup-Ecofin Meetings in Luxembourg 06-07/10/08Building Activity July 2008 08/10/08National Consumer Price Index September 2008 08/10/08Harmonized Index of Consumer Prices September 2008 08/10/08Movement of Museums and Archaeological Sites June 2008 10/10/08Industrial Production Index August 2008 10/10/08Commercial Transactions (estimates) August 2008 10/10/08Import Price Index in Industry August 2008 10/10/08Labor Force Survey (monthly data) July 2008 13/10/08Greek Merchant Fleet August 2008 16/10/08Input and Output Price Indices in Agricultural-Livestock Production August 2008 17/10/08Turnover Index in Industry August 2008 20/10/08New Orders Index in Industry August 2008 20/10/08Material Costs Index for New Residential Buildings September 2008 21/10/08Work Categories Price Indices and Construction Costs Indices for New Residential Buildings 3rd Quarter 2008 22/10/08Commercial Transactions (provisional data) August 2008 27/10/08Producer Price Index in Industry September 2008 30/10/08Turnover Index in Retail Trade August 2008 30/10/08Traffic of Passengers, Goods and Vehicles by MerchantShips in Greek Ports 1st Quarter 2008 30/10/08Road Traffic Accidents August 2008 31/10/08
NovemberState Budget for 2009 Submitted to the Greek Parliament 11/08Eurogroup-Ecofin meetings in Brussels 03-04/11/08Number of Issued Motor Vehicle Circulation Licenses October 2008 05/11/08Building Activity August 2008 07/11/08National Consumer Price Index October 2008 10/11/08Harmonized Index of Consumer Prices October 2008 10/11/08Industrial Production Index September 2008 10/11/08Commercial Transactions (estimates) September 2008 10/11/08Movement of Museums and Archaeological Sites July 2008 10/11/08Import Price Index in Industry September 2008 11/11/08Labor Force Survey (monthly data) August 2008 12/11/08National Accounts (estimates) 3rd Quarter 2008 14/11/08Input and Output Price Indices in Agricultural-Livestock Production September 2008 14/11/08Turnover Index in Industry September 2008 19/11/08New Orders Index in Industry September 2008 19/11/08Greek Merchant Fleet September 2008 20/11/08Material Costs Index for New Residential Buildings October 2008 21/11/08Commercial Transactions (provisional data) September 2008 25/11/08Producer Price Index in Industry October 2008 28/11/08Turnover Index in Retail Trade September 2008 28/11/08Road Traffic Accidents September 2008 28/11/08
DecemberUpdate of the Hellenic Stability and Growth Program 2008-2011 12/08Eurogroup-Ecofin meetings in Brussels 01-02/12/08National Accounts (provisional data) 3rd Quarter 2008 04/12/08Number of Issued Motor Vehicle Circulation Licenses November 2008 05/12/08National Consumer Price Index November 2008 08/12/08Harmonized Index of Consumer Prices November 2008 08/12/08Building Activity September 2008 09/12/08Movement of Museums and Archaeological Sites August 2008 10/12/08Industrial Production Index October 2008 10/12/08Commercial Transactions (estimates) October 2008 10/12/08Turnover Indices in Motor Trade and Wholesale Trade 3rd Quarter 2008 10/12/08Import Price Index in Industry October 2008 11/12/08Labor Force Survey (monthly data) September 2008 11/12/08Production Index in Construction 3rd Quarter 2008 15/12/08Index of Employed in Retail Trade 3rd Quarter 2008 15/12/08Turnover Indices in Post - Telecoms, Computer and Related Activities and other business Activities 3rd Quarter 2008 16/12/08Input and Output Price Indices in Agricultural-Livestock Production October 2008 16/12/08Turnover Index in Tourism 3rd Quarter 2008 16/12/08Turnover Indices in Transports 3rd Quarter 2008 16/12/08Labor Force Survey 3rd Quarter 2008 18/12/08Greek Merchant Fleet October 2008 18/12/08Material Costs Index for New Residential Buildings November 2008 19/12/08Turnover Index in Industry October 2008 19/12/08New Orders Index in Indursty October 2008 19/12/08Commercial Transactions (provisional data) October 2008 24/12/08Producer Price Index in Industry November 2008 30/12/08Turnover Index in Retail Trade October 2008 30/12/08Road Traffic Accidents October 2008 31/12/08
Note: First column displays economic events and announcements. The second displays the period represented. The third shows the exact day of the event or the announcement.
Specifically, Greek Minister of Economy and Finance,
made the following statement regarding the new legislation
for the participation of private investors to companies of
national strategic importance:
“Privatizations have become a common practice
throughout the European Union and often pertain to com-
panies (S.A.s) which own or manage national infrastructure
networks. Nevertheless, it is imperative to establish an
approval mechanism which will safeguard national interests
when individual investors or legal entities acquire a sub-
stantial percentage of the capital of such companies.
Taking into consideration the national interest, the inter-
est of society at large and the need for the smooth opera-
tion of markets, the Greek government tabled a new piece
of legislation to the Greek parliament today.
The legislation specifies the following:
1. In the case of companies (S.A.s) of national strategic
importance, especially when they own or manage
national infrastructure networks, the acquisition of vot-
ing rights in such companies, through the 20% of the
share capital or more, requires the approval of the Inter-
ministerial Privatizations Committee. This approval is
granted if certain criteria, as specified by the new legis-
lation, are fulfilled to protect the public interest.
2. Certain decisions of great strategic importance within
these companies pertaining to issues mentioned in the
new legislation, should be approved by the Minister of
Economy and Finance so that the public interest is safe-
guarded.
This is an important institutional step for Greece and for
the safeguarding of the national interest and is in full force
as of the time of submission to parliament.”
Finance Minister G. Alogoskoufis
14
Strategic companies Greece’s Finance Ministry has
introduced a law which protects the
interests of strategic state-owned
companies and limits the stake held
in them by investors to 20 percent,
unless given previous approval by
an inter-ministerial privatizations
committee.
‘The acquisition of a stake higher
than 20 percent in companies of
strategic importance that manage
national infrastructure networks will
require approval from the inter-
ministerial committee on
privatization,” Finance Minister
George Alogoskoufis told reporters.
Alogoskoufis pointed out that there
are similar limits imposed in other
privatization cases in the EU where
the companies being sold manage
infrastructure networks.
‘The acquisition of shares in these
companies... cannot be done without
imposing control procedures for the
protection of national and social
interests,’ he added.
The amendment was submitted to
Parliament where the ruling New
Democracy Party holds a majority.
The minister added that the
government considers listed OTE,
one of the most heavily traded
stocks on the Athens Stock
Exchange, as a ‘strategic’ enterprise
The acquisition of a stake higher than 20 percent in companies of strategicimportance that manage national infrastructure networks will require approval fromthe inter-ministerial committee on privatization, according to the Finance Ministry.
Themes
in the development of the
telecommunications sector in
Greece.
Alogoskoufis also stressed that no
further privatization of OTE will take
place without a specific decision by
the relevant inter-ministerial
committee on privatizations.
‘The government is also not
discussing any issue of co-
management with any institutional
investor or any other investment
company,’ he said.
In order to clarify what the law
means for shareholders, the CEO of
OTE, Panagis Vourloumis, explained
that the law intends to provide an
orderly framework for its
privatization.
‘Δhe law intends to provide an
orderly framework for privatization.
It will be discussed and voted in
Parliament soon and there may be
amendments. If passed, which we
expect, it will be applicable as of the
date it was tabled,’ the OTE CEO said.
‘We believe that this development
does not affect in the least the value
of OTE which will depend on the
effectiveness of the management in
carrying out the business plan, as it
has been doing in the past,’ he
added.
In response to recent comments
made by MIG on OTE, Execution
Limited analyst Will Draper pointed
out that the attack was ‘not justified’
and that a little more patience and
diplomacy are needed. Execution
Limited has a fair value of 35 euros
on OTE shares.
‘We can understand that MIG is
seeking better representation on the
We wish to inform you that on Friday December 7,
the Government tabled a law in Parliament, effective as
of that date. The law sets conditions and criteria regard-
ing eligibility of parties intending to acquire voting rights
exceeding 20% in strategic industries of national impor-
tance which were previously State monopolies. OTE
belongs to this category.
The law limits maximum voting rights by a single
shareholder or groups of shareholders judged to be act-
ing jointly to 20% unless approval is granted by the Inter-
ministerial Privatisation Committee. Approval is condi-
tional on the fulfillment of criteria safeguarding public
interest, indicatively are mentioned operational expertise,
transparency regarding intended strategy, control of own-
ership of shareholder etc.
The law further stipulates that decisions by compa-
nies considered to be of strategic national importance
need approval by the Minister of Economy in order to
carry out certain actions such as dissolution, merger,
change of purpose, major divestments etc.
Δhe law intends to provide an orderly framework for
privatization. It will be discussed and voted in Parlia-
ment soon and there may be amendments. If passed,
which we expect, it will be applicable as of the date it
was tabled. We believe that this development does not
affect in the least the value of OTE which will depend on
the effectiveness of the management in carrying out the
business plan, as it has been doing in the past.
Letter to shareholders
by CEO P. Vourloumis
guarded by new law
15
16
Themes
board for its 19-20 percent stake. We
can also understand that it wants
more involvement in OTE’s
corporate actions. But to show its
teeth in this way – publicly
undermining an excellent CEO – is
clumsy and unlikely to lead to the
desired result,’ said Draper.
‘We still believe MIG can act as a very
positive catalyst for OTE, by shaking
out value in real estate for example,
but it perhaps needs to exercise a
little more patience and diplomacy,’
he added.
OTE has a market capitalization of
11.7 billion euros and its shares are
traded on the Athens bourse.
OTE Group is Greece’s leading
telecommunications organization
and one of the pre-eminent players
in Southeastern Europe, providing
top-quality products and services to
its customers.
Apart from serving as a full service
telecommunications group in the
Greek telecoms market, OTE Group
has also expanded its geographical
footprint throughout Southeast
Europe during the last decade,
acquiring stakes in the incumbent
telecommunications companies of
Romania and Serbia, and
establishing mobile operations in
Albania, Bulgaria, the Former
Yugoslav Republic of Macedonia and
Romania.
At present, companies in which OTE
Group has an equity interest employ
over 30,000 people in six countries,
and our portfolio of solutions ranges
from fixed and mobile telephony to
Internet applications, satellite,
maritime communications and
consultancy services.
MIG has attacked OTE's CEO on three counts, none of which
are justified. Let's take a look at the criticisms:
1. “The CEO ought to work for the shareholders and not boss
them around”. Vourloumis was appointed in May 2004 when
the stock was at eur11.50. Since then it has more than dou-
bled and outperformed the sector by three times (OTE
+116.9%, SXKP +42.9%), creating eur6.6bn of market cap
in the process. Vourloumis has been responsible for the VRP,
fixed network upgrade, expansion in Balkans, broadband
invigoration, buy-in of Cosmote minorities and reinstatement
of dividend: all value accretive initiatives in our view. It is
simply not credible to say he has worked against sharehold-
ers interests. It is not obvious that removing him would lead
to better share price performance: his relationship with the
Govt and Unions is critical, and we need some stability at
Cosmote until the new team beds down.
2. “The loan taken out to fund the Cosmote buy-in is bad”. OTE
took a strategic decision to buy-in Cosmote. Yes, they should
have done it earlier and yes they paid a full price. But the
deal still makes great sense financially and strategically. It
will allow OTE to better offer converged fixed/mobile services,
will generate synergies (we estimate NPV of eur0.5bn), it will
raise leverage, and it will make OTE more attractive/valuable
to a strategic investor.
OTE has financed the buy-in via a bridging loan and we re-
finance this with long term debt or a loan. It has not decided
which, has not disclosed the terms of the bridge so MIG has no
basis for criticising. Historically OTE has been an adept borrow-
er - 4.6% for its 10 year even at below A grade credit rating - so
we are not concerned here. It is true that credit markets have
tightened and therefore OTE will have to pay more than a year
ago, but this will not be anywhere near enough to undermine the
rationale for the buy-in.
3. “The sale of InfOTE needs some explanation”. Well there was
never any disclosure on InfOTE so we cannot comment on the
multiple, although the company has described it as “fat”. To
us eur300m looked like a very good price for something that
we a) thought was very small, b) will have a negligible impact
on financials, and c) was not even in our sum of the parts. So
as far as we are concerned this is eur0.60/share of value cre-
ation.
In conclusion we can understand that MIG is seeking better
representation on the Board for its 19-20% stake.
We can also understand that it wants more involvement in
OTE's corporate actions. But to show its teeth in this way - pub-
licly undermining an excellent CEO - is clumsy and unlikely to
lead to the desired result. We still believe MIG can act as a very
positive catalyst for OTE, by shaking out value in real estate for
example, but it perhaps needs to exercise a little more patience
and diplomacy. Our OTE fair value is euro35 and we have a BUY
rating on the stock.
Execution Limited analyst Will Draper
17
Cover
Strong growth for 2008
The reforms program and the fiscal consolidation
under way since March 2004 have given a signifi-
cant boost to the Greek economy. Growth is being
fueled by private investment and exports. Unem-
ployment is reduced and social cohesion is
enhanced.
Within the framework of our reforms program we have
placed emphasis on entrepreneurship, competitiveness and
the international orientation of the Greek economy. Such
reforms include:
– The reduction of corporate taxation — from 35 percent
in 2004 to 25 percent in 2007 — and the reduction of
personal income tax rates;
– The introduction of incentives for private investment in
the form of subsidies of up to 60 percent of the total
sum;
– The new legal framework for public-private partnerships;
– The new exports policy;
– The establishment of an investment-friendly environ-
ment in Greece and the support of Greek businesses
operating in the broader region of Southeast Europe and
the Eastern Mediterranean;
– The new privatizations agenda — especially in the bank-
ing sector;
– The establishment of a more efficient mechanism for the
absorption of EU funds;
– The new digital strategy for propagating new technolo-
gies in Greece.
Despite the financial crisis and the high oil prices,
growth is expected to remain strong in 2008 and the fol-
lowing years. This growth will stem from the reforms pro-
gram under way and will be based on the following:
ñ In the period leading to 2013, Greece will receive signif-
icant EU funds, exceeding 24 billion euros. At the same
time, major infrastructure projects of the Third Commu-
nity Support Framework are expected to be completed.
ñ The implementation of several approved public-private
partnership projects begins in 2008. These projects are
estimated at 3.1 billion euros. Additional major projects
are also under way and are expected to fundamentally
transform the transport network in Greece.
ñ Within the framework of the new Investment Incentives
Law, private investments of up to 8.78 billion euros are
already being implemented. These investments boost
regional development in Greece and capitalize on the
country's comparative advantages.
ñ Growth within the broader region of Southeast Europe,
where Greece plays a key role, continues to be robust,
maintaining a fertile market for Greek products and serv-
ices.
The solid progress of the Greek economy allows for the
gradual implementation of important measures which
strengthen social cohesion and improve the welfare state.
The objective of our policies has been to disseminate the
fruits of economic progress in Greek society as a whole. The
2008 budget includes a set of welfare measures, such as
the next phase of the tax reform, the increase of low pen-
sions and unemployment benefits, and the establishment of
the Social Cohesion Fund, which will gradually allocate 2
billion euros per year to support poor households.
The prospects of the Greek economy remain positive. So
far, our economic policies have led to tangible results. We
are committed to continue working toward a more dynamic
economy and a fair society.
The 2008 budget includes a set of welfare measures, including the next phase of the taxreform, the increase of low pensions and the establishment of a fund which will graduallyallocate 2 billion euros per year to support poor households.
George AlogoskoufisMinister of Economy and Finance www.mnec.gr
18
CoverThe Greek economy has been fortified to a large extent by the new growth model which is based on the pillars of fiscal consolidation and structural reform.
Economic reform to enhance growth
The prospects for the world economy at the
end of 2007 are less favorable in compari-
son to those at the beginning of the year.
For three years, the world economy has
recorded remarkable growth, based mainly
on the dynamism of emerging economies, the
strong consumer demand in the US and the recov-
ery of the eurozone. For 2008, international organ-
izations are forecasting a slowdown in world
growth, which, nonetheless, will continue to be
one of the highest in the last 30 years.
In broad terms, the cloudy outlook is due to the
persistent macroeconomic imbalances and the
financial system's instability.
Macroeconomic imbalances are the result of
domestic conditions and policies in specific
economies which lead to a mismatch between pro-
duction and demand. For example, when the fiscal
policy stance results in budget deficits or when pri-
vate consumption is exceptionally high then we
have excess demand. If economic policies are not
productivity-enhancing and do not provide support
for profitable new investment then there is defi-
cient supply. The result of such mismatches is the
accumulation of deficits in the current account bal-
ance (when demand exceeds supply, as in the case
of the US) or surpluses (when supply exceeds
demand, as in some Asian countries, as well as in
the oil-producing countries of the Middle East). In
fact, countries that record surpluses are lending
funds to the countries that record deficits, in order
to allow the latter to maintain their living stan-
dards. But this situation is not sustainable, as
debts have to be repaid eventually. Thus, the
potential for trouble lies in how these major
macroeconomic imbalances will unwind. How will
the indebted economies — both the private and the
public sector — find the resources to pay off their
debts? Will the necessary adjustment, which may
affect the world economic growth, be gradual or
abrupt?
Regarding the financial system, the develop-
ments since this summer prove that we had not
grasped the dimensions of the unstable equilibrium
that had developed. Thus, the domino-style reac-
tion that started in August was, to some extent, not
predicted.
The problems began a while back in the high-
risk subprime-mortgage market in the US. The
modern methods of securitization redistributed this
risk from the banks where these loans originated to
other investment vehicles, many of which were
owned or guaranteed by other banks. That was a
way for these banks to evade rules of prudential
supervision.
The lack of transparency regarding the compo-
sition and quality of the vehicles' assets was the
catalyst for the developments that followed. In this
way, when difficulties arose for US debtors to serv-
ice their debts, the problems of an individual econ-
omy spread to the world economy, as these vehi-
cles have international ownership. At the same
time, the lack of transparency damaged the rela-
tionship of trust among banks, resulting in a con-
siderable increase in the cost of funds on the inter-
bank market.
Overall, I would say that there are four risk fac-
tors that may affect the world economy in 2008:
1. The developments in exchange rates, which are
related to the macroeconomic imbalances that I
described above;
2. The high prices of oil, raw materials and basic
food items due to the strong international
demand;
3. The condition of the financial system, and
4. The fears for economic protectionism or geopo-
litical upheaval.
Among these factors, the most serious one, in
my opinion, is the one related to the conditions in
the financial system. The persistence of the high
cost of banks for borrowing in the money market
will eventually affect the rest of the economy, as it
has a negative impact on the cost and availability
of borrowing for households and firms. A further
Plutarchos SakellarisProfessor at Athens University of
Economics and Business and
Chairman of the Council of
Economic Advisers
19
risk factor for the Greek economy in particular is
the economic environment in our neighborhood.
We should monitor closely developments in the
wider region of Southeastern Europe, as a large
part of our economic activity is related to the
economies of our neighbors.
International organizations estimate that these
conjunctural developments will have limited
impact on the Greek economy. Nonetheless, the
government is following closely the developments
in the international environment to ensure that the
impact on economic growth and living standards
will be minimal.
The Greek economy has been fortified to a large
extent by the new growth model that the govern-
ment has been implementing since it came into
office. The new model is based on the pillars of fis-
cal consolidation and structural reforms.
As a result, the growth rate of the Greek econ-
omy remains at high levels, but what is more
important is that the qualitative aspects of this
growth are different than in the past. In the last
few years, growth has mainly been based on
exports and private investment, with housing
investment playing a diminishing role compared to
investment in equipment. Therefore, efforts to cre-
ate a more productive and outward-looking econo-
my are bearing fruit.
The government is continuing to implement
important reforms so as to strengthen growth and
social cohesion. These reforms are necessary in
order to tackle existing problems and face the chal-
lenges arising from world economic developments.
Some of the measures that the government is
implementing include:
ñ The establishment of a National Social Cohe-
sion Fund in order to fight poverty through
actions targeted at specific social groups;
ñ Pension reform, which aims at making the sys-
tem more fair, sustainable and efficient;
ñ Intensifying the efforts to combat tax evasion,
corruption and smuggling so that all contribute
to the financing of the social safety net accord-
ing to their actual means;
ñ The third phase of the tax reform, which pro-
vides for the simplification of real estate taxa-
tion in parallel with lowering the tax burden for
individuals, which was initiated this year and
will be completed in 2009. The central tax rate
will be 25 percent, down from current rates of
30 percent and 40 percent;
ñ The full implementation of Law 3249/2005 for
Public Enterprises and Entities and the intro-
duction of relevant measures regarding the
transparency of financial statements of hospi-
tals, insurance funds and local authorities.
On these grounds, the Greek economy is mov-
ing into 2008 with considerable ammunition. Its
growth potential is solid and based on:
– Effective use of the structural funds of the next
programming period, which will amount to
more that 24 billion euros;
– A broad program of public investment, which
will amount to 9.3 billion euros in 2008;
– Private investment projects which have already
been approved within the framework of the
Investment Law of 2005 amounting to 8.78
billion euros, and
– Public-private partnership projects already
approved by the Interministerial Committee
amounting to more than 3.1 billion euros,
which will be undertaken starting in 2008.
20
CoverInvestment growth is expected to continue at a healthy pace in 2008 and 2009, supportedby EU financing and will continue to feature as a primary driver for growth in this period.
Economy shows growth staminaas external sector lags
The Greek economy has completed its 11th con-
secutive year of strong economic growth, having
averaged 4.2 percent annually and thereby sig-
nificantly narrowing the real per capita income
gap between Greece and the EU-15. The primary
growth driver during this period has been domestic
demand, comprising solid investment growth (with the
support of EU financing through the Community Support
Framework III program) and sustained (albeit it below
the rate of GDP growth) consumption growth, notwith-
standing the persistent negative contribution of net
exports to GDP growth.
Substantial investment was channeled toward the
utilities sector but also infrastructure, general areas
which had seen little investment before the mid-1990s.
Investment in new machinery and equipment has aided
Greek corporations in their efforts to modernize,
enabling them to capitalize on the rapid growth of SE
Europe via the expansion of their branch networks and
production facilities, which in turn has contributed
greatly to the restructuring of the Greek business envi-
ronment. Investment in modern tourist facilities, in com-
bination with the new business model applied following
the Olympics of 2004, has allowed Greece to capitalize
on its comparative advantage in tourism. Investment in
housing received a significant boost from the rapid rise
in mortgage credit due in large part to the low interest
rate environment in the eurozone, while the substantial
rate of commercial investment reflected broad restruc-
turing within the sector as large supermarket and chain
stores and shopping malls rapidly replaced the more
fragmented and small-scale retail and wholesale stores.
Investment growth is expected to continue at a healthy
pace in 2008 and 2009, supported as well by EU
financing, and will continue to feature as a primary driv-
er of growth during this period, notwithstanding the
expected moderation in housing investment.
Consumption growth has also proved to be robust,
supported by: (1) solid gains in employment (mainly in
the public sector), (2) consistently high real wage
increases in excess of the eurozone average, (3) low
interest rates and a low level of credit penetration rel-
ative to the eurozone driving the rapid expansion of
consumer credit.
However, the external sector has remained a drag on
Greek GDP growth despite the satisfactory performance
of Greek exports in the last years. A combination of the
high growth of domestic demand, the surge in oil prices
and the gradual deterioration of Greek international com-
petitiveness has led to the surge in growth of imports,
with the resultant current account deficit of 11.5 percent
of GDP in 2007. On the fiscal adjustment front, the gen-
eral government deficit has been reduced to 2.7 percent
in 2007 and it is projected to fall further to 1.6 percent
in 2008. However, there is still ample room for improve-
ment, through the substantial increase of net current rev-
enue growth (which averaged an annual rate of 5.9 per-
cent in the 2002-2007 period, way below the 7.8 per-
cent annual growth of nominal GDP) and the decelera-
tion of current primary expenditure growth (which aver-
aged an annual rate of 9.9 percent in 2002-2007).
There is ample room for combating tax and social insur-
ance contribution evasion, increasing the current rev-
enue-to-GDP ratio above the 35.7 percent reached in
2007, compared with 44.7 percent in the eurozone. On
the other hand, current primary expenditure can be con-
tained through: (1) an appropriate adjustment of public
sector employment, wage and pension policies, (2) bet-
ter control of healthcare payments and (3) rationalization
of transfers to social insurance funds and social contri-
butions, which, without extensive restructuring of the
social security system, are set to register explosive growth
in the years to come.
In this regard, the government is currently in the
process of reviewing the Greek pension system with
the aim of finalizing the necessary reform legislation by
the first half of 2008. Such reform should entail: (1)
The stabilization of national pension payments in the
medium and long term at a level not far above the cur-
rent level of 12.6 percent of GDP, whereas, void of
necessary reforms, pension payments are projected to
reach 16 percent of GDP in 2020 and 20 percent of
GDP in 2030. Stabilization of pension payments in
terms of GDP requires the continued healthy growth of
GDP, taking into account the projected negative
employment growth due to the aging of the Greek pop-
ulation and particular parameters of the pension sys-
tem. Growth needs to be based on productivity
improvements necessitating the reform of the labor
market, the education and healthcare systems as well
as the central government. Maintaining healthy
employment growth requires a well designed immigra-
tion policy. (2) Increasing pension savings in combina-
tion with a substantial reduction of the general gov-
ernment debt/GDP ratio, which today still stands at 92
percent of GDP. Pension savings can be boosted by
substantially reducing tax and social security contribu-
tion evasion. However, evasion of social security con-
tributions can be tackled by establishing a tighter link
between pension contributions and pension benefits.
(3) The current attempt at the rationalization of the
government-backed Greek pension system by: (a) con-
solidating the highly fragmented pension fund market
and (b) the tightening of early retirement provisions
and rationalizing the list of ‘occupations benefiting
from lower retirement age limits due to associated
health-risks or onerous physical conditions,' as well as
the disability pension code, should contribute not only
to the achievement of substantial efficiency gains, but
also to the fairness of the system.
Dimitris MaroulisAlpha Bank economistwww.alpha.gr
21
CoverThe 2008 budget shows the target for the general government deficit next year is 1.6percent of gross domestic product while public debt is projected at 91 percent of GDP.
Fiscal developments, reforms andprivatizations take center stage
The economic policy implemented since
March 2004 has placed emphasis on restor-
ing the fiscal balance and the credibility of
general government data along with improv-
ing the quality of public finance. Moreover, a
far-reaching reform program was launched aiming at
enhancing the growth potential of the economy. The
targets of fiscal consolidation and the reform agenda
are outlined in the 2008 draft budget, the first to fol-
low Greece's exit from the excessive deficit proce-
dure. The main policy directions and targets are:
– Further deficit reduction aiming at a balanced
budget by 2010;
– Reforming the compilation process and the pres-
entation of the state budget toward a programs-
based budget;
– Incorporating extra-budgetary accounts in the
budget;
– Enhancing fiscal audits;
– Completing the tax reform process, with empha-
sis on the simplification of property taxation,
broadening the tax base and combating tax eva-
sion;
– Reinforcing social cohesion by establishing a min-
imum national pension by 2009 and by setting
up the National Fund for Social Cohesion;
– Reform of the social security system following a
broad social and political dialogue;
– Further implemention and enriching of the new
economic model for growth, employment and
social welfare implemented since March 2004.
At the end of 2007, the general government bal-
ance for the year is expected to reach 2.7 percent of
GDP compared to 2.5 percent in 2006; however,
excluding the one-off payment to the EU (amounting
to 0.5 percent of GDP) the implementation of the
budget is right on track despite incorporating the cost
of natural disasters during the summer. The general
government debt is expected to fall in 2007 by 1.9
percentage points reaching 93.4 percent of GDP
(down from 95.3 percent in 2006). The ordinary
budget revenue for 2007 is expected to increase by
8.1 percent reaching 51,800 million euros, thus
overshooting the original target set in the budget. On
the other hand, primary expenditure is growing at
11.7 percent, higher than originally projected. This is
the result of the settlement of the debt to Olympic
Airways, the cost of tackling natural disasters and
offering assistance, and the cost of elections.
According to the 2008 budget, the target for the
general government deficit for next year is 1.6 per-
cent of GDP, while public debt is projected at 91 per-
cent of GDP. The ordinary budget revenue is expect-
ed to grow by 12.1 percent, while primary expendi-
ture is projected to decelerate significantly (+7.3
percent compared to 11.7 percent in 2007) reaching
19.8 percent of GDP. The improvement in tax rev-
enue collection is mainly the result of further tackling
tax evasion through intensifying fiscal and customs
audits and the restructuring of the system related to
fuel distribution. In parallel, providing tax incentives
for consumers to request receipts and comply with
their tax obligations is a measure along the same
lines. At the same time, the tax base in property tax-
ation is broadened, through the introduction of a real
estate tax. Fiscal consolidation continues while main-
taining high growth rates.
The effort to improve the quality of public
finances is of considerable importance. The govern-
ment aims at introducing program budgeting, in
order to evaluate the effectiveness of public expendi-
ture and to implement a new accounting system that
will support the state budget for the most accurate
and concise presentation of public finances. The
2008 state budget is accompanied by a special
report, consisting of:
ñ A presentation of the state's budget, structured in
functions and programs, the National Plan of Pro-
grams;
Loukas K. PapazoglouGeneral Secretary of the Treasurywww.mof-glk.gr
22
Cover
ñ A description of the aforementioned programs;
ñ Pilot planning for the function of ‘Culture, Reli-
gion and Sport.'
Furthermore, according to Law 3513/2006, two
new units, subordinate to the General Directorate for
the Treasury and Budget have been established in
the General Secretariat for Fiscal Policy within the
General Accounting Office:
ñ The unit for the government budget reform,
responsible for the introduction of a program
budget structure in a multi-annual budget frame-
work and the development of an assessment
framework for the performance and the outcome
of the programs and policies of the government;
ñ The unit for the Government Accounting System
Reform, responsible for the transition from the
existing accounting system to an accounting sys-
tem on an accrual basis.
By the end of 2006, a substantial step had
been taken for the reorganization of the existing
auditing system for public expenditure. In particu-
lar, according to Law 3492/2006, the responsibil-
ities of the Ministry of Economy and Finance as an
external auditor are being reinforced on the basis of
the principles of efficiency and effectiveness. In
particular, a General Directorate for Fiscal Audits
(GDFA) has been established in the General
Accounting Office/General Secretariat for Fiscal
Policy. This General Directorate, apart from sched-
uled and non-scheduled audits, will also audit the
administration and control systems of the agencies
that manage public funds using its specialized per-
sonnel and other experts. The GDFA will also draw
up an annual report which will include the conclu-
sions of the audits, the evaluation of the findings of
the supervised actors' internal control units and
relevant recommendations
Privatization policyThe primary goal of the government elected in
March 2004 with regard to privatizations was
decreasing the state's participation in economic
PRIVATIZATION REVENUES 2004-2007
Company Date % share sold Privatization Amount raised Currently under of transaction method by state (mln euros) state control
Hellenic Petroleum Aug 2004 8.21% Trade sale 192 35.50%
National Bank of Greece Nov 2004 7.46% Accelerated bookbuilding 562 0.00%
Total 2004 754
Football Prognostics Organization Jul 2005 16.44% Secondary offering (fully marketed) 1,266 34.00%
Hellenic Telecommunications Organization Sep 2005 10.00% Accelerated bookbuilding 835 38.70%
Total 2005 2,101
Postal Savings Bank Feb 2006 -- Recapitalization 400 --
Agricultural Bank of Greece May 2006 7.18% Accelerated bookbuilding 328 77.30%
Postal Savings Bank May 2006 10.00% Trade sale to ELTA (1) 15 90.00%
Hellenic Post May 2006 10.00% Trade sale to PSB 21 90.00%
Postal Savings Bank May 2006 34.84% Initial public offering 612 55.16%
Commercial Bank of Greece Aug 2006 11.01% Trade sale to Credit Agricole through public offer 364 0.00%
Total 2006 1,740
Hellenic Telecommunications Organization June 2007 10.70% Accelerated bookbuilding 1,122 28.03%
Postal Savings Bank July 2007 20.00% Accelerated bookbuilding 510 34.37%
Total 2007 1,632
Total 2004-2007 6,227
(1) The total transaction value amounts to 159 euros and is payable until Dec 2010
23
activity and achieving better utilization of state prop-
erty. The new era of privatizations is characterized by
moving away from the accounting approach in favor
of methods that maximize social welfare. In this
respect, it is very important to emphasize the maxi-
mization of the value of state-owned enterprises
before the actual privatization process. Thus, the
government chose to privatize mature enterprises
first, the value of which was widely recognized in the
market.
During 2004-2006, total privatization revenues
in Greece reached 4,595 million euros, substantially
reducing public debt. More specifically, a series of
privatization transactions was successfully carried
out in the 2004-2005 period, generating revenues of
2,855 million euros, while 2005 was a particular
success, exceeding the target revenue from privatiza-
tions by 31.3 percent.
During 2006, the privatization program focused
on further liberalizing financial markets through the
reduction of the state's participation in the banking
sector. In particular, with the restructuring and IPO
of Postal Savings Bank, the restructuring and further
privatization of Agricultural Bank of Greece
(ATEbank) and the full privatization of Emporiki
Bank, the banking sector in Greece was substantial-
ly reformed, while the corresponding privatization
revenues reached 1,740 million euros exceeding the
national budget target of 1,650 million euros.
In 2007, the government proceeded further
toward reducing its share in the banking sector
through the sale of 20 percent of Postal Savings
Bank via an accelerated bookbuild offering. In addi-
tion, 10.7 percent of the Hellenic Telecommunica-
tions Organization (OTE) was similarly sold, thus
resulting in revenues from privatizations reaching a
total of 1,632 million euros, coming within reach of
the 1,700-million-euro budget target.
The table below summarizes the privatization
transactions carried out during 2004-2007.
It is important to point out that despite the con-
siderable progress made so far in the field of privati-
zations, the government's effort will continue at the
same pace and with the same focus. In particular,
the government's privatization policy includes the fol-
lowing:
-Tourist Development Company (TDC)
The Interministerial Privatization Committee
(IPC) has decided to develop certain assets of the
company, such as the Faliro Marina, the Corfu Casi-
no, the Golf Club of Afandou on Rhodes and hotels in
various places of tourist interest in Greece. The
process for many of the aforementioned projects is
well advanced.
-Public Gas Corporation (DEPA)
The IPC has decided to proceed with the listing of
DEPA on the Athens Exchange. The listing will follow
the restructuring of the company, the legal
unbundling of the transportation activity and the cor-
responding formation of the subsidiary companies
pursuant to Law 3428/2005 for the Deregulation of
the Gas Market in Greece.
The privatization program also includes the explo-
ration of the optimal way to further privatize Athens
International Airport, as well as examining the most
appropriate methods for bringing out the value of
state participations in listed and non-listed compa-
nies.
In addition, the government recently introduced a
modern and flexible regulatory framework for public-
private partnerships (PPPs) and public finance initi-
ates (PFIs). The establishment of such a regulatory
framework, which underlines the government's inten-
tion to promote PPPs/PFIs as a method of privatiza-
tion, could drastically transform the privatization
framework in Greece while attracting foreign and
domestic direct investment.
Privatization is a method of reallocating assets
and economic activities from the public to the private
sector. Even though there was much controversy
about privatizations, mainly during the 1980s and
90s, nowadays they are widely accepted as a major
means of economic policy and structural reforms,
even more so since it has been adopted across the
world and by different political regimes.
The driving force behind the increasing populari-
ty for pursuing privatizations is that, undoubtedly,
the private sector has performed far better in a glob-
alized competitive environment than the public sec-
tor, offering products and services of better quality
and lower prices.
Both empirical and theoretical studies support
the fact that privatization increases profitability and
efficiency at the microeconomic level. Apart from
that, in the case of Greece it is evident that the pri-
vatization program has had a positive impact on the
reduction of public debt, the attraction of foreign
direct investment, and the increase in the liquidity
and capitalization of the stock market.
24
Cover
Quality twist for tourism
Tourism is a national priority for Greece due to
its great contribution to the country's econo-
my. It is neither abstract nor mutable. Its
development is perceptible through the
rhythms of the economy, outlining an impor-
tant aspect of our country's general profile. The
income from tourism alone exceeds the amount of
11.5 billion euros and represents 18.2 percent of the
gross national product. Furthermore, it serves for the
creation of new jobs. Tourism development in Greece
has opened up thousands of employment posts over
the past few years, especially for the younger gener-
ation, and we are proud to say that the tourist sector
now provides jobs — directly or indirectly — to more
than 850,000 citizens. Considering the above, it is
clear to see that tourism development is a stake of
national importance.
Our efforts are focused on three main goals: first-
ly, to enhance quality at all levels and in all aspects
of the Greek tourism industry; secondly, to establish
the country within the top world rankings of preferred
year-round tourist destinations; and last, but not
least, to attract and encourage more investment and
new business ventures. To attain these goals we
must take into consideration the fact that the tourism
environment needs to grow, with new destinations
and new services that will boost the market and lead
to shifts in traditional destinations.
At the same time, tourism itself is shifting geo-
graphically, economically, socially and in terms of
the age of travelers. The top requisite and common
denominator in all these shifts is quality and cus-
tomized options. Alongside quality and customized
options, new trends in demand are surfacing, trends
that lead to the formation of new consumer attitudes
and the emergence of new customer groups. Were
we to rest on our laurels of traditional advantages
and numeric data of recent times, the results yielded
would not come up to expectations nor would they
correspond to the expected gains of an increase in
revenues and new employment opportunities. Times
are demanding and it is imperative that we method-
ically create a newly minted, contemporary, attrac-
tive and effective tourist model, a model that will pri-
oritize Greece's new key position as a preferred
tourist destination.
To this end, we ought to be realists and willing to
comprehend that nothing can yield fruit if we haven't
invested first. That is why we start with the country's
promotion abroad. This entails dealing not only with
investment in our international image abroad, but
with its reformation as well. So, we start with pro-
motion that is inspired by vision, imagination and
inventiveness. And so far we have presented the
modern image of Greece, the image of a country with
four seasons where everyone can have a truly special
experience.
The new broader strategic positioning of our
country demands that we portray Greece as a desti-
nation of diversity and contrast, leaving each and
every visitor with the sense that they have experi-
enced something truly unique and unforgettable.
That is our strategy for the new image of Greece,
as a destination of global appeal. Sea tourism, cultur-
al tourism, rural tourism, guided tourism, health and
wellness tourism, MICE (meetings, incentives, confer-
ences, events) tourism, luxury tourism, city breaks,
and seaside tourism: These nine strategic branches are
the ones in which Greece will invest in the following
years, in order to transform the country into a year-
round destination and enhance the tourism product.
We cannot speak of a national strategy for tourism
without having constructed a new image of Greece, a
new international identity with new aesthetics that go
far beyond the ‘sun and sea' model.
Our aim is to become a preferred destination for
potential visitors and, in time, to transform that pref-
erence into a solid intention to travel to our country.
In order to maximize the returns of the country's
The new broader strategic positioning of our country demands that we portray Greece as adestination of diversity and contrast, leaving each and every visitor with the sense that theyhave experienced something truly unique and unforgettable.
Aris SpiliotopoulosMinister of Tourism www.mintour.gr
tourism industry, we are implementing new market-
ing designs and new media plans to meet the
demands of the increased competition. This year, we
are taking the promotion of Greek tourism to a whole
new level: We are no longer investing in traditional
forms of advertising alone, but also in new creative
communication channels, where the Internet and
digital technologies have the leading role. Now,
Greece can finally claim its place as a superior desti-
nation of the highest standard.
At the same time traditional advertising is being
reinforced and renewed as well: Greece will be pro-
moted in the most prominent and prestigious inter-
national press. The most popular travel magazines
will include thematic features on our country. More-
over our presence will be felt in the traditional mar-
kets of Europe and the United States, in developing
ones such as Russia and Arab nations, and in emerg-
ing ones as well, such as China and India, associat-
ing tourism with culture. We will attract, we will cre-
ate and we will support international sporting and
cultural events that will be hosted here. We intend to
show the world that Greece has the same capacities,
services and infrastructures as the other developed
countries in the European Union. In 2008 we will be
present in China with exhibitions, taking advantage
of the Cultural Year of Greece in that country and the
Olympic Games in Beijing. We will support interna-
tional film productions that will promote the image of
Greece in theaters worldwide.
This national effort is a vital wager for our coun-
try that will transport Greece from the 20th to the
21st century. We all hope that this effort will touch
the hearts and minds of those who choose to visit our
country. We are very optimistic that we can make it
no matter how high our expectations are.
Tourism is a great force in the context of which
there is much more to unite than to divide us. After
all, tourism is Greece itself, and Greece is a matter
that concerns one and all. Greece is who we are. We
can have more and we deserve more. It is a cause
worth striving for to the best of our abilities.
25
26
CoverThe Ministry’s action plan includes boosting Greek shipping’s competitiveness, making it aworld leader, protecting the number and quality of Greek maritime jobs, while creatingbetter infrastructure.
Greece strengthens its role in international shipping
Greek shipping offers various challenges to the
international and business community via
contributing to the international trade and to
international and European bodies through its
experience, know-how and figures.
It stimulates unrelenting interest among thou-
sands of investors, businesspeople and workers, it
encourages discussions, actions and policies as
regards issues related to the environment, education,
technology and research, but above all it challenges
the Greek state and the Ministry of Mercantile Marine
to make it expand at a strong pace and increase the
vigor of this national asset.
Greek-owned shipping plays a prominent role as
a key participant in global trade, since Greek ship-
ping companies manage 18 percent of the global
fleet. Half of the EU merchant fleet is Greek and han-
dles 25 percent of the imports of oil and other goods
by the United States and 23 percent of the interna-
tional merchant fleet, maximizing thus Grece's influ-
ence on the international scene.
In addition, Greek ships have progressively
improved their age and safety standards. According
to estimations, the volume of shipping exchange will
reach 15 million euros in 2007, a ratio that will
cover approximately one-third of our trade deficit and
which is almost equal to 8 percent of the GDP.
The volume of this influx of exchange is consider-
ably important, comparing it to the 8.5 million euros
of exports total value in the past half year, the 488
million euros that came from foreign direct invest-
ments in 2006 and the 2.8 million euros achieved by
decentralization between 2004 and 2005.
However, the nature of shipping not only repre-
sents a challenge for the figures, it also provides
effective and continuing action in the field of coastal
navigation, it gives real impetus to foundations, hos-
pitals and scholarships by sponsoring them substan-
tially and gives valuable support to onshore business
since it contributes to the transportation of fuel and
other sectors such as air transport, finance, tourism,
the mass media etc.
To carry out shipping management effectively, a
resource input of 1,200 shipping companies and a
work force of 11,500, mainly Greek, are required on
a substantial scale, reflecting 160,000 to 200,000
job positions.
It is because of shipping that Greece has
strengthened its role in the international environment
and it promises a benign and sustainable outcome in
the new world where geo-economic criteria have
reshaped powers.
Nonetheless, there are factors that hinder the
development of Greek shipping and require immedi-
ate solutions, the most important of all being the
decline in seagoing employment on the one hand and
the comprehensive programs of Greek shipping com-
panies on the other, which aim at job creation via the
establishment of academies for foreign officers in the
Far East and the promotion of a skilled and trained
work force.
In addition to that, two-thirds of Greek-owned
ships do not sail under the Greek flag, a fact that
marks the priority that should be given to issues con-
cerning the shipping register.
Another crucial area is the new environment for
shipping companies where new criteria should be set
regarding sector differentials that unavoidably vary as
time passes. Thus, the setting up of cohesion criteria
is more than important and a basic precondition for a
better modus operandi in concert with shipping regu-
lations and structures that will suit today's needs.
Finally, one of the greatest challenges is the issue
of ports that undeniably play an important role along-
side logistics. Paramount importance is attached to
ports, since they constitute the best ways of promot-
ing a country's development and prosperity.
Shipping's contribution to international develop-
ment is enormous, serving 90 percent of global trade by
carrying huge quantities of cargo cleanly and safely.
There are new trends paving the way for the
future of shipping and these are:
■ Global trade is going to be increased (China's
demand for iron and copper set the pace in Asia);
■ The unified European market is wider in shipping
competition (Denmark's aspirations, which plan
to put its strength in a modern project);
■ Stricter legislation;
■ Merging trends;
■ Change of policy in shipping banks and stock
market prospects.
Greek shipowners take these trends into account.
The year 2007 has been a milestone since 850 new
ships are being built around the world. Overall invest-
ment in new and used ships will probably surpass
$15.5 billion. The shipping industry has been invest-
ing based on financial support programs, mainly
loans from foreign banks. Lately, however, major
developments have been achieved with new man-
agement trends and funds have been derived from
the international stock markets in New York, Oslo,
Amsterdam, London and Cyprus.
The 25 new Greek shipping companies listed
on international stock markets have helped Greek
shipping to become more comprehensive in char-
acter and establish itself quickly in the new mar-
kets. Annual turnovers have been estimated to
reach $400 billion, at a time when challenges in
Giorgos Voulgarakis Mercantile Marine Ministerwww.yen.gr
27
the global world are at their most acute.
Great efforts have been made to avoid distortions
of the past, to open up the shipping sector, and to
gain ground for the purposes of achieving the objec-
tives of boosting competition in the field.
Certain measures have been taken to produce
steady evolution in different aspects. The new frame-
work had to satisfy the following concerns:
1. Increased competition in the national registry;
2. Establishing the advancement of P&I Clubs legis-
lation in Greece;
3. Adopting the 3450/2006 and 3490/2006 laws,
which upgrade the status of the Merchant Marine
Academies, supervised by the Ministry of Mer-
cantile Marine, the Aegean Sea and Island Policy;
4. Reducing income taxation for seafarers;
5. Securing Greek shipping competitiveness;
6. Modifying the framework of maritime cabotage in
order to achieve higher objectives;
7. Proceeding to seaplanes, providing a stimulus for
the advancement of sea transport;
8. In the prospect of transport corridors and port
policy, we signed up the of 3-billion-euro Protocol
financing port infrastructures;
9. The Ministry has a wider scope since it merged
with the Ministry of the Aegean Sea and Islands,
given the range of responsibilities involved.
Finally, four major pivots should be highlighted:
1) Further support of shipping and development,
given the linkage with the national economy;
2) Introduction of innovative measures and actions
to move toward differentiation of Greek shipping
products and services;
3) Cooperation between the ministries of Mercantile
Marine and the Aegean Sea that can generate
positive outcomes and support for the economy of
the aforementioned area;
4) Deliberations with all interested parties. We do
not wish others to be distrustful of our sugges-
tions and our efforts made to build a stronger
regime that will govern the activities of the field.
The government shares a common target: to pro-
vide better-paid work for seafarers, more revenues
and cleaner seas.
The Ministry is willing to pursue a new course —
the course of the Maritime Cluster Manager.
This sets a new tone in cooperation. We have
been elaborating a plan that will reduce juxtaposi-
tions and will summon into being a unique outfit
linking shipping to other fields of the economy,
entering thus the heartlands of national interest
and attracting new funds from foreign countries.
Part-time investment does not assure financial sol-
idarity and the priority given to economic cohesion
has been translated into a stable and reliable busi-
ness environment.
Specifically, our action plan includes various
aspects, such as boosting Greek shipping competi-
tiveness, making it a leader in the world, protecting
the number and quality of Greek maritime jobs, cre-
ating the infrastructures necessary for better plan-
ning, organization and control of freight transport
operations, and adopting concrete actions in further
using ships in logistic services.
Other facets of this plan involve upgrading ports,
port-building facilities, developing modern port infra-
structure so as to meet the requirement of supply of
services to passenger ships and cargoes, enhancing
port competitiveness that will give access to markets
and support of sea tourism, recreational diving,
cruise ships, yachting, marinas-mooring etc.
Providing research and innovation for all shipping
and shipbuilding industries, guaranteeing navigation
safety, police surveillance and protection of the
marine environment through the coast guard and
ensuring sustainable transport operations for islands
that will boost their local economies are also targets
of primary importance.
Finally, playing a key role in the international
forums so as to support Greek shipping and increase
our efficiency in the protection of the marine envi-
ronment are great challenges but are also the tribu-
taries down which we should paddle to seek a better
tomorrow for a better future.
28
Cover
Greek capital market outlook
During the last four years we have seen
tremendous progress in the Greek economy
and the Greek capital market. The Greek
economy continues to maintain one of the
fastest growth rates in Europe. The stability
provided by the euro, the progressive income tax
reduction for companies from 35 percent to 25 per-
cent in 2007, enhanced transparency from the adop-
tion of International Accounting Standards as well as
proximity to the countries of SE Europe and the
Balkans — which are also developing rapidly and in
which Greece has an important business presence —
have all contributed toward the strengthening of the
development potential of the country. The Greek
economy is expected to keep on developing at a
faster pace than most other European countries.
On the other hand there are a series of consider-
ations that we need to take into account, both
domestically as well as internationally, that could put
a damper on this optimistic outlook.
Oil prices have increased considerably, and many
believe that the day is not far off when the price of
oil will surpass the $100 mark. The full effects of the
oil price increase have not yet been felt, but it is cer-
tain that they will negatively impact both the growth
rate and inflation.
Additionally, European exports and marketplaces
as a whole are expected to be affected by the slide of
the US dollar vs the euro.
Finally, following the strong performance of cap-
ital markets in the first half of 2007, the subprime
loan crisis hit exchanges. Most capital markets are
far from their highs set earlier in the year, while
price volatility has increased and the willingness of
investors to take on risk is at historic lows. The
financial sector in North America and Western
Europe has been the hardest hit, and many believe
that we have not yet reached the end of the tunnel.
Without any doubt, this ‘imported' crisis is one of
the main reasons behind the volatility that charac-
terized ATHEX last August and November. As far as
we are aware, it is quite encouraging that Greek
banks have had little exposure to subprime loans or
similar products, and are thus expected to weather
the crisis.
The mood therefore regarding the economy and
the business environment, despite the potential prob-
lems, is one of reserved optimism. On the other
hand, we believe that 2008 is going to be a very
important year for European capital markets. Pres-
sure from the EU is forcing European exchanges and
clearing houses to increase their transparency and
reduce transaction costs. The Markets in Financial
Instruments Directive (MiFID) came into effect on
November 1, 2007 and allows the internalization of
trade, meaning that trade can be executed without
necessarily going through an exchange.
The Code of Conduct, on the other hand, signed
one year ago in Brussels, is a voluntary agreement
between European exchanges and clearing houses
that aims to liberalize charges, eliminate cross-subsi-
dies and allow interoperability between clearing
houses.
The basic aim of both the MiFID and the Code of
Conduct is to increase transparency, reduce the cost
of transactions for the benefit of investors, and
increase the level of services provided.
For traditional exchanges, life is expected to
become more difficult and demanding, but also to
provide opportunities to those that are able to take
advantage of them. On the one hand, just as the
telecommunications market opened up a few years
ago and became more competitive, so too must
exchanges offer better, faster and cheaper services in
order to respond to the demands of this new envi-
ronment. Only the exchanges that invest in their
infrastructure, mostly in technology, in their human
resources and in product development will survive in
this environment of increasing competition.
The Hellenic Exchanges Group at the beginning of
this past year took a significant step in that direction
by reducing its transaction fees by 33 percent. This
is the largest fee reduction in the history of the
Athens Exchange.
Of course, one of the basic outstanding issues in
need of immediate resolution is the elimination of the
sales tax (0.15 percent), which at present reduces
the competitiveness of the Greek market. Unless this
tax is eliminated, our market runs the serious risk of
seeing transactions migrate to other platforms
abroad, where the tax will not be paid, and our mar-
ket will become marginalized.
While all of the above might sound like threats for
European exchanges, for those exchanges that are
successful in achieving their targets, national borders
will no longer be a constraint, as their potential mar-
ket will be the whole of Europe.
The opening of the exchange markets of Europe
is expected to strengthen the trend toward mergers
and acquisitions. The merger of the New York
Stock Exchange with Euronext, the merger of the
London Stock Exchange with Borsa Italiana, and
the acquisition of OMX by the NASDAQ and the
Dubai Stock Exchange, all of which took place in
2008 is seen as being a very important year for European capital markets. Pressure from theEU is forcing European exchanges and clearing houses to increase their transparency andreduce transaction costs.
Spyros CapralosAthens Exchange Chairmanwww.axa.gr
29
2007, are indicative of things to come.
The Hellenic Exchanges Group is ready to face
the challenge posed by the MiFID. During the last
few years a series of changes took place — some of
them visible to the average investors and others more
technical in nature. These changes have strength-
ened our capital market, effectively protecting private
investors and increasing the liquidity of the market.
In particular, the new Athens Exchange Rulebook,
with its corporate governance standards, has
increased the quantity and quality of information that
is made available to investors. Furthermore, the
extension of market trading hours has facilitated the
increased presence of investors from Western Europe
and North America.
In the past few years, international investors have
given the Greek market and the improvement of the
investing climate their vote of confidence with their
money. Nevertheless, we must not forget that the rel-
ative absence of local private investors is cause for
concern. Mutual funds and pension funds, with all
the problems that they have recently been facing, as
well as Greek institutional investors still seem to be
unable to play the role that they should, a role that
they play in other developed markets.
Therefore, the only way for us to develop our mar-
ket is to become more extroverted. With roadshows
in Europe and the United States in order to promote
our listed companies to international institutional
investors, we are trying to increase interest in the
local market.
Today, 53 percent of the total market capitaliza-
tion of the Athens Exchange, which exceeds 190 bil-
lion euros, is in the hands of international investors,
and they are responsible on average for approximate-
ly 60 percent of total daily trading activity. It should
be noted that, since the beginning of 2005, the net
capital inflow from other countries to the Greek mar-
ket is now approaching 17 billion euros.
In 2004, the average daily turnover at the
Athens Exchange was 140 million euros, while in
2007 this figure has been in excess of 480 million
euros. And that is not all: 2007 has been one of the
most important years in the history of the Greek
capital market as regards rights issues. Capital
raised from ATHEX in 2007 exceeded 10 billion
euros, a record amount for us, and noteworthy even
by international standards.
We believe that the HELEX Group's strategy for
growth should adhere to the following three axes:
– Organic growth
– Reduction in operational costs
– Expansion in Southeastern Europe
At the beginning of 2008 a new product and a
new market segment will be introduced as part of our
strategy. In January 2008 the first Exchange Traded
Fund (ETF) will be introduced in our market. ETFs
are like mutual funds which are listed and traded on
the exchange during market opening hours, just like
shares. ETFs are baskets of shares and thus reduce
investment risk through diversification.
Additionally, at the beginning of 2008 our Alter-
native Market, ENA, will become operational. This
new market segment, a semi-regulated market, will
have reduced listing and corporate governance
requirements and low fees, in order to attract small-
er, dynamic companies that want to raise capital at
a low cost, but cannot shoulder the costs and com-
pliance requirements of a listing in our main markets.
Furthermore, we are now ready to open our
market to remote members. The MiFID has led to
the elimination of the last remaining barriers to
entry for remote members, and their introduction is
expected to increase competition, reduce access
costs to our market, and significantly increase
transaction activity.
Concerning the second leg of our strategy, the
reduction in operating costs, the efforts of the past
few years have been quite successful, given that we
have been able to reduce our operating cost by
approximately 40 percent since 2003. The reloca-
tion of the HELEX Group to our new building, which
was completed in 2007, is expected to lead to fur-
ther synergies and economies of scale.
Finally, as regards geographical expansion in SE
Europe, our vision is to create a single hub for entry
into the capital markets of the region while main-
taining the characteristics of an emerging market.
The size of this market will make it feasible to
attract part of the liquidity directed toward emerg-
ing markets.
The benefits from the unification of the SE Euro-
pean capital markets are increased transaction activ-
ity, reduced operating expenses for exchanges, which
in turn are expected to lead to reduced costs for the
final investor, the introduction of new products to
final investors, and an increased capacity by listed
companies to raise capital.
Our guide in that vision is the cooperation
between the Greek and the Cypriot exchanges. The
Athens Exchange began the operation of the Com-
mon Platform with the Cyprus Stock Exchange in
October 2006 and the first year of operation was a
complete success, as this cooperation led to a signif-
icant increase in transaction activity in Cyprus.
To conclude, we believe that we live in inter-
esting times. State monopolies and protectionism
are a thing of the past. With free and unfettered
access to European markets, and with the appro-
priate vision in place, as well as the resources to
implement it, the Hellenic Exchanges Group will
continue to serve the Greek capital market respon-
sibly and effectively, to the benefit of the Greek
economy and its shareholders.
30
CoverIf global equity markets enter a bearish phase or volatility increases, then sectors-companies that trade at a premium vis-a-vis comparable peers may underperform.
A stock-picking year
Economic growth, regional
expansion, corporate actions,
restructuring and earnings
growth have been key drivers
of Greek share performance
during 2007.
The same themes will support
2008 market performance, namely:
Economic growth: High GDP
growth of 3.7 percent in Greece is
expected in 2008 as a result of a still
healthy credit expansion, and con-
sumer spending. Besides banks and
consumer goods we forecast a strong
year for domestic broadband and
electricity thus supporting respective
sectors.
Regional expansion: Foreign insti-
tutional investors have been investing
in the Greek equity market as a safer
proxy to SE European markets and
primarily the Bal-kans. We expect
that bottom-line contribution from
the region will be significant during
2008 for Greek banks. Exposure will
remain high for the Greek telecoms,
industrials, gaming and consumer
goods sectors.
Corporate actions: M&A activity
involving listed companies remained
strong in 2007 mainly due to the
Marfin Investment Group (MIG). For
2008 we expect continued corporate
action across sectors also supported
by the Greek state denationalization
plan.
Restructuring: Although a big part
of corporate restructuring of Greek
banks and telecoms is behind us
there is more to come, primarily in
electricity, water and ports.
Earnings growth: Double-digit
earnings growth has supported the
bull run of the last five years. Accord-
ing to our projections, 2008 will be
another year with double-digit earn-
ings growth and it will help the mar-
ket exhibit absolute gains.
Although the key investment
themes remain in place, the positive
impact of two of them, namely of eco-
nomic growth and corporate actions,
has weakened lately as a result of
credit turmoil and the situation
between the Hellenic Telecommuni-
cations Organization (OTE) and MIG.
On the other hand recent develop-
ments in the Public Power Corpora-
tion (PPC) point toward an accelera-
tion of restructuring efforts, thus
enhancing the positive impact of the
respective investment theme. I think
that the risk profile of the Greek mar-
ket has increased, which may lead to
multiple compression.
During the last earnings season
negative surprises were almost double
the positive ones. The absolute num-
ber of negative surprises increased
significantly quarter-on-quarter while
the respective positive surprises
decreased q-o-q. Given that the third
quarter follows another quarter with
increased negative surprises, if Q4
net earnings surprises are negative it
will set a trend that we last saw dur-
ing 2001-02.
The Greek market trades at a pre-
mium to Europe in terms of P/E
(2007e: 17.0x vs 13.6x and 2008e:
13.7x vs 12.4x), which is justified by
its stronger earnings growth profile.
Earnings-per-share (EPS) growth in
2008 is forecast at 23 percent,
expecting that banks and utilities will
be the key contributors to this growth
with an estimated EPS growth of 20
percent and 166 percent respective-
ly. During the last 12 months one-
year forward-looking P/E multiple
decreased by 1.0x, yet the respective
gap with Europe remained unchanged
at 1.3x.
If global equity markets enter a
bearish mood or volatility increases
then sectors-companies that trade at a
premium vis-a-vis comparable peers
may underperform. Banks, passenger
ferries, Titan, Corinth Pipeworks,
Fourlis and Piraeus Port (OLP) trade at
a premium, while Intralot, Folli-Follie,
Autohellas, Sidenor and Halcor trade
at a discount to close peers.
During the course of the year, we
maintained our risk-free and premium
rates at 4.0 percent and 4.5 percent
respectively. But as a result of still
high long rates and increased EPS
growth, required returns are higher
now and valuations have to be adjust-
ed downward. Overall, I think that
2008 will not be another bull year for
Greek equities because of high expec-
tations, increasing long-term rates
and risks of credit crunch. Neither
will it be a bear year due to the defen-
sive characteristics of the Greek mar-
ket and the region. I believe that
2008 will be a stock-picking year for
the attractively valued companies,
with resilient business models, earn-
ings quality and defensive character-
istics.
Sector-wise, I favor gaming and
utilities but will briefly discuss all key
sectors:
Banks: The financial sector world-
wide has been experiencing signifi-
cant difficulties that have led to poor
share price performance lately.
Although the Greek financial sector
has no direct exposure to the credit
issues faced by others, should this
turmoil continue far into 2008, then
possibly we could see the problem
spill over to Greek and Cypriot finan-
cial institutions.
Telecoms: Aggressive market
share gains by mobile operators may
jeopardize the broadband growth out-
look for fixed-line providers, while the
regulatory pressure to bring wholesale
rates further down may spur compet-
itive pricing pressure for facility-based
operators.
Gaming: The Greek gaming sector
appears highly attractive due to posi-
tive momentum and resilience to eco-
nomic slowdown. The outlook is posi-
tive for 2008 mainly due to the Euro-
pean Football Championship,
Europe's biggest betting firm OPAP's
restructuring and further global mar-
ket penetration by Greek lottery sys-
tems provider Intralot.
Consumer Goods - Retail: Although
competition is intensifying, the outlook
of the sector will still be dictated by the
macroeconomic environment in Greece
and SE Europe and consumption
trends along with regional expansion
and M&A activity.
Industrials: Sector performance
will depend on commodity prices,
regional expansion and the resilience
of regional growth.
Utilities: Restructuring opportuni-
ties and cost cutting will be the main
performance drivers along with the
recently announced tariff increases.
Energy: The volatile global envi-
ronment and weather conditions will
once again be critical parameters for
Greek refiners.
Transport: Following ownership
changes in the passenger ferry sector
there will be increased speculation for
corporate action during 2008.
Regarding ports, further denational-
ization is likely.
Vassilis Theodorou Research Director
National and P&K Securities
31
CoverGreece is a country of unique advantages and opportunities, which offers financialand legal stability, a developed infrastructure and new motives for investment.
Foreign investment multiplies
The year 2008 will be significant for Greece, since
the country will actually cross the threshold of
the new Programming Period 2007-2013, for
which Greece has ensured European Union
resources of 24.6 billion euros. Together with the
national resources, the total amount reaches 36.5 billion
euros, a remarkable investment in the country's develop-
ment.
The priorities of the Lisbon and Gothenburg strategies
and the obvious turn of European policies toward the
objective of productivity and concern for the European
industry, posed significant issues for the 2007-2013
period policy guidelines. Consequently, the National
Strategic Reference Framework 2007-2013 (NSRF, or
ESPA in Greek) has explicit priorities focused on the pro-
motion of a new development prototype, which is based
on entrepreneurship, competition and an outward-look-
ing approach. The structure of its operational programs
places particular emphasis on cooperation between the
sectors, Operational Programs (OPs) and ministries, as
well as networking of the regions.
The NSRF actually offers a wide range of financing
possibilities for Greek enterprises, from the sectoral pro-
grams of Competitiveness and Entrepreneurship, Digital
Convergence and Rural Development, to the Human
Resources Development program, for enterprises that
facilitate access to employment.
Besides the abovementioned programs, enterprises
can exploit the financial possibilities of the five Regional
Operational Programs, as well as EU Target 3 programs
of territorial cooperation, successors of the former Inter-
reg Initiative.
The Ministry of Economy and Finance, in collabora-
tion with the European Investment Bank Group, is also
promoting modern financing tools, characterized by the
multiplicative character of allocated capital. Specifically
regarding small and medium-sized enterprises, which
face more difficulties in financing, the JEREMIE financial
tool has been recently introduced, to facilitate access to
financing sources, covering a wide spectrum of products,
which include microlending via banks. Equally important
is the JESSICA program, which aims at supporting enter-
prises in urban regions. Of course, apart from programs
included in the NSRF, there is always the possibility of
financing investments via the other programs of the
European Union.
However, the most important development has to do
with the implementation of the programs themselves.
The government and the Ministry of Economy and
Finance have developed the experience gained during
previous programming periods in order to maximize the
effectiveness and the NSRF programs. A new institution-
al framework has been introduced, to simplify and accel-
erate administrative procedures and to enhance trans-
parency. Among other measures, the Greek government:
ñ Reduced the number of operational programs from
24 to 13, to ensure better implementation and mon-
itoring;
ñ Divided the national territory into three regions of
motives according to the intensity of financial sup-
port;
ñ Introduced a more effective monitoring system;
ñ Accelerated administrative procedures for projects
with a budget of under 5 million euros;
ñ Signed an agreement with the Hellenic Organization
for Standardization (ELOT) for the creation of a
national project management model, to ensure
administrative sufficiency of final beneficiaries;
ñ Introduced the measure of open proclamations during
all 2007-2013 period.
Of equal importance, however, is that they are the
financing possibilities resulting from the exploitation of
national resources. The Greek government has intro-
duced a modern, effective and well-drawn investment
law. It is a powerful development tool that addresses the
investment opportunities and challenges of the new pro-
gramming period and combines the promotion of entre-
preneurship with the exploitation of comparative advan-
tages of our country in the European and Balkan territo-
ries. The new investment law has already introduced a
number of innovations compared to the previous one,
such as: the financing of enterprises without discrimina-
tion between the old and new, strategic emphasis on
quality and new technologies, tourism, renewable
sources of energy, transport and communications, more
simple and objective processes, and more emphasis on
transparency.
Along with the abovementioned actions and pro-
grams, a range of developments in the broader econom-
ic, institutional and development environment have
strengthened the country's prospects and created new
investment opportunities including the new legal frame-
work for collaboration between the private and public
sectors, the adoption of modern methods for the use of
public and Olympic properties, the liberalization of the
electricity and natural gas supply market, and the cre-
ation of a series of strategic contracts in the energy sec-
tor.
It is not by chance that during the past three years,
foreign investment has multiplied almost tenfold, reach-
ing 4.3 billion euros in 2006.
Greece of 2008 is a country of unique advantages
and opportunities, which offers financial and legal sta-
bility, a developed infrastructure, a competent work
force, an improved tax establishment and new motives
for investment. With the proper implementation of the
NSRF, there will be even more room for business to
explore, exploit and develop.
Panagiotis DrossosSecretary General for Investments
& Development www.ggea.gr
32
CoverIt seems that some Greek companies have already realized the new rules of theglobal marketplace, and they have found a promising regional niche for themselves.
Economic openness and competitiveness
The openness of an economy, frequently
measured as a country's exports as a share
of its gross domestic product (GDP) as well
as foreign direct investment (FDI) inflows
as a share of its GDP, usually reflects the
country's competitive strength and growth poten-
tial.
Actually, the ability of a country to sell its prod-
ucts in the world market reflects the competitive
advantage of its companies in the world economy.
At the same time, FDI inflows reflect the attrac-
tiveness of the country's economy to foreign capi-
tal either as a market destination or a production
location or both.
Unfortunately, over the last 15 years the Greek
economy has not performed well on either aspect
of economic openness.
Although Greek exports have increased in value
(especially in the late 1990s and early 2000s),
they still represent a small share of the GDP (6.8
percent in 2006).
However, this development coincides with the
significant growth of world trade during the same
period leading thus to a remarkable drop in the
share of Greek exports in the world total (from
0.47 percent in 1995 to 0.39 percent in 2006).
Moreover, the relevant data show that Greek
exports of labor-intensive products (such as cloth-
ing) have literally collapsed during the last decade.
Finally, Greek exports to European Union countries
(as a share of total Greek exports) have shrunk
from 60.6 percent (in 1995) to 44.4 percent (in
2006).
The Greek economy is not faring very well in
terms of FDI inflows either. In fact, in the last 15
years the Greek economy has attracted unimpres-
sive FDI inflows despite the significant surge in the
world FDI flows during the same period.
Data indicate that the limited FDI inflows in
Greece are due to the fact that countries that have
traditionally invested in Greece, such as Germany
and the UK, have switched their investment inter-
ests in favor of other countries (such as Slovakia or
the Balkan states) instead of Greece.
All in all, these facts point out that the Greek
economy has lost its competitive edge in the world
economy since this edge had been developed on a
cost-centric business model that drew a lot from
the relatively low labor costs here in the 1960s
and 70s.
However, as low labor cost countries entered
the world market in the mid-80s and 90s (South-
east Asia, Southeast Europe and China) Greece
gradually lost its competitive advantage.
However, a deeper analysis of the macroeco-
nomic data brings a glimmer of hope for the Greek
economy. Specifically, at the beginning of 2000,
Greek exports of services (tourism, banking/finan-
cial, telecoms etc) started growing rapidly, thus
increasing their share in the world total (from 1.44
percent in 1997 to 2.74 percent in 2005).
At the same time, certain sectors, such as
chemicals, pharmaceuticals, telecommunications
and IT equipment, have gained a significant share
among Greek exports. Finally, in 2006 FDI inflows
in Greece amounted to 1 percent of the EU total,
while that share was as little as 0.1 percent in
2003.
In other words, during the last few years certain
sectors of the Greek economy have displayed
noticeable success in the world market. In particu-
lar, it appears that:
1. Some Greek companies have already realized
the immense business opportunities that are
available in the Balkans and Southeast Europe
(both as market places and also as production
locations) and thus they have quickly moved
into the region.
2. Also, Greek companies have seen an opportuni-
ty to become important regional players (e.g.
banks) and thus they have quickly expanded
their operations in the area.
3. Finally, in focusing more outside of Greece,
local companies have realized the need to
develop long-term strategies and also to sup-
port those strategies by developing the human
capital necessary to run their international
operations.
All in all, it seems that at least some Greek
companies have already realized the new rules of
the global marketplace, and they have found a
promising regional niche for themselves. In achiev-
ing these new roles they have developed a new
business model that depends on long-term strategy
and planning, investment and, finally, develop-
ment of human capital.
Perhaps these companies will finally become
the catalysts of the restructuring of the Greek
economy that is way overdue by now.
Kostas AxarloglouAssociated Professor
ALBA Graduate Business Schoolwww.alba.edu.gr
‘A deeper analysis of themacroeconomic data brings a glimmer of hope for the Greek economy.’
33
CoverIt is rather encouraging that many large international companies have demonstrated interestin the Greek public-private partnerships market by participating in PPP tenders.
PPP projects point to new deals on the investment map
It was back in September 2005
that the Greek Parliament ratified
Law 3389/2005, the new legal
framework that regulates the
implementation of public-private
partnerships (PPPs) in Greece. Today,
two years later, the Greek government
has demonstrated in practice its con-
sistency between words and actions,
according to its commitments and the
timetables set. The ratification of the
legal framework was the first step in a
series of actions that in a very short
time, especially in comparison with
other European countries, have laid the
foundations for the efficient implemen-
tation of PPPs in our country.
The establishment of the PPP Task-
force has contributed decisively toward
the integration of PPPs in the agenda of
public authorities. According to a plan
of actions and priorities, we identified
the sectors, whereby this new tool
could first be implemented, and the
public authorities that had the capacity
to successfully implement it.
In parallel, we focused on inform-
ing the market and training officials of
the public sector. We have organized
more than 30 presentations across all
the Greek regions aiming at raising
awareness of PPPs within local gov-
ernments and all interested stakehold-
ers. Moreover, through a series of spe-
cial educational seminars, we have
trained both public sector officials and
officials from authorities that are in
the process of implementing PPPs.
Last but not least, the PPP Taskforce
has its own dedicated website
(www.ppp.mnec.gr/en) both in Greek
and in English, which is regularly
updated with all information and lat-
est news regarding the implementa-
tion of PPPs in Greece. Regarding the
reimbursement of the private sector,
the Inter-Ministerial PPP Committee
established a procedure that secures
their timely payment. According to
this procedure, PPP projects fall under
separate categories in the Public
Investment Program. Funds for the
reimbursement of a private partner of
a PPP project cannot be used for any
other purpose.
In any case, our main effort was the
creation of a new market of works and
services. This target depended entirely
on planning and tendering a sufficient
number of pilot PPP projects across
various sectors. By replicating success-
ful examples and best practices in other
European countries that have experi-
ence in implementing PPPs, and by
closely cooperating with the competent
public sector authorities, we have
designed and approved the first PPP
projects, which fall into diverse sectors
of the economy.
Today, as a result of all abovemen-
tioned actions, the Inter-Ministerial
PPP Committee has approved 24 proj-
ects, with a total budget of 3.1 billion
euros, which correspond to 140 new
infrastructures sites spreading
throughout the peripheral regions of
the country. The sum of the annual
future payments to be made to the pri-
vate sector contractors comes to 3-4
percent of the total annual Public
Investment Program. This practically
demonstrates the government's will
and commitment to use PPPs as a
tool, complementary to public works,
which in any case will not be eliminat-
ed or constrained.
As had been announced and
planned, the first PPP tenders were
launched in 2007 in the most trans-
parent way, precisely following EU leg-
islation. The four projects that have
been tendered, with financial closure
expected within 2008, are the con-
struction and facility management of
seven new fire stations, the reconstruc-
tion of the existing infrastructure of the
Faliron Pavilion into the Athens inter-
national Conference Center, the con-
struction and facility management of
the Police Headquarters in Piraeus,
and the construction and facility man-
agement of six new buildings for the
University of the Peloponnese.
The gradual tendering of the first
PPP projects has given the market the
opportunity to familiarize itself with the
prerequisites and the underlying ration-
ale of the public sector regarding these
new projects. We now reckon that the
market has been prepared to corre-
spond to the requirements of PPPs.
Therefore, given that public authorities
now have the required expertise and
know-how, in order to efficiently tackle
these new projects the Ministry of
Economy and Finance aims at tender-
ing one PPP project per month.
It is rather encouraging that many
large international companies have
demonstrated their interest in the
Greek PPP market by participating in
the current PPP tenders. Actually, for
some of them it is the first time that
they are bidding in Greece. This comes
to certify the rapid, yet cautious and
consistent development of PPPs in
Greece.
Today, with the rapid expansion of
PPPs and building on the know-how
acquired through the concession agree-
ments implemented in the past, our
country has all it takes to become a
focal point on the map of PPPs across
Southeastern Europe and the Mediter-
ranean region. It is a fact that many
countries are trying to replicate the
Greek model, in terms of our legal
framework, the procedures we have
established and the strategy we have
designed.
This in essence means that compa-
nies that will be involved in PPP proj-
ects in Greece will shortly find new
investment opportunities in new mar-
kets that will be developed in the forth-
coming years in neighboring countries.
The Greek government's launch of
PPPs is a major reform which is now
being implemented. It is a reform that,
as has been proven, can yield great
benefits for both the public and the pri-
vate sectors. In any case, however, it is
a reform that will yield great benefits to
the Greek citizens and that will enjoy
more and better-quality infrastructure
and services in the years to come.
Leonidas KorresSpecial Secretary for Public-
Private Partnershipswww.sdit.mnec.gr
34
A new reality in developmentA new reality in development
GENERAL ECONOMICENVIRONMENTEuropean economies are faced with common macro-
economic problems arising from a global economic
environment with macroeconomic roots. Constant EU
policies for deficit reductions make development more
difficult and complicated every year.
More specifically, in our country, the need for dras-
tic reduction of budgetary deficit in conjunction with the
increase of growth, have raised a number of issues
focusing on retaining good results in the process fol-
lowed by the Ministry of Economy and Finance aiming
at a smooth adaptation to the European environment.
The first step in rationalising the macroeconomic
results of Greece was crowned with success. The next
steps enforce the need for the implementation of a
number of policies with two central and fundamental
objectives:
Firstly, maintaining low use of public investment
funds, and secondly, securing the increase of invest-
ment in all the sectors of economy aiming in maintain-
ing or even increasing the high level of growth.
It must be noted that the Public Investment pro-
gram in all European countries including Greece can not
be easily increased according to the above. The contin-
uous need for development enforces the resource allo-
cation without the parallel increase of public debt.
Public Private Partnerships constitute one of the most
important policies with the power of contributing sub-
stantially in the achievement of the above mentioned
objectives. Through PPPs the Public Sector can design
and implement projects and services for the further
development of the economy using Private Sector
financing. The private sector, on the other hand, has the
ability of a more flexible and effective management.
Within this scope the Greek Government achieved
the implementation of PPPs in a very short period,
much shorter than the average time required by the rest
of the European Union (it is noted that the implemen-
tation of PPPs requires around 4 to 7 years in order to
yield results). Thus, with the application of Law
3389/2005, the Ministry of Economy and Finance has
managed within a 3 year period to schedule, apply and
begin the implementation of Public Private Partnerships
model for the construction of various public projects
such as schools, hospitals, prisons, fire stations, gov-
ernment buildings, ports e.t.c. throughout Greece cur-
rently calculated at ¤3,1 billion and estimated to reach
¤3,5 billions by the end 2007.
In this framework S.B.O. on behalf of the Greek
state since 2004 had a close and effective collaboration
with the UK authorities on the preparation of PFI and
PPP projects for educational infrastructure. From the
UK side, the Department of Education and several other
institutions, such as Partnerships UK and the Scottish
Executive, presented the 20 years experience of imple-
menting such projects. On the other hand, the Greek
side presented the forthcoming opportunities from a
new market arising, taking advantage of all important
information from this collaboration.
The whole practice resulted in the good practice
knowledge and understanding of S.B.O. strategic goals
and of the potential advantages that emerge from the
use of this financial tool. Below we describe the logic,
the reasoning and the strategy that S.B.O. followed in
order to implement PPPs in its strategic planning.
SCHOOL BUILDING ORGANIZATION SA
35
PUBLIB
usinessOnM
edia
SCHOOL BUILDING ISSUES AND PPP IMPLEMENTATIONThere are two main points of reference in developing
and managing PPPs. The first point is that PPPs are
not a method for building and construction, but rather
an alternative method for financing projects. The sec-
ond is that a PPP project is not different than any
other public project we know them. Its implementa-
tion must be of vital importance and it must be tech-
nically and financially mature.
The basic criteria for the selection of school units
for a PPP project are firstly the necessity for its con-
struction, the time period for its use, the financial and
technical maturity and the financial effect of its life-
time on the fiscal policy and the government’s public
investment program. S.B.O is directly responsible for
the school building infrastructure in the Attica region
and indirectly responsible for the rest of the country.
The new needed school infrastructures, as well as
economical requirements for its completion, are nec-
essary data in order to plan the framework, the
timetable and the size of the projects.
The main problems today in school infrastructure
in Greece are, first the double sifting, second the
leased buildings and third the need for basic life cycle
renovations in existing schools. In Greece the double
sifting is 2.6% and the leased buildings 7.1%.
In order to arrive to accurate economic and finan-
cial data we estimated how many and which specific
schools we need to construct in order to eliminate the
double sifting, to replace the leased buildings and to
renovate or replace the existing older school units.
Therefore in order to reach our strategic targets for
the whole country a total of 2.500.000.000 ¤ is need-
ed. Using the existing conventional methods, S.B.O.
absorbs 200.000.000 ¤ of public investment funds
per year and would need approximately 15 years to
complete the above mentioned projects. We estimate
that by using PPPs we will be able to shorten the time
period needed in order to achieve our targets by half.
The key pilot projects of this effort is the construc-
tion of around 140 school units throughout Greece
which are already in various implementation stages in
cooperation with the Private Sector.
The construction of 140 schools is grouped in 5
separate projects allocated geographically. More
specifically:
PPP CONCERNSFor the economic and technical maturity of the PPP
project the following is necessary: First, detailed tech-
nical descriptions of the project, meaning the pre-stud-
ies and the specific land where the construction will
take place. Second, full and detail description of the
legal and administrative procedures and their timetable
for completion. Third, the total costs of all the services
included in the project during it’s full life cycle.
The financial planning of the project depends on
the following: First, the proper allocation of cost to
each of the government bodies responsible. Second,
the allocation of cost to the internal budget of the pub-
lic entity responsible for the project, in relation to the
costs for its conventional projects. At this point it is
very important to mention that the public entity needs
a clear and detailed financial model of payments for
the full life cycle of the project.Attica 27 schools
Central Macedonia 31 schools
East & West Macedonia, 23 schools
Epirus, Western Greece
and Ionian Islands
Thessaly, Western Greece 21 schools
and Mainland Greece
Peloponnese, 27 schools
North & South Aegean, Crete
University of Peloponnese 6 new buildings
(supporting role by SBO) and administration
offices
Stefanos AgiassoglouOSK Director General
Planning and Resource
Management
«The critical success factors for a successful
PPP project are, the choice of the right project,
the full and on time preparation of the project,
the right cooperation between the government
bodies and the right choice of consultants with
clear sense of responsibilities and experience.»
Sector %Prime offices (CBD) 4.5 - 5.5
Prime offices (Kifissias) 5.2 - 6.2
Shopping centers 5.5 - 5.9
Highstreet retail 5.6 - 6.5
Warehousing - logistics 6.2 - 7.0
Source: Athens Economics ltd - Jones Lang LaSalle
36
Real EstateShopping malls are new to Greece and are doing extremely well on the back of expandingconsumer credit levels. The retail trade’s positive evolution has been exceeding EU averages.
Commercial property sustains momentum
The real estate sector has traditionally been a
solid pillar in Greek culture and this has been
proving particularly true over the past two to
three years. Indeed, following the 2004
Olympic Games the market has witnessed a
number of positive developments, such as:
– The emergence of new areas and the enhance-
ment of accessibility and visibility in others, as a result
of massive improvements in the transport and commu-
nications networks; naturally, the Games were a real
catalyst on this front.
– Favorable changes in tax rates: (a) of immediate
effect — corporate tax was slashed from 35 percent in
2003 to 25 percent today, while the recent property
taxation laws have only marginally touched on com-
mercial real estate; (b) of medium-term effect — the
imposition of VAT on new construction as well as
(optionally) on shopping centers no smaller than 4,000
square meters.
– Improvements in business practices, underpinned
by better-qualified personnel entering the sector and
greater exchange of information and statistics (both for-
mally, via specialized press, and informally, via greater
trust being gradually built among consultants and
agents alike) — all leading to higher transparency lev-
els and marking a stark difference from the opaque
state of the market as recently as a decade ago.
– Improvements in construction standards, often
triggered by the increasing presence of foreign institu-
tions and their quest for suitable investment products
and resulting in higher specification buildings with
faultless zoning and land use parameters.
In our view, the above trends are not expected to
come to a halt, despite the international credit crunch
which is undermining real estate performance almost
worldwide. Admittedly, the residential sector is already
feeling the squeeze; however, this is to a large extent
due to the sector's overexpansion in the recent past.
Conversely, the commercial sector is recording very
healthy transaction levels and as far as the latter can be
traced, they exceeded 1 billion euros in 2006 and may
well reach 1.3 billion in 2007. More specifically by
subsector: The office sector features a serious miss-
match between supply and demand, with companies
often unable to find quality premises >3,000 sq.m.
while an abundance of grade C&D offices plagues the
market, especially downtown. This situation is antici-
pated to continue well into 2008, although it is hard to
imagine that supply shortages will lead to monthly
rents beyond 40 euros/sq.m. — the last two take-ups
from the banking sector in the central business district!
Highstreet shops are solidly sought in prime locations
and the operation of a two-tier market is increasingly
apparent: Top locations command high monthly rents
(up to 220 euros/sq.m.) as well as key money (up to
5,000 euros/sq.m.) while secondary ones count vacant
units in despair. Again, supply constraints are a key
parameter, fragmented ownership in particular.
Shopping centers are a newcomer to Greece — and
are doing extremely well for it, on the back of expand-
ing consumer credit levels and behavior; indeed, the
retail trade's positive evolution — consistently exceed-
ing the European average since 2001 — largely under-
pins The Mall's and other complexes' outstanding per-
formance. More importantly, neighboring and theoreti-
cally competing traditional retail markets have wit-
nessed only small adverse effects to date, not least
because Greece is considered terribly undersupplied by
international standards. The future holds a big increase
in shopping center floor space (the 300,000 sq.m. of
existing shopping center space in greater Athens alone
is expected to more than double by 2010 should all
schemes in the pipeline materialize), so this is an area
to follow closely, as not everyone will emerge a winner
at the end of the day. In my view, certain centers will
be very successful while others may not even make it
to opening day. Lastly, warehousing and logistics is
probably the sector undergoing the greatest changes at
present, with several schemes in the pipeline and
strong demand from all quarters. Notwithstanding this
is probably the sub-sector offering less potential in the
short term to institutions, as occupier demand is trig-
gered mainly by multinationals while local players pre-
fer to owner-occupy. Still, with demand seriously
exceeding supply, initial yields currently range between
6 and 7 percent and monthly rents for quality new
space are expected to continue to fetch 6 euros/sq.m.
In reflection of such trends and expectations, net
profitability in publicly listed property companies has
been outperforming most other sectors, ranging
between 130 and 180 percent in 2005 and 2006 and
anticipated to reach at least 120 percent in 2007.
Dika AgapitidouMSc(Econ), MRICSwww.athenseconomics.gr
Net Commercial Property Yields Athens - Q4 2007
37
Real EstateThere is an important window of opportunity regarding second-home developments as Greece has not yet taken advantage of its significant assets.
Greek real estate map changes
Greece today is still considered an under-
developed country regarding its real estate
market. We must not forget that up until
recently numerous significant projects of
international and Greek companies were
unable to go ahead due to certain deficiencies in
the Greek system.
The sector received a significant boost as a
result of the country being chosen to host the 2004
Olympic Games and the increasing need for mod-
ern and sustainable infrastructure. It was then that
major real estate projects with emphasis on the
retail real estate sector began to get under way.
Two of these, The Mall Athens and Mediterranean
Cosmos, which were the first large-scale indoor
shopping centers in Greece, were developed by
LAMDA.
Today, the whole picture has definitely changed
in comparison to the previous decade, but it is very
important to note that we are still at the very
beginning of the changes that are going to take
place in the next years. At this point I would like to
briefly mention the prospects for the Greek real
estate market in 2008.
Regarding shopping center development, it is
more than evident that the two new malls have
proven a great success and that Greeks have wel-
comed them enthusiastically, despite all the reser-
vations and negative predictions that were heard
before their opening. The Mall Athens alone
receives more than 13 million visitors each year.
This new concept is not only endorsed by visitor
numbers but also by retailers who are now seeking
similar new business opportunities.
There is still room for more such development
in Athens since the average shopping center space
rate per resident is the lowest in the European
Union. This is why LAMDA Development is already
introducing a second upscale shopping center in
the Greek capital — Golden Hall — which will
open its doors to the public during fall 2008. It is
very important to note that Golden Hall has already
signed retail contracts for almost all of its spaces.
Regarding the new concept of outlets which
can be used either as factory outlets (big boxes) or
designer outlets, the opportunities are significant
since such developments are very rare in Greece.
Here, it should be mentioned that an important
characteristic of this sector is that outlets usual
appear in a market with a history of shopping cen-
ters, while malls familiarize the visitors with this
new trend.
This kind of development is very common and
popular in other European countries and is usually
found on the outskirts of big cities, offering shop-
pers the possibility to purchase brand labels at
affordable prices.
As far as logistic centers are concerned, we
should definitely mention that there is a serious
lack of modern facilities here in Greece. This is a
fast-growing market, especially now that major
international chains (ie in electronics, food, hyper-
markets etc) are entering the country and are in
need of modern spaces to store their merchandise.
Last but not least, we should mention that
there is an important window of opportunity in
regards to second-home developments. Greece has
not yet taken advantage of its significant assets,
including its climate and beautiful landscape,
which in combination with the Greek cultural her-
itage give it an important lead when compared
with other countries.
We should also not forget that Greece now
receives more tourists annually than its entire pop-
ulation, however its absorbency of European visi-
tors compared to other countries is less impressive
since we have not developed the necessary infra-
structure, such as complexes that include hotels,
villas, bungalows, golf courses, marinas etc, to sat-
isfy the everyday needs of such tourists. An impor-
tant prerequisite for such development is also the
creation of necessary infrastructure such as hospi-
tals, airports and modern highways, which are now
missing from the areas that are considered prime
destinations for tourism.
Regarding the great evolution that is now taking
place in the Balkans, and especially in Romania,
Bulgaria and Serbia, we should mention that the
right set of circumstances exist for developers due
to the increase in the standard of living, the change
in society structures and the improvement in finan-
cial indices accompanied by a decrease in tax
rates. Hence, in these countries there is a lack of
modern residential development, offices and shop-
ping malls to satisfy the increasing demand of the
local population.
George Papageorgiou General Manager
LAMDA Developmentwww.lamda-development.net
‘The whole picture has definitelychanged in comparison to theprevious decade, but it is veryimportant to note that we arestill at the very beginning of thechanges.’
38
Real EstateDemand for quality premises in prime locations is expected to remain strong whiletransactions will depend on interest from international investors.
Credit crunch misses Greekcommercial property market
The main characteristics of the Greek real estate
market in 2007 were the stabilization of prices in
the residential market and the yield contraction in
commercial real estate properties. The credit
crunch that has followed the subprime crisis on the
international level, especially since the summer, does not
seem to have had a noticeable effect on the Greek com-
mercial real estate market, with demand remaining high in
spite of higher interest rates. Despite the yield compres-
sion, Greece remains an attractive market, as better yields
can be achieved compared to the average European levels,
especially in the office and logistics market. In 2008 mar-
ket trends are expected to remain the same, with yields of
commercial properties estimated to continue contracting,
though at a slower pace.
The main office market in Greece is located in Athens.
The improvement of basic infrastructure, the expansion of
the Athens metro and the need for corporate consolidation
in modern buildings have led to the development of new
market areas, while traditional markets have maintained
their prestige. Growing demand for prime office space has
led to a positive average annual price growth. Average rents
have been stabilized in 2007 ranging from 24 to 34 euros
per square meter for prime locations in the central business
district (CBD) and from 15 to 22 euros/m2 for Grade A
office buildings in other submarkets. Average yields for
prime properties continue to decrease, indicating a rate of
between 6 and 6.5 percent.
Demand for top-quality premises in prime locations is
expected to remain strong while transactions will be deter-
mined by the interest of international investors. Further-
more, the market is going to be affected by the decision to
transfer government services from leased buildings into
new state-owned ones. Supply is expected to meet demand
as long as the majority of new developments are either
owner-occupied or pre-leased. The prime rental levels are
expected to grow at a constant rate while yields will con-
tinue to contract at a slower pace.
Regarding the retail market, the majority of develop-
ments are related to the construction of shopping centers
around the country, as Greece has a significant low rate of
available shopping space per person (55 m2 per 1,000 cit-
izens). Apart from shopping centers, supply in Athens and
Thessaloniki is still predominantly made up of highstreet
and warehouse retail, although other retail formats are
gaining momentum (e.g. retail parks).
The vacancy rate for both highstreet and shopping cen-
ters tends to zero while prime rental rates have been mar-
ginally increased. Currently, rental rates for a space of 200
to 300 m2 in a high-quality shopping center range on aver-
age from 50 to 60 euros per m2, while rents for prime retail
units in highstreet locations vary from 180 to 250 euros
per m2. Yields continue to move downward, fluctuating
between 5.8 and 6.0 percent.
For the next year market prospects depend on the com-
pletion and implementation of new developments, taking
into consideration the increased competition and how the
existing traditional retail markets will be affected. Primari-
ly shopping malls that are either under construction or in
the planning phase are expected to increase the market size
by more than 250,000 m2 of gross leasable area (GLA).
Demand will be maintained at high levels for highstreet and
prime locations. Prime rents will stabilize and yields will
follow a smooth downward trend.
The logistics market displays significant investment
opportunities as was characterized by the lack of modern
facilities. Almost 90 percent of logistics warehouses are
located in the Athens region (Thriasio Plain, Oinofyta,
Mesogeia, Spata). Prime rents for warehouses in Athens
range from 3.50 to 6.50 euros/m2, while rents for refriger-
ating units are approximately 20 percent higher due to
higher specifications. Yields for warehouse and industrial
space are estimated between 8 and 8.5 percent and for
prime new third-party logistics centers between 7 and 7.75
percent.
In 2008 demand for warehouses is expected to remain
strong following mainly the rapid growth of the third-party
logistics (3PL) market. The main characteristic is that
demand for large-scale spaces above 15,000 to 20,000
square meters is also increasing, driven largely by super-
market chains and big boxes. The increased demand for
new high-quality spaces is expected to be partially met by
government initiatives, as the administration has designat-
ed six strategic locations across Greece for the development
of logistics parks and the development of new distribution
centers for the expansion and modernization of the major
Greek ports. Supply will meet demand as long as the major-
ity of new developments are pre-leased. Additionally rents
in prime locations are expected to increase slightly, fol-
lowed by a marginal fall in yields.
Demand in the residential market in 2007 decreased
due to the increased interest rates and the vagueness of the
existing framework regarding the taxes imposed on proper-
ties. The reduction in demand has resulted in the increment
of market stock reducing construction activity. The areas of
Athens that have maintained high levels of demand are
those where the metro now extends to. However residential
prices remain almost stable. The prospects of the residen-
tial market are still uncertain and depend on the settlement
of the new taxation framework. It is expected that while
stock lasts, prices will remain stable with a potential single-
digit percentage increase. In the medium term, zoning
measures need to be taken, otherwise available construc-
tion space will be become scarce and new projects will be
fewer and fewer.
As far as the second-home market is concerned, many
international and Greek investors have shown significant
interest, but issues related to the completion of the nation-
al land registry and city planning have prevented the
implementation of such investment schemes.
Dr AristotelisKarytinos Deputy General Manager,
Head of Eurobank Real Estate
EFG Eurobank Ergasias SAwww.eurobank.gr
39
Real EstateThe increase in competitiveness in the real estate sector is both legitimate and welcome. Soon run-down areas will become the focus of urban regeneration projects.
Residential opportunities in Greece
Greece will claim a larger share of the inter-
national investment map in 2008. The
extroversion of Greek corporations paid off
in 2007 and there are even more positive
messages for the new year. The progress
that was noted also applies to the real estate sector,
where it culminates.
A competitive economy, however, requires bold
reforms. Greece can become highly competitive if it
becomes friendlier toward foreign direct investment,
which will lead to an increase in productivity as well
as employment. In parallel, our neighboring position
with the growing economies of Southeastern Europe
and the development of business activity in the
region — with the participation of numerous Greek
companies — renders the broader Balkan region
highly attractive for investment.
The real estate sector acts as the traditional
engine for the global economy. It would not be out of
place to characterize it as being in fashion, since over
the last few years we have observed efforts from cor-
porations to become active in the sector. The
increase in competitiveness is both legitimate and
welcome.
In fact, further sectoral growth is expected, given
the government's desire to regulate certain urban-
planning issues and to legislate the conditions and
prerequisites for the development and usage of land.
Once this happens it will be possible to immediately
appreciate the relationship between the cost of an
investment and its benefits, and judicial complica-
tions will be minimized.
A particularly important factor for the future of
the real estate market will be the favorable tax
regime. Providing a stable and predictable environ-
ment, in combination with the reduction of tax coef-
ficients, will give a boost to the sector. The law that
was passed by the Greek Parliament in September
2005 for public-private partnerships is now mature
and what remains to happen is the cooperation
between the channels for the optimal utilization of
the public real estate assets, as well as the develop-
ment of modern infrastructure with the provision of
financing, development, management and mainte-
nance.
We will soon observe the following trend in
Greece: Run-down areas will become the focus of
urban regeneration projects. The objective may be to
cover residential needs or in order to allow the devel-
opment of commercial complexes. Athens has a
unique opportunity with the regeneration of the area
of Votanikos. Besides, we may very well be the only
European city where only a few kilometers from the
historical city center there is an area consisting of so
many thousand square meters that lacks basic infra-
structure and is in essence abandoned.
The combined regeneration project will provide a
modern football stadium — a pole of attraction for
thousands of people — a mall of 70,000 sq.m.,
green areas and walking areas, and, most important-
ly, infrastructural work that will service at least five
densely populated municipalities. This project may
serve as a guide for the even better development of
areas that lack the basic infrastructure necessary for
a higher quality of life.
The organized development of coastal residences
will create surplus value for Greece. The country's
coastline equals that of half the circumference of the
African continent. Therefore it is easy to comprehend
the huge potential. Studies have shown that in the
coming years more than 5 million Northern Euro-
peans will relocate to warmer climates, in order to
live there for over six months a year. Under certain
conditions, tourism can contribute almost 30 percent
to GDP. Moreover, investment activity in the tourism
sector is supported by favorable tax incentives and
subsidies.
In conclusion, whether concerning private or cor-
porate investment in real estate assets, any type of
effort at exploitation is governed by rules and occurs
under certain conditions. Making a careful choice,
gathering information regarding the creation of future
value, conditions for building, and usages that are
allowed, as well as the archaeological designation of
a given area, are all areas that need to be examined.
In any case, the investment of private and institu-
tional funds in real estate assets is considered to be
of lower risk compared to other investment assets, as
long as it is realized after carrying out analytical in-
depth research and given the right timing.
Aris VovosCEO
Babis Vovos International
Construction SA www.babisvovos.gr
40
Finance
The Greek financial system in 2008
The Greek financial sector is one of most dynam-
ic and profitable areas of the Greek economy.
Since the late 1980s its performance has been
boosted by a gradual process of liberalization
and a subsequent wave of mergers and acquisi-
tions, which totaled 37 over the period 1995 to 2006.
Greek banks became fewer and larger and, in the last
decade, expanded aggressively into the neighboring
region. Today, Greek financial institutions face a num-
ber of challenges regarding their growth and profitabil-
ity strategy. Some of the open questions are:
– Will there be a new cycle of mergers and acquisi-
tions in the Greek financial sector, which would
lead to larger financial groups that are able to com-
pete more effectively in the region of New Europe?
– What are the consequences of the crisis in the sub-
prime market abroad on the domestic financial
market and the cost of money?
– Are there substantial risks involved in the expansion
in New Europe?
– Will the Greek insurance companies continue their
restructuring and consolidation in order to take
advantage of the enormous growth opportunities in
the life insurance sector?
– Will the domestic stock market strengthen its posi-
tion in the international financial system and
respond adequately to the pressures of the Markets
in Financial Instruments Directive (MiFID)?
– How can the Greek mutual funds regain the trust of
individual investors?
Banking sector
Greek bank groups are the key players in the
domestic financial system, providing a complete spec-
trum of financial services. Commercial banks' assets at
end-2006 amounted to 352 billion euros or 164 per-
cent of GDP. The degree of concentration in the Greek
banking system remains among the highest in the euro-
zone. The five largest banks in Greece held 66.3 per-
cent of total bank assets at the end of 2006, compared
to a corresponding 42.8 percent in the EU-12.
No major events occurred in the domestic financial
market during 2007, while 2008 is expected to bring
new developments concerning the future of Attica Bank
and the Greek Postal Savings Bank. The challenges and
risks that Greek banks face come mainly from the inter-
national market. The spread of the credit crisis which
began in the USA subprime mortgage market and the
growth prospects of New Europe constitute the main
sources of risk as well as opportunity in the short run.
Aftermath of the subprime crisis
The credit crisis, which spread from the subprime
mortgage markets in the US to all international credit
markets, is expected to lead to direct financial institu-
tion losses of approximately $200-$400 billion inter-
nationally. With the exception of the Greek Postal Sav-
ings Bank, the country's banks have no direct exposure
to securitized products that are based on subprime
mortgages or other subprime bank loans and, hence,
are not expected to face any direct losses. The costs for
Greek banks stem indirectly from the higher cost of
capital in the interbank market (Chart 1). Since the out-
break of the crisis in August, liquidity has dried up in
the interbank market. There is a reluctance to lend
funds for longer periods than overnight, as the lack of
information on the exposure of each international finan-
cial institution to derivative securities of low quality
makes banks suspicious of each other. This higher mar-
ginal cost of bank liquidity, coupled with the reluctance
of the European Central Bank (ECB) to cut its interven-
tion rate, will translate into higher lending rates for both
households and businesses in 2008, adding roughly
one percentage point to lending rates throughout the
eurozone. Banks will no longer offer floating rate loans
based on the ECB's intervention rate or on other gov-
ernment short-term bills, but on the higher interbank
rates, which better reflect the credit risk and the real
short-term cost of money. The higher interest rates will
naturally lead to a lower overall expansion of credit.
In addition, some of the higher cost of liquidity is
bound to be absorbed by the banks themselves. Both
factors would ceteris paribus lead to slightly lower prof-
itability.
Greek banks do not face any short-term liquidity
problems, as is the case with many banks in other
Greek financial institutions operate in an intensely competitive international environment asspreads decline and the MiFID is about to unleash further competitive pressures. Yet banksare well organized and healthy, enjoying high profitability.
Gikas A. HardouvelisProfessor, Department of Banking
and Financial Management
University of Piraeus
Chief Economist, EFG Eurobankwww.eurobank.gr
Chart 1.The subprime effect on the interbank marketEurozone: 3-month EURIBOR minus the EONIA overnightrateUSA: 3-month LIBOR minus the Effective Fed Funds rate
41
countries. The average loans-to-deposits ratio in Greece
is not very high, close to 100 percent, suggesting that
the Greek financial system is liquidity-neutral. Further-
more, those banks with a loans-to-deposits ratio above
100 percent have already secured the required liquidi-
ty at least until the end of the first quarter of 2008.
Presently, Greek banks also have the ability to secure
liquidity through the ECB in the repo market using cov-
ered bonds at a lower cost than in the interbank mar-
ket. This is because the Bank of Greece (BoG) recently
allowed the issuing of covered bonds by banks under a
strict legal framework and a set of rules offering extra
protection to investors. Covered bonds use bank assets,
such as mortgages, government bonds etc, as collater-
al and if a loan in the collateral pool defaults, the bank
is obligated to replace it with another healthy loan.
Expansion into New Europe
The presence of Greek banks in the countries of
New Europe has intensified in recent years. They have
strengthened their networks in the region either through
direct acquisitions of banks in countries including
Turkey, Bulgaria, Serbia, Ukraine, Albania and the
Former Yugoslav Republic of Macedonia (FYROM) or
through organic growth in countries such as Poland
(EFG Eurobank) (charts 2 & 3). There is also active
interest in the markets of the Middle East and North
Africa, with Piraeus Bank already having acquired a
small bank in Egypt. The profit targets in those coun-
tries are ambitious but attainable. In the case of EFG
Eurobank, profitability from the international network
appears low compared to the other Greek banks (see
Chart 3), but this is a healthy sign. It is due to the
financing of an aggressive organic growth schedule,
which absorbs most of the gross profitability of the
international network itself.
The increasing dependence on bank profits coming
from abroad suggests that the macroeconomic and
financial risks in New Europe are gaining importance. Yet
2008 is expected to be a year of high growth in the
region with all countries growing above 5 percent and
with their financial sectors expanding at even faster rates.
Developments in the domestic market
Despite its small size, the domestic market is the
one that presently supports the profitability of Greek
banks (Chart 3). Credit expansion to households and
businesses continues to be strong and outperforms the
corresponding expansion in the eurozone. In September
2007, housing loans in Greece increased by twice the
corresponding rate in the eurozone (22.3 percent
against 7.8 percent on an annual basis). Consumer
loans increased by 20.8 percent (4.1 percent in the
Chart 2.The distribution of the branch network of the 4 largestGreek banks(3rd quarter 2007)
Chart 3.The contribution to profits according to domestic andinternational activitiesfor the 4 largest Greek banks(3rd quarter 2007)
42
Finance
eurozone) while business loans increased by 12.1 per-
cent (13.4 percent in the eurozone). In the last two
years, there has been an increase in the growth of busi-
ness loans with a simultaneous decrease in the growth
of loans to households (Chart 4). Total loans are expect-
ed to continue increasing in 2008, since the Greek
banking system is mature, although not as much as in
the EU-13. The private sector credit-to-GDP ratio stood
at 87 percent in Greece and 176 percent in EU-13 in
the third quarter of 2007 (not including securitized
loans).
Competition in the Greek domestic market has
intensified significantly, leading to a substantial
decrease in the spreads between lending and deposit
rates. Those spreads are now very close to the eurozone
averages (Chart 5). The rapid credit expansion means
that it is crucial to be vigilant on credit risk. The non-
performing loans to total loans ratio remains higher
than in the eurozone, albeit much improved (2003: 7
percent, 7/2007: 5.1 percent) (see Monetary Policy
Interim Report, Bank of Greece, October 2007).
Insurance companies
The Greek insurance market is still underdevel-
oped and has great prospects for future growth.
Despite an important increase in premium produc-
tion in 2006 — 10.5 percent against 6.7 percent
in the eurozone, overall premium production ranks
very low in Europe: As a percent of GDP, premium
production amounted to 2.03 percent in 2006
compared to 8.16 percent in the eurozone. The
comparative shortfall in the investments compo-
nent of the balance sheet is even larger, despite its
important increase of 11.7 percent in 2006
against 5.8 percent in the eurozone. Insurance
company investments in Greece, as a percentage of
GDP, hardly amount to 1/10 of the corresponding
investments in the eurozone (4.9 percent of GDP in
Greece against 49 percent of GDP in the euro-
zone), raising questions about the efficiency of
management of insurance company assets in the
past (Chart 6).
Over the last few years, there were significant
efforts aiming at higher transparency and reliabili-
ty in the Greek insurance sector. The establishment
of a new public authority at the Ministry of Nation-
al Economy for monitoring the insurance market
constitutes an important first step. There is signifi-
cant consolidation in the sector as well with the
weaker companies being forced to cease operations
or be taken over. The number of insurance compa-
nies operating in the Greek market at the end of
2006 decreased to 90 from 110 in the year 2000.
From the official number of 90, only 77 were in
actual operation (63 Greek and 14 foreign compa-
nies) at end-2006, with most of them operating in
casualty insurance.
The Athens Stock Exchange
Following the price and trading volume boom of
the late 1990s and the crash of 2000, the Greek
stock market has subsequently recovered, follow-
Chart 6.Insurance sector asset investments and revenues from insur-ance premiums (percent GDP)
Chart 4.Loan growth in Greece
Chart 5.The spread between lending and deposit rates (percent)
43
ing the rise of the international markets from 2003
onward. The entry of foreign institutional investors
and the increasing profitability of enterprises were
the main driving forces behind the renewed inter-
est in the market. Since the beginning of 2003, the
general index of the Athens Stock Exchange
(ATHEX) has gone up by 193 percent, and as of
December 12, the year-to-date increase in 2007 is
16.8 percent, outperforming most international
stock markets.
The ATHEX's aggregate price index reached an
all-time high on October 31, 2007, corresponding
to a capitalization of approximately 202 billion
euros (Greek GDP in 2006 was 214 billion), while
at the beginning of December 2007 it was 196 bil-
lion. A main feature of this period is the continu-
ously rising share in the participation of foreign
investors. In October 2007, the share of foreign
investors amounted to 57.2 percent of total capi-
talization and was concentrated mainly in large
and medium-size companies, against a share of
only 36.4 percent in December 2004. The rise in
prices and the influx of foreign investors revived
interest in raising new company capital through the
ATHEX as well. In the first nine months of 2007,
9.1 billion euros were raised through IPOs and
SPOs, a six-year high (2006: 4.1 billion, 2005: 4
billion).
Today, the Greek stock exchange and all Greek
brokerage firms and other related intermediaries
are called upon to adapt successfully to the new
environment to be shaped by the creation of a sin-
gle European market for financial services (MiFID).
The transposition of European directives concern-
ing financial service markets into Greek law opens
the way for investors to gain access to all member
states' markets under a common institutional
framework, thus increasing competition and reduc-
ing transactions costs.
Mutual funds
Greek mutual funds are bleeding. In 2007, just
as in 2006 and earlier, both open-end and closed-
end funds failed to keep pace with the rising stock
market. Open-end fund assets in the first six
months of 2007 decreased to 23.6 billion euros,
from 23.9 billion at the end of 2006 and 35 billion
at the end of 1999. Greek mutual funds represent
an aberration to a positive international environ-
ment for funds (Chart 7). Something is definitely
not right. Perhaps the funds market would reverse
course with the application of long-awaited essen-
tial reforms (tax regime, legal framework for opera-
tion of hedge funds etc).
The same dismal picture holds true for the
assets of closed-end funds, which peaked in 1999
at 4.2 billion euros, but at the beginning of Decem-
ber 2007 were approximately 0.25 billion. Part of
the drop in size is also due to the fact that a num-
ber of active closed-end funds were absorbed by
their parent banks.
Conclusions
Greek financial institutions operate in an
intensely competitive international environment as
spreads between bank lending and deposit rates
are declining and MiFID is about to unleash further
competitive pressures. Yet banks are well organ-
ized and healthy, enjoying high profitability. This is
also evidenced by the fact that the current interna-
tional banking crisis, which originated in the US
subprime mortgage market, has not affected them.
The cost of the crisis is only indirect and minor, as
it works through the higher cost of attracting funds
in the interbank market.
The future of Greek banks depends critically not
only on their success in competing effectively in
the domestic market, but also on the success of
their international expansion, mainly in the coun-
tries of New Europe. These countries are growing
fast and their financial sectors even faster. Thus
Greek banks are posed to do well. Of course, inter-
national expansion requires a careful strategy and
an active monitoring of associated risks.
Other sectors of the Greek financial system,
such as insurance companies or the mutual funds
industry, must resolve a series of deep-rooted prob-
lems and weaknesses, before achieving sustainable
and dynamic growth.
Chart 7.The increase in mutual fund assets during the 1st quar-ter of 2007(percent)
44
FinanceThe Greek economy has benefited greatly by becoming extrovert over the last decade or so.SE Europe has become one of the faster-growing regions globally. Greek companies haveinvested successfully in the area, mainly in banking, energy and telecoms.
Positive year for Greek economyahead, but challenges remain
The Greek economy in 2008 is expected to
grow once again at around 4 percent, at
least according to the Ministry of Economy
and Finance. The International Monetary
Fund and the European Union expect the
Greek economy to outpace the average growth of
the EU even though they anticipate the growth rate
to be somewhat lower at 3 percent. Can Greece
beat the growth rates forecast by the IMF for the
fourth year running?
In our view, it can and there are good reasons
for that. Private investment is running at twice the
European average. Private consumption on the
other hand is still growing, supported by a steady
improvement in employment rates, a rise in real
wages, low interest rates and a rapid credit expan-
sion. Although the credit expansion has posted
some phenomenal rates over the last seven years
(mortgages, personal loans, cards etc) compared to
EU averages, it is still low and Greek households
are still underleveraged.
The country's heavy industries, shipping and
tourism, are booming.
Greek shipping, which accounts for around 20
percent of the global fleet, is enjoying the best ever
period in history thanks to Asian trade. Tourism
has also enjoyed above-normal growth rates in the
post-2004 Olympics era.
The Greek economy has benefited greatly by
becoming extrovert over the last decade or so.
Southeastern Europe has become one of the faster-
developing regions globally. Greek companies have
invested successfully in the area, mainly in bank-
ing, energy and telecoms.
The very good prospects of the Greek economy
in 2008 are not without challenges though, both
internal and external.
On the internal front, the government has to
remain focused on fiscal adjustments. So far it has
managed to bring the deficit to GDP from over 7
percent in 2004 below the 3 percent target rate
and it expects to reduce it further to 2.5 percent in
2008.
Structural reforms are necessary, mainly the
reforming of the social security system and the
improvement of the Greek economy's competitive-
ness, which has slipped in the last couple of years.
On the external front, increasing oil prices and
the pickup in inflation rates are dangers that could
have an impact on the Greek economy.
Last but not least, the expected slowdown of
the global economy is going to affect the Greek
economy. After all, Greece is not a closed economy
and the effects of the subprime loans — although
they do not have a direct impact on Greek banking
as there is limited exposure to it — have resulted
in the credit crunch that has dramatically
increased interest rates.
The domestic deposit pool is not sufficient to
fund the credit expansion and as domestic banks
cannot turn to the non-existent debt capital market
or other forms of wholesale funding, they will even-
tually have to charge higher interest rates to the
borrowers.
Turning to global markets, the outlook for 2008
is quite bleak.
The market expects US growth to slow before
rebounding in the second half of 2008. Some see
the risk of a hard landing in the US and the major-
ity of investors have turned risk-averse. There is lit-
tle appetite for risk and there is huge uncertainty
surrounding the financial sector. But what people
tend to forget is that the US dollar has lost 35 per-
cent of its value during the last five years and this
is the most competitive dollar price that most of us
have seen in our working lifetimes. At the same
time, markets have pushed down asset prices
(equity and real estate) in the US.
We believe that the relative value of US assets
will increase investment in the US, which in turn
will lead to the strengthening of the currency to
1.30-1.35 euros by the end of 2008.
Greek stocks will follow the same pattern. We
expect a slow start and then the markets trading
higher in the second half of the year.
Bonds in the US and the eurozone have little
relative value as the recent flight to quality has led
to higher prices / lower yields to the point of no
zero real returns, as yields on 10-year bonds are
close to the inflation rate.
The Asian story is here to stay, irrespective of a
possible near-term correction, therefore we expect
commodities to continue providing good invest-
ment value.
Dinos KamarisHead of Treasury and Capital
Market, HSBC Greecewww.hsbc.gr
FX End 2008EUR/USD 1.3500
GBP/USD 1.8300
USD/JPY 115.00
RATESFED FUNDS 3.50 percent
ECB 3.75 percent
10Y USD YIELD 4.80 percent
10Y EURO YIELD 4.10 percent
Our forecast for 2008 is:
45
InsuranceCurbing the generosity of state pension systems is the task of the day — they will otherwisecollapse under the burdens piled upon them by demographic change.
Reform trends and social security challenges
Demographic changes rarely come without
warning. The aging of the baby boomers
has been on the cards for the last 40
years and the lifespan of the populations
of the most industrialized countries has
been increasing for more than two decades.
But it took time for policymakers to realize that
pay-as-you-go (PAYG) pension systems would not
be able to cope with the demographic challenges
looming on the horizon. In the mid-1990s, howev-
er, the message finally began to sink in and the
reform process was launched. Nevertheless, differ-
ent countries across Europe are proceeding at dif-
ferent speeds. While the new European Union
member countries of Central and Eastern Europe
created new pension systems from scratch after
the collapse of the Council for Mutual Economic
Assistance (COMECON), many Western European
governments are still struggling to find a suitable
design for their pension systems. In the coming
years we will continue to see different degrees of
pension reform among the Western European
states. In this study we look at the Western Euro-
pean pension markets, comprising the EU-15
countries as well as Norway and Switzerland.
Curbing the generosity of state pension systems
is the task of the day — they will otherwise col-
lapse under the burdens piled upon them by demo-
graphic change. Rising numbers of pensioners —
and the baby boomers who have yet to retire —
fewer workers as a consequence of falling
birthrates and increasing life expectancy are all
putting pressure on the pay-as-you-go pension sys-
tems.
Since taxes or social security contributions can-
not rise much further without undermining the
competitiveness of the European economies,
declining benefits are the logical consequence of
demographic developments. This can be achieved
by raising the official pension age and removing
incentives for early retirement on the one hand and
a straightforward reduction in benefit levels on the
other.
Demographic changes are forcing many coun-
tries to abandon their complete reliance on PAYG
financed pensions. Governments are beginning to
realize that state pensions are a risky asset - at
least for those who are still working and trying to
calculate how much they will receive after retire-
ment. Returns in PAYG systems are as volatile as
the rules, determining how entitlements are trans-
lated into actual benefits vary over time. However,
the alternative — funded pensions — is usually
regarded as the riskier way to provide for old age.
Given demographic forecasts, this need not be the
case. Returns from funded schemes may well
exceed those from unfunded ones, and at compa-
rable or lower risk. Unfortunately, a complete sys-
tem change is not possible in most countries as the
time remaining to accumulate the necessary funds
for the baby-boom generation is now too short.
Given that the forces driving returns of funded and
unfunded pension schemes are not perfectly corre-
lated, a mixture of both schemes is the best way to
prepare for the future.
A higher degree of funding in pension provision
means of course that fluctuations on capital mar-
kets affect pensions directly. However, some fears
in this respect are ill-founded. A very common
argument against funding is the so-called asset-
meltdown hypothesis. In short: Asset demand
among baby boomers drives up prices; once they
retire and try to sell their assets, there are not
enough buyers around and asset prices are bound
to collapse.
As simple and clear-cut as this hypothesis
sounds, it is likely to be proven wrong. The argu-
ment concentrates on the demand side while com-
pletely ignoring the supply side. Asset prices will
only inflate if demand outgrows supply. There are
many reasons to believe that demand for capital
will keep on growing. Investments in fast-growing
emerging markets and the need to upgrade pro-
duction lines as labor becomes scarcer in many
developed countries are only two arguments as to
why capital demand will remain high. Furthermore,
the world population is set to keep on growing,
even in developed markets — as the predicted pop-
ulation increase in the USA from 290 million today
to 400 million in 2050 shows. Investments will
need to be well diversified in future, but today
there is no reason to believe that after 2030 asset
markets will collapse for demographic reasons.
It is evident that the increasing importance of
individual and occupational pensions offers huge
opportunities for asset managers and life insurance
companies in Western Europe. More and more
funds will be channeled to these companies, tied to
the hope that their successful management secures
a long and happy retirement. The task for financial
service providers is to meet these expectations and
offer sound asset liability management and a good
investment strategy. These are becoming ever
more important, given rising life expectancy and
lackluster returns on capital markets. A prudent
long-term investment policy and superior invest-
ment concepts can significantly contribute to alle-
viating the pension challenge.
Petros Papanikolaou CEO Allianz Greecewww.allianz.com.gr
46
Insurance
Untapped market full of promise
Greece has a bright economic future.
Compared to more mature European
countries, the Hellenic Republic capital-
izes on continuous superior growth,
skilled human resources, European sup-
port and a lot of unfulfilled social needs.
Financial services definitely have a big role to
play. Experience shows that insurance contribu-
tion to GDP increases more than proportionally
with the revenue per capita. Greece has even
brighter prospects as local consumers are cur-
rently under-insured compared to their EU coun-
terparts: Financial services represent a mere 2
percent of the Greek GDP against 8 percent in
Portugal for average revenue per capita in the
same range.
To foreign professionals, the local insurance
market looks old-fashioned, in volume, in prod-
uct and service range, in pricing techniques, in
business-oriented communication, and in distri-
bution and market-driven field-marketing
approaches. Overall practice looks very tradition-
al, competing mainly on price and commissions,
refraining from entering differentiation and cus-
tomer-oriented evolution.
Big foreign players are hungrily eyeing the
Greek market for its potential and the way they
could capitalize on the experience they have
accumulated in more advanced markets.
They are expected to bring additional value to
both individual and industrial Greek customers, in
segmented and differentiated products and servic-
es, in benefits, in segmented pricing, in servicing,
and in improved end customer share in the value
chain: With the current distribution and manage-
ment costs, the return from his premium is defi-
nitely lower than in most European markets.
International (and certainly some national)
players would love to leverage local insurance
practice, especially newcomers. In reality, they
adopt a somewhat wait-and-see attitude, despite
the huge amount of goodwill they paid to enter
the Greek market.
One main reason for this paradox are some
questionable aspects of the local playing field.
The motor business is quite a good example.
Some (not always very small) consistently
unprofitable companies poison the market with
pricing far below real costs. In other European
countries, their license would be revoked or they
would be put under special administration.
It is true that the Greek insurance watchdog
took measures in the summer of 2007, but only
a limited range. Common practice did not really
change.
According to the last statistical report from
the Greek Insurance Federation, the 2005 com-
bined (including claims, commissions and man-
agement costs but excluding financial profits)
motor insurance ratio ranges around 105 percent
of premiums, in first observation. The same
report shows that first observation claims
increase by no less than 75 percent in the next
five years, bringing losses to unprecedented
heights. No sustainable market can survive with
such figures. No supervisor should accept them,
as such levels of misevaluation of provisions.
Whether such provisions are short or long, their
volatility is way beyond every acceptable profes-
sional practice.
The unique way for said steadily unprofitable
companies to survive is to look for growth at any
price on one end and to differ and minimize
claims payments on the other, further destroying
market and customer value.
The same is true in pensions. Aging is defi-
nitely the major social challenge our societies
and economies are facing. Insurance companies
are at the forefront: The core of their activity
relates precisely to managing risks in the long
term. In this respect, some local insurers have
found, it seems, the philosopher's stone. They
apparently solved an issue which is still at the
research stage in the world's most advanced pen-
sion markets, including the US and the UK.
One needn't be an experienced actuary or
supervisor to wonder how defined annuities can
be offered to a 30-year-old customer, payable in
35 years for probably some 30 years, based on
current mortality tables, underestimating even
current survival expectations. What will it be in
35 years, when the annuity will become payable?
And as if that were not enough, guaranteed
returns exceeding all risk-free historical averages
are the cherry on the cake.
In private, Greek stakeholders acknowledge
the situation. They then refer to economic nation-
alism or political influences. Maybe, maybe not.
No possible protection of steadily unprofitable
local actors, for whatever reason, short-term
political or electoral consideration, can put the
long-term revenue and wealth of Greek society at
risk!
Strict insurance supervision is a prerequisite
for the Greek insurance market to flourish. Lever-
aged by an adequate legal, fiscal and governance
environment, a dynamic and sound insurance
sector will, on a sustainable basis, offer crucial
cooperation in financing our long-term key social
challenges. Public social security systems will
not be enough.
Strong professional supervision, preventing
further companies' explicit or implicit collapse,
will revive the reputation of the industry and
Greek consumers' trust: No one is prepared place
his long-term future in the hands of providers
whose financial and professional reliability is not
solid as a rock: As of today, it still is not the case.
Eric KleijnenManaging Director
AXA Asfalistiki SAwww.alpha-insurance.gr
Greece has bright prospects as local consumers are under-insured compared to their EUcounterparts, with financial services representing a mere 2 percent of the Greek GDP.
47
InsuranceA growing number of insurance companies are operating successfully in bancassurance,which is seen as being the major driver for market growth.
Insurance market grows whileconverging with European peers
The Greek economy is maintaining its
momentum in a challenging environment,
growing at an annual rate of 4.4 percent on
the back of strong investment spending and
healthy, though weakened, private con-
sumption growth (2.8 percent year-on-year).
Despite the outstanding increase in revenues from
the shipping sector and the achievement of a new
record in tourism arrivals, the current account
deficit reached new highs in the first half of 2007,
rising from 6.6 percent to 7.2 percent of GDP and
reflecting strong cyclical factors related to high
intermediate and capital goods imports and high
oil and primary goods prices. It should be noted
that the subprime crisis did not affect the country's
economy directly, as Greek institutions had little
exposure to subprime loans and derivatives. How-
ever, indirect consequences were not avoided.
Despite the fact that inflation projections
remain unchanged for 2008, expected at around
2.8 percent, development in international markets,
including the substantial increase in oil prices, is
likely to make targets more difficult to achieve.
Looking ahead, the Greek economy is expected
to continue growing above potential, with the main
drivers being private consumption, backed by cuts
in personal income tax rates, solid wage and
employment growth and strong fixed investment,
despite the moderation in residential construction
activity.
The Greek insurance market has to implement
a series of important reforms that will affect it
either directly or indirectly. The most important of
all is the adaptation of the market to the Fifth EU
Motor Insurance Directive, which will be complet-
ed by 2009. According to this directive, which
concerns third-party liability, the limit of compen-
sation per accident for bodily injuries is raised to
2.5 million euros and for material damages to
500,000 euros, starting in July 2009. These lim-
its will be doubled in 2012. These changes com-
bined with the implementation of Solvency II and
the new solvency framework increase the pressure
for major changes. Market dynamics and manage-
ment priorities will change materially. The optimal
size for companies to be successful in the new
environment will be redefined.
More and more insurance companies, mostly
bank subsidiaries, are operating successfully in
bancassurance. This line of business is the major
driver for market growth. As a result, companies
which do not have such operations will steadily
lose market share.
Ninety insurance companies currently operate
in Greece, compared to 114 in 1999.
Seventeen are life companies, 60 non-life and
13 composite. The market is mostly concentrated
among the 10 biggest companies with an 86.3
percent market share in life and the 10 biggest in
non-life with 56.6 percent.
Total insurance premiums for 2006 amounted
to 4.3 billion euros, of which 52.5 percent was in
life and 47.5 percent in non-life.
Despite the considerable growth that the insur-
ance sector has shown over the last seven years
(total insurance premiums for 1999 reached 2.4
billion euros), insurance premiums as a percentage
of GDP come to only 2.2 percent, compared to an
8.3 percent average for the 33 CEA countries
(Communaute Europeenne d'Assurance).
Estimates for macroeconomic developments are
positive, a fact that surely reinforces the prospects
of the insurance market. Δhe sector has the poten-
tial to grow faster than the Greek economy, due to
low penetration compared to other sectors such as
banking. Bancassurance and other retail business-
es are positioned to be the driving forces. The mar-
ket of industrial risks will not grow.
The absence of strong tax incentives for private
insurance in Greece remains a major issue. The
market is lobbying strongly for the abolition of
stamp duty as well as the increase in incentives
which will contribute to market growth. Social
insurance reform in Europe in general and specifi-
cally in Greece is just a matter of time. It is evident
that the new framework should treat the services of
private insurance companies as a key factor.
The new supervisory authority, which will be
fully operational as of January 1 2008, is expected
to be a catalyst for the development of the sector
and the market.
The outlook for the Greek markets remains pos-
itive despite the expected turbulence in global mar-
kets. The Greek insurance sector will most proba-
bly continue its growth and reform, eventually con-
verging with European averages from both the
quantitative and qualitative perspectives.
Doukas Palaiologos President and CEO
Ethniki Insurance www.ethniki-asfalistiki.gr
‘The outlook for the Greekmarkets remains positive despitethe expected turbulence inglobal markets.’
48
Market
Drinks market growing fast
The evolution of the alcohol-free beverages
market in Greece is defined by a number of
factors that concern Greek consumers' habits
and market trends. The most important of
these are:
ñ Technological progress, along with significantly
developed industrial research and development
that increase the scale and variety of qualitative
products, leading to more specialized nutritional
solutions that cover even more nutritional needs;
ñ New working conditions, the rapid pace of living
and long periods away from home on a daily
basis, which lead to the consumption of more
water, juices and refreshments in general;
ñ Today's consumer needs for beverages that offer
something more than simple fruit flavors;
ñ Consumers' shift to well-known brands with valid
certifications regarding their quality.
In addition to the above, we have to take into
consideration the fact that Greece has been one of
the fastest-developing countries in the EU over the
past 10 years. The performance of Greek industry
during 2007 in macroeconomic figures is considered
to be satisfactory. Since the beginning of this year,
the country's financial climate has been positive, a
fact that has resulted in financial growth in general.
In addition, industry investments have followed an
upward trajectory.
In retrospect, the market's course during 2007,
regarding soft drinks, water and juices sectors, has
also been northbound.
The Greek juices market is characterized by its
significant growth perspectives. Regarding con-
sumers' preferences, there is an obvious need for
specialized products, in functional packaging as well
as for enriched juices that contribute to physical
health with nutritional vitamins and minerals.
The soft-drinks market is expected to continue at
a stable pace. Consumers are showing a preference
for established brands that cover their needs for
freshness and enjoyment. As far as bottled water is
concerned, the Greek market, compared to its inter-
national peers, has in recent years shown significant
growth without having exhausted its growth
prospects.
In 2008 we will continue to monitor both the
socioeconomic environment as well as consumer
trends in order to be able to respond fast to any
emerging changes.
The strategic objective of the Coca-Cola Hellenic
Bottling Company (a member of the Coca-Cola Hel-
lenic Group) is to further enhance its key position in
these markets via the launch of innovative products,
responding to continuously evolving consumer needs,
and robust involvement at points of purchase.
In 2007, according to plan, we successfully
launched new products, while continuing to invest in
health and wellness products which, along with light
products, have shown an increase in consumer pen-
etration.
Taking into consideration future market trends,
Coca-Cola HBC has developed innovative products in
soft drinks, juices and water.
In the water category we launched Avra Active,
featuring an ergonomic bottle with a new easy-to-
open sports cap in response to consumers' needs.
Additionally, during 2007 our company
launched:
ñ Coca-Cola Zero, which preserves the authentic
taste without sugar, constituting a case study in
the Greek soft-drinks market;
ñ Amita Motion Energy Bars — biscuit bars with
nine fruits and seven vitamins that meet the daily
diet's continuously increasing requirements for
natural energy in the healthiest way. Having
developed the basic juice product, we created
one innovative snack to launch the company into
the energy bar category.
ñ An Amita Juice range with antioxidants as well as
the Amita Apple and Cinnamon Juice, the first
juice designed to be consumed hot or cold.
According to consumer research, market trends
for the next years will be characterized by intense
competition and growth. Consumers will continue to
seek out qualitative products with functional benefits
as well as attractive packaging at reasonable prices
that reflect their everyday habits, available at the
right sale points and produced by socially responsible
companies.
The soft-drinks market is expected to keep on moving at a stable pace, with consumers showing a preference for established brands.
Dimitris I. Vidakis Country General Manager
Coca-Cola Hellenic Bottling
Companywww.coca-cola.gr
49
PU
BL
I
Promoting Attica Region
Among the future projects that the Region of Attica
intends to carry out are:
ñ Extension of the Suburban Railway at the Koropi-Lavrion section, along
with its completion (through the competent ministries).
ñ Extension of the tram service to Piraeus (through the competent min-
istries).
ñ Creation of a commercial center on the Thriasio Plain (through the com-
petent ministries).
ñ Extension of the fast lane in the Markopoulo-Lavrion area.
ñ Extensions to the whole network of Attiki Odos.
ñ Projects to upgrade the Elefsina-Iliki-Thiva road axis.
ñ Creation of ‘urban type’ health centers.
ñ Sewage networks and waste water treatment plants in four nearly devel-
oped housing settlements (Directive 91/271) in Eastern Attica.
ñ Large-scale renovations on coastal sections in the Promponas area and
the nearby Athens-Lamia National Road.
ñ Improvement works to the greater part of Rafina port
ñ Repairs following the earthquake on Kythera island (water supply - road
works)
ñ The Attica Park.
ñ Pedion tou Areos park.
ñ Opthalmic Hospital of Athens.
ñ Theater of Piraeus.
Absorbency
Total absorbency of the Regional Operational Program of Attica is 78% (prediction
81% by the end of 2007), in comparison to 27.5% in March 2004, and the num-
ber of the current projects is 1,118, with the approval rate up to 125%, whereas
the legal covenant (contracts signed) is up to 103%.
The upcoming program (2007-2013)
The vision for Attica in the framework of the New Programming Period as this is
outlined on the National Strategic Plan is ‘the enhancement of the international
role of the Region as a European metropolis in the Southeastern and Mediter-
ranean region.’
The amount of the community financial aid is 2,438,000,000 euros.The total
public expense of the Program is 3,561,000,000 euros, and the private financial
participation is about 1,251,000,000 euros.
Haralambos ManiatisGeneral Secretary
Region of Attica
Projects completed and under way
The most important projects that have already been completed or
are under way, through the Managing Authority of the Regional
Operational Program of Attica and the Directorate of Public Projects
are the following:
ñ The Athens Metro: Extension of the current network from Sepo-
lia to Peristeri and Anthoupoli.
ñ General Oncology Hospital of Kifissia.
ñ Construction of the new A. Kieriakou wing at the General Chil-
dren’s Hospital.
ñ 34 new nurseries.
ñ Research and reconstruction of the Theater of Dionysos and
Asclepius, south of the Acropolis.
ñ Construction of a heliport on Antikythera.
ñ Repair of the National Archaeologic Museum of Athens.
ñ Improvement of the infrastructures and supply of equipment at
the Adult Training Center in Aegaleo.
ñ Two new Athens Academy buildings at Athens University.
ñ Reconstruction of the Averof building at the National Technical
University of Athens.
ñ Solid waste and composting plant at Ano Liosia.
ñ Extension of Stavros-Lavrion Road (Keratea region).
ñ Roadworks at Peania-Spata-Loutsa.
ñ Roadworks at Megara-Alepohori.
ñ Roadworks at Aghioi Apostoloi - Halkoutsi.
ñ Roadworks on Iera Odos.
ñ Interventions for environmental settlements at the Melissia
channel.
ñ Restoration of the Nea Smyrni gardens.
ñ Restoration of the Perivolia neighborhood in the Municipality of
Tavros.
ñ Cooperation between research centers and enterprises.
ñ Landfill in Southeast Attica at Vagoni Kerateas-Laureotikis.
ñ Landfill in Northeast Attica at Grammatiko (contract pending).
ñ Repair of the waste disposal centers at Capandriti-Polidendri.
ñ Settlements at the Soures channel (opposite Magoula junction).
ñ Rearrangement and settlement of existing infrastructures at
Soures channel.
ñ Maintenance works on the National Road Network.
ñ Repair of the Hora-Kapsali provincial road on Kythera.
ñ Repair of the visitors’ information center on Parnitha.
ñ Repair of the inter-municipal roads of Eleftheriou Venizelou -
Megalou Alexandrou and part of Iera Oodos.
ñ Repair of the waste disposal centers at Enoe and Erythres.
ñ Waste water treatment plant at Hora and Kapsali on Kythera
island.
The Program aims to:
ñ Enhance the status of the Region of Attica as an international business
center.
ñ Boost competitiveness by encouraging innovation plans, entrepreneur-
ship, research, technology, dissemination and utilization of new infor-
mation technologies.
ñ Elevate the quality of life and the protection of the environment.
ñ Create new and better jobs.
The strategic development objective set for the Attica Region is the promotion of the internationalrole of the capital, combined with measures to alleviate intra-regional disparities and improve thequality of life.
The Priority Axes which have been appointed by the Regional Operational Plan of Attica are fullyidentified with the Ûtrategic purposes of the 2000-2006 Development Plan of the Region of Attica.
To be more precise, the first four of six Priority Axes are the strategic purposes of the DevelopmentPlan of the Region of Attica. The fifth concerns reconstruction following the1999 Athens earthquake,and the sixth involves the technical support of the Program.
The overall public expenditure of the Program is 1,502,736,617 euros.
50
Telecoms
Telecoms sector on the move
The telecommunications industry and relat-
ed services will continue to comprise a
challenging, innovative and competitive
field of the Greek economy. It is a sector
that needs to be constantly alert and on
the move; thus, despite the market's overall
maturity levels, which may lead to an average
total income of 2-3 percent on an annual basis,
there are still market segments that have a lot of
room to grow rapidly.
Vodafone has identified these, as well as other
broadband services, and has invested and devel-
oped its services with the aim of providing total
integrated communications solutions to its cus-
tomer base. This will result in the emergence of a
single trustworthy total communications provider
capable of fulfilling all customer needs.
Based on the above, Vodafone Greece is
defined as a new and unique total communica-
tions provider. In addition, the company is pro-
ceeding with major investments regarding its net-
work, retail, services and products and, of course,
all necessary broadband infrastructure.
Homezone is a key characteristic of the new
integrated communications era. Over the summer,
Vodafone introduced a total communications solu-
tion (Vodafone Home, Vodafone ADSL Internet,
Vodafone 3in1) to the Greek market in an attempt
to offer maximum quality, state-of-the-art infra-
structure and first-class services to Greek con-
sumers.
This business approach has resulted in an
unexpectedly pleasant consumer reaction,
exceeding all initial company targets; it is esti-
mated that by the end of 2007, more that
100,000 households will be using our services.
This business approach led to an 'unexpectedly'
pleasant consumers' reaction, exceeding any ini-
tial company targets; there is an estimate that by
the end of 2007, more that 100,000 households
will be using our service.
Vodafone Greece's strategic goal is to become
even more actively involved in offering broadband
services to consumers and, at the same time, con-
tributing in speeding up the services infrastruc-
ture. This will help to minimize the huge gap
which currently exists between Greece and the
average European indicators and thus lead to
greater and faster development.
Through the new service Vodafone live!Inter-
net Plus, the Internet is now accessible literally at
the touch of a button and users can experience
the real Internet world at anytime of the day with
the new Vodafone live! handset. Furthermore,
Vodafone is placing emphasis on Mobile Plus,
which will provide integrated mobile/PC Internet,
leading IP services and VAP complete home solu-
tions. Under this framework, consumers will be
able to increase the services available on their
mobile phone, which will become an integral part
of their daily lifestyle activities and interactions.
We, in Vodafone, believe that the stronger our
competitors, the better we become, exceeding our
own targets.
The telecoms industry is a very intense and
competitive environment and will continue to be
so in terms of pricing and services offered. We
respect our competitors, whoever they may be,
and we are in favor of a 'fair yet intense' rivalry
with the customer being the end-winner.
Vodafone Greece will maintain its focus on lis-
tening to customer needs and addressing those
needs in the best possible way by exploiting both
the Group's innovative approach as well as local
know-how and expertise.
This business model is aimed at a long-lasting
relationship with Vodafone's customer base,
enhancing existing clientele and offering first-
class products and services. We are very opti-
mistic about the future and we reckon that there
are many unexplored fields that are just waiting
for a new Columbus.
However, in order to maintain this pleasant
position, the framework under which you need to
operate must be able to support this approach.
Our contribution is clear since sector competitive-
ness has been questionable for the last five years
and is expected to continue to shrink. Prices have
fallen by almost 15 percent per annum.
There is a standard price reduction every year
against a services quality and investments
increase. Greece, among others, is also faced with
four major difficulties which hinder market com-
petiveness: a) Inflation is on the rise along with
the cost of living and, therefore, there is consumer
expenditure is reduced; b) indirect taxing is
increasing; c) the public sector and its overall
bureaucratic approach, as well as reluctance in
applying the law; and d) the public sector's
unwillingness to utilize the services offered by the
telecoms market (i.e. broadband, mobile services
etc) in order to facilitate the relationship between
the citizen and the state. These four points should
be viewed as an opportunity since the existing
relationship between companies and local com-
munities is not the desired one and is holding
back the upgrading of citizens' living standards
and lifestyles.
Greece is faced with four major difficulties that are hindering market competiveness; these are: high inflation, indirect tax increases, bureaucracy and the public sector’sunwillingness to utilize telecom services.
Babis MazarakisChief Operating Officer of Vodafonewww.vodafone.gr
51
Telecoms
Telecom industry being transformed
When talking about the tele-
coms environment in
Greece today, one thing is
more than evident: the
mass use of mobile teleph-
ony. Ever since the beginning of the
1990s — when WIND, under the
brand name Telestet, was the first
company granted a GSM license and
the first to introduce mobile services
to the Greek market — mobile
telephony has experienced enormous
development. Now its penetration in
the country is approximately 110
percent compared to almost 85 per-
cent in other member states of the
European Union.
These figures — nominal, of
course, and one should provide room
for a degree of inactivity — neverthe-
less indicate that mobile products and
services have enhanced and facilitated
the lives of citizens and have brought
social and economic benefits to indi-
viduals and businesses. Does this
mean that the mobile market in Greece
has reached its peak and is already
saturated? Up to a point, yes. Surely
just about anyone who could own a
mobile phone already has one. Howev-
er, I strongly believe that there is still a
lot of potential in the increase of
mobile usage that will drive medium-
to long-term growth in the sector. This
is the reason why all competent
authorities should endeavor to leverage
the economic interest that the mobile
industry represents for society.
During the last decade, mobile
telephony has become a basic means
of diffusion and use of new technolo-
gies and today it plays a vital role in
the development of the Information
Society in Greece. This, along with
the gradual penetration of broadband
services, opens up immense possibil-
ities in the telecommunications sec-
tor as a whole. Let us not forget that
in some countries (mainly Scandi-
navia) mobile phones tend to substi-
tute the traditional means of commu-
nication like the fixed-line phone and
have somehow become a portable
computer. In that sense, I see the
vertical disposal of services, includ-
ing constant, mobile telephony and
broadband Internet, as another, new
perspective for the coming years. By
providing high-speed, mobile Internet
access, these technologies open up a
landscape where users can communi-
cate, read, listen, watch and work as
they wish, wherever they wish, using
mobile services personalized to their
interests and even their physical
location.
Today the sector is at a turning
point, as third-generation (3G) appli-
cations gradually increase in usage,
and this is definitely something that
will grow significantly in the next
years. Although voice services contin-
ue to represent the bigger percentage
of total sales for the companies, the
driving force in the sector will very
probably be the launch of advanced
value-added services based on the
possibilities of 3G technology. There-
fore, considerable investments in
new infrastructure for the expansion
of 3G networks and generally wire-
less technologies such as WiMax
must be made so as to cover a wider
area of the country and that is a must
for all Greek providers if they want to
remain competitive.
Moreover, consumers' growing
appetite for double, triple or even
quad play services under the same
provider indicates a trend for conver-
gence that big enterprises seem to be
adopting. Customers seem to prefer
to have all their communication serv-
ices (fixed line phone, mobile, broad-
band internet and gradually TV serv-
ices) from the same provider and to
deal with only one company for their
communication needs. Some years
ago the telecommunications industry
in Greece was dominated by the Hel-
lenic Telecommunications Organiza-
tion (OTE). The major characteristic
since market liberalization is the
great number of companies that pro-
vide telecommunications services.
Especially at the beginning, this
number seemed and truly was dispro-
portional to the potential number of
customers each company could have.
However, companies need to make
huge investments in order to meet
the market's needs and expectations
and to also keep up with technologi-
cal evolution. This implies consider-
able costs for those who wish to gain
a share of the market and remain
competitive and I believe that pro-
gressively a lot of small providers will
face difficulties in surviving.
Mergers and acquisitions among
small telecom enterprises will remain
the main trend in the telecommuni-
cations market, not only in Greece
but also in other countries, because
this will be the only way to fulfill the
advanced customers' needs as well
as exploit the economies of scale that
such synergies can offer. Also consid-
er that in 2006 the value of mergers
and acquisitions in the telecommuni-
cations sector reached almost 3 tril-
lion euros and this year the figure is
equally high. The case of Greece is
certainly a distinctive one since we
have witnessed major business
agreements like the takeover of Ger-
manos by Cosmote, the cooperation
of HOL and Vodafone, and last but
not least the buyout of our company
by Weather Investments last Febru-
ary, which by the way is considered
one of the biggest deals in the
telecommunications sector world-
wide. WIND Hellas also purchased
the minority stake in Tellas which
was previously owned by the Public
Power Corporation. This acquisition
has furthered WIND's commitment to
deliver Greek consumers integrated
telecommunications services, intro-
ducing them to a new era of con-
verged technologies and becoming
the leader in the Greek telecommuni-
cations market.
It is clear that the industry is
undergoing transformation, but what
about the consumer? The figures
reveal that consumers are eager to
benefit from liberalized converged
services. Today LLU connections
(fixed lines fully liberalized) are con-
tinuing to increase rapidly, shaking
OTE's position in the market. More
than 2,000 new broadband connec-
tions are being made and analysts
forecast that by the end of the year
the penetration of broadband services
will reach 9 percent. If we take into
consideration that broadband pene-
tration on the EU level averaged more
than 20 percent, it is clear that the
Greek market still has great potential
for growth.
The new landscape also indicates
a special need for the independent
regulatory body of our country, NTC,
to safeguard the new regulatory
framework and accelerate the
process of opening up the sector to
competition. Intense competition will
certainly work in favor of the con-
sumer, thus increasing the demand
of new telecommunications services.
In this environment, WIND Hellas is
favorably positioned to offer integrat-
ed telecommunications services,
namely mobile telephony, fixed
telephony, broadband Internet and
also video on demand.
The mobile telephone sector is at a turning point, with the driving force in the sector probably being the launch of advanced value-added services based on the possibilities of 3G technology.
George TsaprounisCorporate Communication
Executive Director of WINDwww.wind.com.gr
52
TelecomsThe Greek telecoms market is experiencing a long-awaited boom in broadband. This trend is expected to peak in the coming months thanks to a mix of favorablesocioeconomic and sector indicators.
Broadband market marching up the growth path
The Greek telecoms sector has continued to
expand over the last months driven mainly by
the unprecedented growth in the broadband
market. Broadband lines in fact have now
reached 1 million, more than doubling the fig-
ure of one year ago (488,000 lines). This growth was
triggered by the great reduction in ADSL prices along-
side the spectacular improvement in connection
speeds. Competition from alternative fixed operators
has fueled these market dynamics to a large extent.
Alternative operators are investing significant amounts
of money, partially financed by the government's pro-
gram for the Information Society, in infrastructure and
advertising to stimulate the broadband take-up.
Nevertheless, with household penetration of just
above 8 percent at the end of September 2007, Greece
is still at the bottom of the European league of broad-
band connections. This means that there is still plenty
of room for growth ahead so that the country can con-
verge with the EU-27 penetration average of 18 per-
cent. The future prospects are so good that most ana-
lysts and government institutions agree that such con-
vergence may now take place sooner than expected —
most probably by the end of 2009, with 2008 being
the peak year for net additions of broadband lines.
The Greek economy is healthy with declining unem-
ployment rates and GDP growing significantly faster
than in the other EU-15 countries. GDP growth is like-
ly to end up at 4 percent for 2007, a level which will
be maintained in 2008 according to the Greek budget
for 2008 tabled in Parliament. Overall, telecoms serv-
ices should be among the main stimuli and at the same
time beneficiaries of domestic GDP growth.
The government and its Ministry of Transport and
Communications are firmly committed to reducing the
digital gap with the rest of Europe and have announced
financing programs to accelerate broadband penetra-
tion. Such programs include subsidies for the develop-
ment of broadband infrastructure throughout the coun-
try and the promotion of broadband use.
Regulation, in particular that relating to local loop
unbundling (LLU), is finally fully in place, and the
National Regulatory Authority (EETT) is diligently mon-
itoring its effective implementation in the market. Addi-
tional regulation to stimulate competition is currently
under examination, the most important being the EC-
sponsored separation of the Hellenic Communications
Organization (OTE)'s network arm from its retail servic-
es arm. If implemented, it is likely to bring further trans-
parency to the LLU process and increased competition
at the retail level.
Most alternative fixed operators have already
secured the financing required to make significant
investments for the next two to three years on network
roll-out, capacity enhancement and the development of
new applications such as IPTV (Internet Protocol Tele-
vision). These investments will enlarge the market,
making fast Internet connections available to a growing
number of potential customers, households and busi-
nesses.
Personal computer and Internet penetration, still
among the lowest in Europe, are growing rapidly, ben-
efiting, among others, from government programs
bringing PCs and connectivity to primary and second-
ary schools. Internet applications such as file down-
loading, social networking and video sharing sites,
WebTV and online gaming are booming, especially
among youngsters, and require a very fast connection
to work effectively.
Greek businesses are increasingly adopting data-
intensive applications including electronic commerce,
virtual private networks (VPNs), virtual hosting, virtual
remote services, video conferencing, video surveillance
etc. All these applications will continue to drive
demand for bandwidth and, as a result, fast Internet
connections.
In summary, the Greek telecoms market is finally
experiencing the long-awaited boom in broadband. This
trend is expected to peak in the coming months thanks
to a mix of favorable socioeconomic and sectoral indi-
cators. This is very good news for the Greek economy.
As repeatedly stated by Greek Prime Minister Costas
Karamanlis, the future economic growth of the country
is directly linked to the advent of the digital and infor-
mation society.
Ruggero GramaticaManaging Director
On Telecoms SA www.ontelecoms.com
54
Economic growth, regional expansion, corporate
actions, restructuring and earnings growth have all
been key drivers of shares performance during
2007. As far as 2008 is concerned, we think that
it will not be another bull year for Greek equities
because of increasing long-term rates and risks of a credit
crunch. Neither will it be a bear year due to the defensive
characteristics of the Greek market and the region. We
believe that 2008 will be the year for attractively valued
companies, with resilient business models, earnings quali-
ty and defensive characteristics. Sector-wise we present
our view below:
BanksDuring 2007 Greek banks enjoyed a growing mar-
ket for credit products; however competition in the sec-
tor has been intensifying these, as new players
appeared or some existing banks have become more
competitive. We are positive on the banking sector due
to the fact that Greece and the broader region are expe-
riencing a solid macroeconomic environment;
economies are growing fast and credit expansion in
most of the countries is impressive. Following this,
most Greek banks have expanded their business in the
region, establishing significant footholds and, having
acquired significant experience in banking domestical-
ly, are applying their respective business models in
these foreign markets. In the coming year we expect
enhanced business volumes, and increasing bottom-
line contributions from the foreign operations. In addi-
tion to this, many Greek and Cypriot banks are main-
taining high levels of liquidity, a fact that would give
them a significant competitive advantage should the
credit turmoil persist throughout 2008. On the other
hand, the financial sector worldwide has been experi-
encing significant difficulties that have led to poor
share price performance. Although the Greek financial
sector has no direct exposure to the credit issues faced
by others, should this turmoil continue far into 2008,
then possibly we could see the problem spill over to
Greek and Cypriot financial institutions. Finally, risks in
the global macroeconomic environment are increasing
and should the significant global growth slowdown sce-
nario materialize, difficulties faced by the largest
economies could also affect macros in the region. All in
all we think that the main catalysts will be M&A activ-
ity and any further divesting of state-owned banks.
TelecomsBroadband growth in the domestic market (that lags at
least 20 percentage points in country penetration vs EU
averages) makes the Greek telecom market looking promis-
ing. Furthermore, the consumer trend toward bundled
usage tariffs and the uptake in unbundling of local
exchanges enhance the view that sector development has
taken its way. However, the aggressive market share gains
by mobile operators may jeopardize the broadband growth
outlook for sole fixed-line providers, while the regulatory
pressure to bring wholesale rates further down may spur
competitive pricing pressure for facility-based operators.
Bearing all this in mind we conclude that the catalysts
which will mainly affect the sector are the following: a)
industry consolidation among alternative players (yet out-
right exits are unlikely at this stage as market growth is
likely to nourish laggards over the next two to three years);
and b) accelerated positive contribution by regional activi-
ties for the Hellenic Telecommunications Organization
(OTE) Group coupled with possible government stake dis-
posal/strategic investor interest. It is worth noting that dur-
ing 2007 the shares price performance was positively sus-
tained by Marfin Investment Group (MIG)'s build-up posi-
tion in OTE and Cosmote's minority buyout by OTE. On cor-
porate terms, the key catalyst in 2007 was the launch of
fixed/mobile converged offers by Vodafone and Wind/Tellas.
For 2008 the telecom share price catalysts are a) the
evolution of domestic fixed market in customer churn and
migration toward LLU mobile players, b) the potential
appearance of a strategic investor for OTE, coupled with
the active role of MIG in management decision-making, c)
the further evolution of Romtelecom, d) the evolution of
Forthnet's market share in ADSL/LLU customers, and e)
circa 50 store openings of Forthnet.
GamingThe Greek gaming sector appears highly attractive since
growth — in terms of revenues — is continuous (CAGR
1998-2006: 16.2 percent) while domestic sales per capi-
ta are the highest within Europe. No matter if the Greek
gaming sector is inelastic to economic slowdown, the sec-
tor relies heavily on the state's stance toward gambling,
which could change following recent trends in the EU.
During 2007, the sector was influenced by the signing
of the contractual agreement between Europe's biggest bet-
ting firm OPAP and Greek lottery systems provider Intralot
regarding the procurement of terminals by the first, the
appointment of Christos Hadjiemmanuil as new president
and CEO of OPAP, the uptake by Intralot of new projects
(South Korea, Russia, South Africa, Australia) and the
grant of operation licenses in Italy and Madrid.
The coming year looks again positive mainly for the fol-
lowing reasons: a) Euro Cup play, b) the announcement of
OPAP's business plan, c) the possible launching of the
game KINO on ships, d) the approval of new games by the
Greek state (e.g. VLT), e) in-house risk management of Sto-
ichima by OPAP, and f) further market penetration by
Intralot despite the fact that US lotteries privatizations look
highly improbable for 2008.
Consumer Goods - RetailConsolidation activity, consumer consumption, credit
and regional expansion, positive demographics from immi-
Markets
National P&K Securities
National P&K Securities
2008 Sectoral Overview
55
grants and currency movements influenced the sector's performance
to a great extent during 2007. No matter the market's maturity, the
enhancement of competition and the negative demographics from the
Greeks, the retail - consumer goods sector has potential. Key per-
formance drivers are still the macroeconomic environment in Greece
and SE Europe, consumption trends along with regional expansion
and M&A activity.
IndustrialsDuring 2007 industrial sector companies intensified their
efforts in further expanding their business in the fast-growing
Balkan regions and establishing distribution networks in South-
east Europe. However, high commodity prices hurt demand for
some products (especially copper products) and affected fabrica-
tion margins, negatively impacting margins, and significantly
increasing working capital and financing needs. In addition, the
prevalence of substitute products, especially for copper products,
still represents a threat to revenue.
All in all, we are positive about the sector since the antici-
pated lower commodity prices will have a positive impact on
margins, working capital and financing needs. At the same time,
international demand for bauxite will continue (S&B Industrial
Minerals), while further capacity additions are expected to
increase volume and profitability (Viohalco Group).
UtilitiesUtilities in Greece exhibited a solid performance during 2007
mainly due to monopoly power; water utilities maintain exclusive
water and sewage rights in Greece and the Public Power Corporation
(PPC) maintains the electricity monopoly despite the market deregu-
lation on July 1, 2007 along with the strong and sustainable elec-
tricity demand that we expect in Greece in the future.
Also the management is making important efforts to bring about
significant changes, especially in the improvement of operation
expenses containment (PPC); we mention the low generation cost
due to exclusive access to lignite, despite the poor quality and car-
bon dioxide (CO2) emissions. At last water utilities have presented
strong balance sheets, relatively lean and efficient operations and,
following the annual tariff increases that are already approved, there
is a satisfactory capital expenditures (CapEx) plan ahead. However,
increasing commodity prices, government interference and the slow
regulatory change in Europe and in Greece are negatively influencing
the sector's performance. For 2008 we expect that restructuring
opportunities and cost cutting will be the main performance drivers
along with the tariff increases.
EnergyThe volatile and negative environment, evident from the weak US
dollar, relatively unchanged refining margins year-on-year and
decreasing trading activity due to oil prices increased volatility and
lower demand influenced the sector's performance to a great extent
during 2007. On the investment positives we highlight the limited
domestic competition due to high entry barriers to foreign competi-
tors. In addition, solid financials with low leverage, tight CapEx dis-
cipline, ongoing cost containment, operational expenditure (OPEX)
restructuring (Hellenic Petroleum) and CapEx rationalization, all aim
at tangible benefits such as maximizing profits — an investor-friend-
ly policy evident from the high dividend payout (Motor Oil). Howev-
er, sporadic government interference and the potential shutdown of
a hydrocracker unit pose a risk to cash flows (Motor Oil). For 2008
the energy share price catalysts could be the volatility of the global
environment (Med cracking refining margins, dollar/euro, oil prices in
2008), weather and speculation for further MOH placement.
TransportIndustry consolidation and last year's vessel disposals are likely
to boost utilization rates and load factors in the Adriatic Sea, offset-
ting a sluggish top line at the operating profitability level. In addition,
further rationalization in debt structures through refinancing are
expected to lead to overall lower interest expenses in the coming
quarters. All in all the domestic market is estimated to continue to
drive growth in top line and margins due to superior utilizations. In
contrast, rising fuel costs and competition set key barriers in margin
expansion, while potential refleeting (possible in the case of Minoan
Lines) may stress debt capacity on balance sheets. The realization of
economies of scale and synergies with competitors in common mar-
kets remain the major catalysts in 2008 following the public offer of
MIG for the Attica/Blue Star shares, which may lead to owner struc-
ture change. Regarding ports and particularly the Piraeus Port
Authority the privatization prospects following the completion of the
new container terminal are expected to act as positive share catalysts
in the coming year along with a potential stake reduction/ placement
by the Greek state.
RESThe high wind load factors that Greece enjoys combined with
strong incentives, such as feed-in tariffs and power purchase
agreements, positively affected the renewable energy sources
(RES) sector's performance during this year. However, wind lev-
els may vary from year to year and good spots for wind park
installation become fewer due to high investor interest. More-
over, there are high CapEx needs and the timely supply of wind
generators is not guaranteed as demand is reaching higher lev-
els. Bureaucracy and litigation issues as well as local communi-
ty unrest in some cases significantly delay the licensing and
installation of the RES parks, although new laws aim to reduce
bureaucracy. The year 2008 will prove whether bigger expecta-
tions for the sector are justified and whether huge investment
projects are feasible.
Food & BeveragesIn this sector 2008 is expected to be another competitive and
fruitful year (in corporate and industrial terms). Competition is
expected to be further enhanced with smaller brands winning market
share and consolidation among supermarkets to become evident. Key
performance drivers for the coming year are the increase in con-
sumption and the increase in market share through (further) pene-
tration in (existing and) new markets. The restructuring of operations,
the utilization of assets, product innovation and input costs are also
among the catalysts that will affect shares performance.
56
SecuritiesVolatility is expected to continue in 2008. The majority of banks and companies do notseem affected by the defaults in the US subprime sector but there will be some side effects.
Market challenges for 2008
With year-end approaching, we are left to
ponder whether the aging Greek bull
market can generate enough stamina to
defy the odds yet again and continue
powering on. Indeed, the General Index
has risen on a yearly basis. Nevertheless, the recent
wave of defaults in the US subprime mortgage sector
that sent shock waves through Wall Street has
inevitably increased the pressure on European mar-
kets, including Greece. Moreover, the US market for
leveraged loans is unlikely to undergo a sustained
recovery anytime soon, considering that 20 percent
subprime mortgages issued between 2005 and 2006
are projected to fail, according to a December 2006
study by the Center for Responsible Lending, a non-
partisan research and policy organization.
Oil prices, in turn, hit record highs this year,
while predictions suggest that oil prices will exceed
$100 a barrel in the not-too-distant future. The same
applies to most commodities (i.e. copper, silver, gold,
cotton, corn), which experienced large price increas-
es during the past year. The continuous rise in oil and
commodity prices will fuel inflationary phenomena in
the eurozone and weigh on the companies' cost side.
One could argue that the negative effect of high oil
prices is partly offset by the weakness of the dollar
against the euro, as oil imports are US dollar-denom-
inated. Nevertheless, EU products have overall
become more expensive and, hence, less attractive to
customers.
Moving on, the world's biggest central banks
have stepped in to relieve fears of a credit market
crunch, pumping billions of euros into volatile mar-
kets in an effort to boost liquidity. The rising worries
about difficulties in the US subprime mortgage mar-
ket have left banks uneasy regarding interbank lend-
ing. As the US economy continues to be fragile and
expectations on future corporate earnings are low,
the US Fed might further trim its interest rates next
year to boost liquidity and protect the US economy
from a further slowdown. The European Central
Bank, on the other hand, is unlikely to raise its inter-
est rates, due to the strength of the euro against the
dollar.
Looking therefore at the Greek market's prospects
for 2008, there is inevitably the risk related to the
rather unfavorable macroenvironment. What's cer-
tain is that we do not expect the volatility in stock
exchanges to ease. On the contrary, we are likely to
see further turbulence in capital markets internation-
ally. Many houses and funds have not yet disclosed
the losses related to the US credit market crunch to
the full extent. On the upside, the majority of Greek
banks and companies do not appear affected by the
defaults in the US subprime sector. Note, though,
that as the crisis becomes deeper, we will inevitably
see some side effects in the Athens Exchange. For-
eign investors, who hold more than 50 percent of
Greek stocks, might decide to cash in some juicy
capital gains if the picture in the US becomes uglier
and the declining stock prices continue to affect the
total value of their investment portfolios.
The question now is whether the Greek market
can minimize the effect of the US subprime crisis,
surpass the negative macro-backdrop and continue
its upward trend for the sixth consecutive year. The
answer can be found in the fundamental dynamics of
the Greek market, the growth potential of local com-
panies, their market positioning, and, most impor-
tantly, their expansion overseas. The majority of
Greek banks and a multitude of other companies
have already expanded their operations abroad,
mainly in the Balkans and in Southeastern Europe.
The aforementioned regions are characterized by
high growth prospects (GDP growth exceeds 5 per-
cent per annum) and favorable market conditions
(i.e. underdeveloped financial activities). Greek com-
panies have thus created a new source of revenue
stream that is expected to accelerate in the future. At
the same time, they have strengthened their position
in the globalized business environment and hedged
themselves against the gradual deceleration of the
Greek economy.
Alexandros BillisPresident of Euroxx Securitieswww.euroxx.gr
57
SecuritiesOn the domestic scene, the economic agenda in 2008 will be centered on marketderegulation and social security reforms.
Foreign funds keeping an eye on Greece
The year 2007 saw many fluctuations in the
market along with increased activity in
buyouts and mergers and the collapse of
the subprime market in the United States.
These two factors worked in different ways,
contributing to sentiment and trends in all devel-
oped markets.
Particularly, the subprime loans crisis was a
catalyst for a series of developments that had a
direct consequence on policies adopted by central
banks and risk assessment in every category of
securities that are linked to leveraging.
During 2007, growth rates were close to 4 per-
cent and businesses maintained profitability at
very high levels (above 28 percent) for the fourth
straight year with solid inflows from Eastern
Europe and the Balkans. At the same time, capital
raised reached 9 billion euros to fund buyouts or
new corporate plans. The participation of foreign
investors exceeded 52 percent and turnover vol-
ume rose with daily volumes reaching 450 million
euros.
The year 2008 is starting off after the sorting
out of high-risk subprime loans internationally, a
reassessment of leveraging as a financial tool, new
rules and an institutional framework for the proce-
dures of financial groups (MIFID) and other deli-
cate currency and energy balances.
The agenda of the American economy is expect-
ed to change due to election results (November 4,
2008) while the application of Basel II will lead to
international pressure for larger financial groups
that will be able to withstand the test of the new
banking legislation.
Additionally, the trend and need to find new
technology that is friendly to the environment is
expected to stir more intense investor interest in
ecological investments whether they relate to ener-
gy sufficiency, waste management or recycling.
Activity regarding legal changes and regulations
from institutional regulators (European Union,
international conditions etc) has already con-
tributed to an important market with major gains
and increased presence from leading companies
that attempt to differentiate their activities.
On the domestic scene, the economic agenda
for yet another year will be centered on market
deregulation (power market, transport infrastruc-
ture etc) and social security reforms.
Additionally, a series of privatizations are
expected to attract investor interest, such as the
extension of the Attiki Odos highway, the listing of
the Public Gas Corporation of Greece (DEPA) on
the Athens bourse, the sale of a stake in Athens
International Airport. Other developments with a
smaller impact, such as the operation of the alter-
native market on the Athens bourse, licensing casi-
nos, speeding up energy projects and the utiliza-
tion of state real estate assets are also likely to
have an impact on different economic fields.
Company profitability in the next financial peri-
od will not enjoy the same tax benefit from a reduc-
tion in tax rates as in previous years. However,
consolidated balance sheets have increased
inflows from developing countries, offsetting any
lack of growth domestically.
Bank sector revenues from New Europe amount
to 20 to 25 percent of income and many network
investments will have been completely recovered
by 2008. A similar situation exists with commer-
cial companies while the consequences from the
slowdown of the housing market in the US only
relates to isolated cases. For 2008, we estimate
that profitability growth rates will be in double dig-
its between 12 to 14 percent.
Regarding merger activity, we expect talks to
pick up in a series of different fields with a main
emphasis on the domestic economic scene.
Social security reforms can operate as a cata-
lyst for takeovers in banking and low profit margins
in telecommunications leave open the possibility of
a consolidation among alternative carriers.
A similar situation exists with ferry operators
where a cycle of buyout activity is in process and
increased oil costs are putting pressure on mar-
gins. There are still large amounts of liquidity on
company balance sheets in the retail trade sector
which can potentially be used for buyouts in or out
of Greece.
In conclusion, we expect a differentiation of
company returns next year with a positive impact
for the market due to the increased weight of the
fields mentioned in the formation of indices and
domestic economic activity. The combination of
strong corporate growth rates and the Greek econ-
omy's stability we believe will continue to draw for-
eign investment capital, further improving partici-
pation of foreign institutional investors.
Manos HatzidakisHead of Investment Strategy
Pegasus Securitieswww.pegsec.gr
‘The trend and need to find newtechnology that is friendly to theenvironment is expected to stirmore intense investor interest inecological investments.’
58
SecuritiesCompared to other markets, investment confidence is expected to become more concretefrom the second quarter of the year, due to positive economic and political developments.
Strong growth gives Greek market an edge
In 2008 the Greek capital market is expected to
be affected by turbulence in major foreign capi-
tal markets that had already started by the end
of 2007 and relates to the mortgage markets in
the US. In this respect, the Greek market will be
sensitive to increasing lending costs that may follow
rising risks in the mortgage markets. These costs are
expected to lower corporate profitability in the euro-
zone in 2008, including Greece, but the overall effect
will not result in overall negative corporate profit
growth for companies listed on the Athens Exchange.
Nevertheless, the pricing of these higher lending risks
in major EU economies and the US is expected to
result in increasing price volatility during the first
quarter of the year in the Greek capital market, in
line with other capital markets.
Compared to other markets, investment confi-
dence is expected to become more concrete in the
Greek market from the second quarter of the year
onward, due to the following positive economic,
financial and political developments.
First, the Greek economy is expected to grow
quickly. Greek GDP growth is expected to exceed 3.5
percent not only in 2007 but also during 2008 and
2009, due to the ‘Olympic effect.' The Olympic effect
refers to an expected 2 percent annual GDP growth
premium that small countries have, compared to
similar countries, for each of the following five years
after they have hosted the Olympic Games.
Second, the government has shown determina-
tion to privatize major state-owned companies,
something that is expected to maintain, if not
enhance, the interest of foreign investors. Foreign
investors already have 50 percent of the funds in
Athens Exchange-listed companies.
Third, the growth of corporate profits is expected
to exceed 30 percent in fiscal year 2007 and 17 per-
cent per annum in FY 2008 and FY 2009, something
that gives the Greek market an edge as far as con-
tinuing interest is concerned.
During the first half of the year interest is expect-
ed to be stronger in utilities and banks, for different
reasons.
Utilities are expected to continue to see more pri-
vatizations while also being favored by the govern-
ment's decisiveness to raise bills, especially in elec-
tricity and water. If higher utility bills do materialize,
this will result in an immense increase in corporate
profits, profit prospects and the overall value of these
companies. The willingness of the government to pro-
ceed to further privatization of these companies will
also boost investor confidence in these companies
and the market in general.
While privatizations and pricing policy favor utili-
ties, banks are favored by merger trends and sus-
tainable profit growth. Bank merger trends in major
capital markets, increasing the presence of foreign
banks in Greece and the high growth prospects of the
Greek bank sector may encourage new mergers.
While profit growth from domestic activities tends to
be lower for Greek banks, it is coupled with strong
double-digit profit growth from international opera-
tions, mainly in the Balkan area. Nevertheless, the
profit growth of these institutions is expected to be
considerably lower in FY 2008 compared to that of
FY 2007.
Diminishing profit growth for banks in 2008 will
somewhat limit the ability of these companies to
appreciate by the second quarter of 2008 and will
eventually force investment funds to switch their
main interest to other sectors. If market conditions in
major capital markets are relatively stable by the sec-
ond half of the year, something possible — while
unknown for the moment — the switching of invest-
ment funds to other, but not financial, sectors could
eventually tend to an appreciation not only of large-
caps, which is now the case, but also of mid-caps
and small-caps, enabling the enlargement of the
investment base at the end of the year. Under the
conservative scenario, share price increases will be
modest, resulting in just an incremental appreciation
of the Athens Exchange Index.
Konstantinos Vergos PhD
Head of Research
Cyclos Securities SAwww.cyclos.gr
59
International trade relations
Optimism on Greek-Chinese ties
Since 1978, the Chinese economy
has been in a constant process of
liberation, displaying an annual
average growth rate in the region
of 10.1 percent over the last 15
years. Financial forecasts for 2008 indi-
cate an increase of some 11.3 percent.
The Chinese currency has strengthened
against the dollar since mid-August
2007, but it has weakened against the
euro, hitting Europe's competitiveness.
Europe's pressure on China with its con-
stant demand for faster revaluation of
the yuan has begun to bring the first
results restricting China's trade surplus
against Europe's at 26.28 billion US dol-
lars in November from $27.5 billion in
October. However, Europe's trade deficit
remains high compared with China's,
whereas Greece's trade deficit with
China remains high despite the decrease
of the gap compared to 2006. According
to Greek economists' financial forecasts,
it seems that China's exports to Greece
will continue to increase, but at relative-
ly lower rate in comparison to 2007, a
year in which there has been an increase
of approximately 30 percent compared
with 2006.
Therefore, efforts must be mostly
directed at increasing Greek exports
(promotion of agricultural exports, tourist
influx etc) to China with a simultaneous
improvement in the exported product
range in order to restrain the yawning
trade deficit at the expense of our coun-
try. A great part of the trade deficit is
counterbalanced by the returns of the
Hellenic merchant marine, which plays
a great role in the transport of goods to
and from China as well as international-
ly. At the same time, Greek shipowners
are building new vessels of great value in
Chinese shipyards.
As the gate to the Middle East, Asia
and China in the dynamically devel-
oped area of Southeastern Europe, as
well as the rest of the European conti-
nent, Greece can contribute to and
organize the development of financial
cooperations and business transactions
between China and Europe. It offers the
territory and the passageways for Chi-
nese products to Europe and vice versa.
This possibility helps to maintain a
mutual interest in promoting joint pro-
grams to interconnect Greek and Chi-
nese ports, and the Chinese interest for
investments in Greek ports is evident.
The development margins for Greek-
Chinese business and investment coop-
erations and the increase of Greek
exports are immense. As regards fur-
ther improvement of industrial coopera-
tion, and in particular regarding small
and middle-scale businesses, there are
significant margins as well.
Moreover, for Chinese visitors, the
main drawing points of Greece are its
history, civilization, natural environment
and high-quality infrastructure, which
have the potential to be profitably
exploited given the fact that Chinese
tourists destined for the EU number
more than 22 million people, although
the Greek share continues to remain rel-
atively low. If 5 percent of those 22 mil-
lion Chinese tourists visited our country
for the purpose of congresses or science
tourism or history, there would be a
steep increase of 25-30 percent on the
total annual tourist exchange pouring
into Greece with simultaneous benefits
to all branches of the home market.
With the contribution of direct flights
between Athens and Beijing in 2008,
we expect to see more cooperation
between both countries as well as an
increase in Chinese tourists. Further-
more, 2008 is the year of the Olympic
Games in China as well as the Cultural
Year of Greece in China. Because of this,
bilateral political and cultural relations
are enhanced and the efforts of the
Greek government are directed toward
attracting Chinese investments and
achieving profitable cooperations. The
results of all this work and the rap-
prochement of China as a trade partner
are expected to emerge early in 2008.
The Hellenic-Chinese Chamber and
all the relevant official bodies must aim
at expanding Greek-Chinese business
cooperation with the target of decreasing
the huge trade deficit and exploiting all
the relative advantages of our country's
geostrategic position.
Constantine N.YannidisPresident of the Hellenic-Chinese
Chamber
www.chinese-chamber.gr
Trade boost with Britain for 2008
Modern commerce, no matter what market or country
it originates from, is a highly sophisticated and tech-
nical arena. The British Hellenic Chamber of Com-
merce (BHCC) was founded in Athens in 1945 and
was ostensibly created to evolve and cultivate two-
way Greek-British trade, trade-related services and investment
in our two great nations.
Times have changed, and our Chamber has endeavored to
stay ahead of the game. It is now recognized as a serious com-
mercial partner that not only is in keeping with those original
objectives but also assists its members with a more global
approach to commercial expansion. The BHCC is an inde-
pendent organization, free from political influence and, more
importantly, it is run by its members, for its members. The
Chamber is an autonomous, non-profit organization, relying
upon income from membership fees, sponsorship and organ-
ized events.
Britain and Greece have long enjoyed a close relationship
and strong commercial ties. Greece is an import destination for
UK exports totaling GBP 1.5 billion in 2006. The UK is
Greece's third-largest export market, totaling GBP 660 million
in 2006. Greece mainly imports road vehicles, medicinal prod-
ucts and beverages from the UK and the UK mainly imports
electrical machinery and appliances, vegetables, fruit and also
medicinal products from Greece.
The export and import figures are more or less the same
this year and the Chamber sees it as its duty to increase the
amount of business between the two countries.
For this reason in 2008 the BHCC is embarking on the
most ambitious project in its history — the organization of ‘2
Nations,' to celebrate the special relationship that exists
between Greece and Britain. In 2008 we will be promoting
Britain and British products in Greece and in 2009, Greece
and Greek products in the UK. In this way we hope to raise not
only the profile of both Greece and Britain but increase trade.
We are also organizing, for the sixth consecutive year in
February, our annual conference in London ‘Greece — Your
Strategic Partner in Southeast Europe: Investment Prospects &
Business Opportunities.' This event has become an annual
forum of bilateral communication between the two countries.
We aim not only to promote Greece as the regional economic
center in the wider region of the East Mediterranean, but also
showcase British expertise and steer Greek officials and com-
panies toward the UK market. The conference looks to provide
clarity and bring together business people and politicians to
explain their views and visions.
The Chamber views itself as a tool to be used by business-
people. We have created a framework and it is now up to pro-
gressive business people to use this framework not only for the
benefit of themselves but also to increase trade figures.
Harilaos GoritsasBHCC Presidentwww.bhcc.gr
60
International trade relations
USA looks toward Greece
During the 18th Annual Conference, ‘The Hour
of the Greek Economy,' organized recently by
the American-Hellenic Chamber of Com-
merce (AMCHAM) it became apparent that
Greece is taking radical steps toward the lib-
eralization of its economy. More specifically it was
established that:
– International observers are tremendously encour-
aged by the developments in the Greek economy
over the past three years, particularly by Greece's
dual achievements of reducing deficit and expand-
ing growth.
– There is a rapid development in the country's infra-
structure and more specifically in transportation,
communications and energy. Greece has secured a
place on the world energy map having being devel-
oped into an important energy center, a develop-
ment which affects its geopolitical role positively.
– Greek banks play an important role as mechanisms
of development of the economy. Also, the Athens
Stock Exchange is introducing attractive new prod-
ucts and developing international synergies.
– The government seems to expedite procedures for
the privatization of the Greek ports that play an
important role in the development of the economy.
– Greece is making successful efforts to put its fiscal
house in order by taking the necessary fiscal steps
at the perfect time: when the global marketplace's
interest in competitive markets and sound invest-
ment is at an unprecedented high level. It is vital
for Greece to become more tax competitive, thus
becoming an attractive corporate location.
Further, it was established that the USA is looking
toward Greece more than at any time in the past. The
technology cooperation agreement between the Greek
government and the Microsoft Corporation is testimo-
ny to this attitude. Microsoft's agreement with Greece
provides significant discounts for the Greek govern-
ment to purchase and utilize Microsoft products and
will also create a joint technology innovation center in
Greece that will support both academia and the efforts
of private software companies that will receive help in
the development of new and innovative software solu-
tions.
The USA recognized Greece's increasing regional
and global economic role when it revived the Econom-
ic and Commercial Cooperation Council (ECCC) in
March of this year. The ECCC brought high-level offi-
cials to Greece from the departments of State and Com-
merce, as well as from the US Agency for International
Development. In the meeting, the full range of eco-
nomic and commercial ties between the two countries
was discussed and we are hopeful that we will hold the
next meeting of the ECCC in 2008 in Washington.
There are, however, still several sector-specific
challenges in increasing US private investment in
Greece:
– Public hospital debt: Greece has a history of accu-
mulating large pharmaceutical debts and then
negotiating a lump sum discounted settlement with
suppliers years later. Additionally, public hospitals
are owed considerable sums of money by the state-
owned social insurance funds, which inhibits their
ability to pay bills on time. New legislation will be
required to rectify the situation.
– Government procurement: US firms seeking to
supply government procurement orders in Greece
are hampered by unnecessarily lengthy administra-
tive and legal challenges. Certain procedures,
although designed to improve transparency,
appear to have the opposite effect. US companies
do not face the same pre-qualification obstacles in
participating in procurement in other EU member
states. A possible solution to the problem is to
identify and adopt best practices in use by other
member states, as there may be other, less oner-
ous ways of implementing EU procurement
requirements, which are designed to increase com-
petition.
– IP rights: There is a need for immediate interven-
tion in order to stop illegal trade that, among oth-
ers, deprives the state of revenues, threatens the
existence and reputation of branded products, and
contributes to the international defamation of the
country. The further reinforcement of the protec-
tion of intellectual property rights by means of pre-
ventive as well as repressive measures should be
one of the priorities of the Greek government.
– Transparency: In relation to the increase of com-
petitiveness of the Greek economy it is important
for the government to secure transparency at all
levels of the state mechanism in combination with
the fight against corruption through the objectivity
of procedures and the electronic government.
AMCHAM will contribute positively to the general
effort for the increase of competitiveness and extrover-
sion of the Greek economy. More specifically it will
support the reactivation of ECCC between Greece and
USA and act as a catalyst between the two govern-
ments so that actions toward the implementation of
this cooperation are planned and materialized.
Finally, in cooperation with the ministries of Econ-
omy, Development, Tourist Development and Foreign
Affairs, and also with the Athens Chamber of Com-
merce & Industry, the Investment Support Bureau
(ELKE) and the Export Promotion Agency (OPE),
AMCHAM will undertake targeted actions in the USA
commencing in spring 2008.
The USA is looking toward Greece more than at any time in the past. The agreementbetween the Greek government and the Microsoft Corporation is testimony to this attitude.
Yanos GramatidisPresident of the American-
Hellenic Chamber of Commercewww.amcham.gr
61
Themes
A new era in credit management
Basell II: The adoption of the new
regulatory framework, which is
scheduled for 2008, is designed
to change the way banking insti-
tutions manage risk and calcu-
late capital requirements. The distinction
into credit, market and operational risk is
fundamental. Traditionally, the credit
portfolio has accounted for most of the
assets of a bank's balance sheet and nat-
urally attracted greater attention.
Under Basel II, banking institutions
are required to choose one of three
approaches for managing credit risk:
Standardized. The credit portfolio of
the bank is assessed using external cred-
it ratings derived by external credit
assessment institutions (ECAIs, such as
Fitch, Moody's and S&P). The credit
assessments are then grouped into risk
buckets through a mapping process and
each group is assigned to a specific risk
weight. This approach requires mini-
mum effort for implementation of the
new rules at the cost of higher capital
requirements as shown from the exam-
ple below.
Foundation IRB. Regulatory capital
is calculated using a set of equations
that are mainly driven by three compo-
nents: the probability of default (PD),
the loss given default (LGD) and the
exposure at default (EAD). Regulators
provide the banks with fixed values for
LGD and EAD and the banks are
required to calculate the probability of
default using an internal credit default
evaluation model.
Credit default evaluation models are
developed using techniques that vary
according to data availability and the
special characteristics of the credit
portfolio (e.g. retail, corporate or asset
finance). However, the steps for the
development of those models are com-
mon: Data collection is the first step in
credit risk model development. Since
the quality of the input will determine
to a great extent the quality of the out-
put, data collection is essential. Typi-
cally data requirements include popula-
tion characteristics such as financial
ratios or commercial data for compa-
nies and demographic data for con-
sumers as well as default data for all
customers based on historical transac-
tional behavior.
The next step is the estimation of
model parameters through an optimiza-
tion process. Once the parameters are
estimated, the model's performance
must be assessed. A successful credit
evaluation model must display high dis-
criminatory power, i.e. be able to distin-
guish the ‘good' customers from the
‘bad' ones. On top of that, the predic-
tions of the probability of default must
be close to the actual default rates of the
credit portfolio.
These two crucial model attributes
are tested using a set of statistical tests
such as the binomial and the chi-square
tests for the predicted probabilities of
defaults and the accuracy ratio and the
Kolmogorov-Smirnov tests for the dis-
criminatory power1.
Advanced IRB. In addition to esti-
mating the probability of default,
advanced IRB requires the internal esti-
mation of loss given default and exposure
at default. Due to high demand for accu-
rate historical data as well as model
implementation, only top-tier banks
worldwide have currently adopted the
advanced IRB approach. However, this is
expected to change in the coming years,
as more and more banks get familiar with
the new regulatory requirements.
Regulatory capital requirements:
Basel II aims at the convergence
between regulatory and economic
capital. In this attempt, the new
framework differentiates borrowers
according to their risk profile and
reduces capital charges for low-risk
borrowers while increasing capital
charges for high-risk borrowers. The
regulatory capital changes brought by
the new accord are highlighted by the
following case study — Table 1.
Under Basel I, regulatory capital for
the credit portfolio was calculated as
8 percent of the full value (100 per-
cent) of the risky asset with few
exemptions for OECD-sovereigns and
mortgage-backed loans. In monetary
terms, for every 1,000 euros of cred-
it, the bank's capital requirement was
80 euros independent of the borrow-
ers creditworthiness.
Under the new accord, capital calcu-
lations for the credit portfolio will distin-
guish borrowers based on their risk pro-
file. Banks that choose the standardized
approach could use the 9-point rating
scale of Fitch/S&P. For the top rating
class AAA, the calculation of capital
charges uses only 20 percent of the
asset (loan) value. Therefore, for every
1,000 euros of credit, the bank's capital
requirement is 8 percent of 20 percent
of the value (200 euros), which is equal
to 16 euros. If however the bank had
chosen the IRB approach, the capital
requirement for the top rating class
would have been even lower and equal
to 3 euros since it is calculated as 8 per-
cent of 3.89 percent (the risk weight for
the top rating found using the formulas
with the three credit risk components:
PD, LGD and EAD) of the asset value.
Savings on capital requirements for
low-risk borrowers can be substantial
not only between the Basel I and II
frameworks but also between the alter-
native approaches that banks can adopt,
i.e. standardized versus IRB.
In the end, the capital requirements
for a bank will depend on the distribution
of the credit portfolio in terms of risk. In
the simplistic case of an evenly distrib-
uted credit portfolio (equal borrowers for
each rating class), the IRB approach pro-
duces the lowest capital requirements,
followed by the standardized approach
and the Basel I framework.
1Basel Committee on Banking Supervision (February 2005), Studies on the Validation of Internal Rating Systems, Working Paper No.14
Dr PanagiotisAvramidisProfessor of credit risk
management & statistics
American College of Greece
Graduate Schoolwww.acg.gr
Fitch/S&P 9 Exposure Value Risk Weights Capital Requirements (euros)
Point Rating Scale (euros) Basel IStandar- Foundation
Basel IStandar- Foundation
dized IRB dized IRB
AAA 1,000 100% 20% 3.89% 80 16 3
AA 1,000 100% 20% 10.02% 80 16 8
A 1,000 100% 50% 17.50% 80 40 14
BBB 1,000 100% 100% 29.19% 80 80 23
BB 1,000 100% 100% 45.83% 80 80 37
B 1,000 150% 150% 67.91% 80 120 54
CCC 1,000 100% 150% 99.63% 80 120 80
CC 1,000 100% 150% 152.27% 80 120 122
C 1,000 100% 150% 230.23% 80 120 184
Total 9,000 720 712 525
The new regulatory framework, scheduled for 2008, is designed to change the way bankinginstitutions manage risk and calculate capital requirements.
A new year with a new home for our national treasures.
We talked about it a lot. Many disagreed. Some were in
doubt. But we finally achieved it. On the crossroads of
Makrigianni and Aeropagitou lies today a museum wor-
thy of our history, a museum with unique architecture,
in harmony with the surrounding environment, strong
enough to safeguard our national heritage from the per-
ils of time.
In the New Acropolis Museum visitors can admire the
sculptures of the Parthenon having the actual
Parthenon in the background and view authentic mas-
terpieces which adorned the Sacred Rock of the Acrop-
olis in the different periods of time. It is a museum
among the greatest which will become an international
magnet for millions of people from all around the world
launching a new era in the cultural life of our capital.
After 2,500 years the favourite ladies of the nation, the
Caryatids, have found a new place that suits their beau-
ty. Well, at least five of them. The sixth one, we are still
waiting for her to return from her long trip abroad.
History finds a new home
Images by
Harry van Versendaal