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GREECE


 

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 173,000 132,834 117,200 27
         
GNI per capita
 US $ 13,720 11,660 11,430 45
Ranking is given out of 208 nations - (data from the World Bank)

Books on Greece

REPUBLICAN REFERENCE

Area (sq km)
131,940

Population 
10,647,529

Capital 
Athens

Currency 
Euro

President 
Costas 
Stephanopoulos

Private sector 
% of GDP
over 60%



Update No: 103 - (28/11/05)

Greece has long been the key player in the Balkans. A long-time member of both NATO and the EU it is the natural leader, patron even, of those neighbours aspiring to join either or both - and sees itself as such.
With the signing of "The Energy Community South East Europe Treaty" in Athens, Greece, recently, the European continent took a historic step forward for energy market liberalisation, expanding the EU Energy single market to the Balkans. This is the first time in history that all of these states and territories have signed a legally binding treaty and is a milestone in reconciliation after the wars of the 1990s.
The agreement is a culmination of the efforts launched with the signing of the Athens Memoranda in 2002 and followed up in 2003. With that the idea had got the taproot of political backing and governmental obligations to create electricity regulators and transmission system operators and to open up the energy markets for commercial consumers.
In addition to the EU, Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Romania, Serbia and Montenegro and environmental chapters with the EU, could be Turkey. "We want more time to implement the treaty and we will continue with negotiations," sources close to Turkish Energy Minister, Hilmi Guleri, said.
The Energy Community's regulatory and electricity board will be based in Athens, while its technical and information centre will be based in Sofia, Bulgaria. Its secretariat will be headquartered in Vienna, Austria. 

Greece expects economy to grow 3.8 per cent in 2006
Greece's economy is doing well, helping to explain the rising popularity of Premier Costas Karamanlis and the new government. 
It will grow by 3.8 per cent next year, while the budget deficit will fall to 2.8 per cent of GDP, according to the draft budget plan the Greek government presented recently. Economy and Finance Minister George Alogoskoufis said growth of GDP for 2005 was expected to reach 3.6 per cent - missing its target of 4 per cent, but still the highest in the 12-state euro zone - while the budget deficit will be just over the 3 per cent limit dictated by EU rules, at 3.6 per cent. Next year, the deficit will be at 2.8 per cent of GDP, Alogoskoufis said. 
Alogoskoufis said economic policy priorities for 2006 would be to restore fiscal balance, ensuring long-term sustainability of fiscal condition, improving productivity through solving structural problems, improving business environment and competitiveness and boosting employment. He explained that the deficit would be reduced through containing public spending and combating tax evasion. 
Bloated by greatly overrun spending on the Athens Olympics, the 2004 deficit soared to more than double the ceiling allowed by the EU, at 6.6 per cent, a figure announced by eurostat and confirmed by Alogoskoufis. The minister said the final bill for the most expensive Games in history - preliminarily set at 13 billion euros (US$15.5 billion) - would be announced when the final 2006 budget is tabled later this year. 
The draft 2006 budget allows for unemployment falling to 9.8 per cent, from an estimated 10.4 per cent in 2005, and inflation standing at 3.2 per cent compared to an estimated 3.5 per cent for 2005. 

Premier outlines Greek economic achievements
Prime Minister Costas Karamanlis hosted a dinner for the President of the European Central Bank (ECB) Jean-Claude Trichet and the members of the bank's executive board, in the Ancient Agora under the Acropolis. The ECB's executives held a meeting in Athens for the first time earlier in the day.
In an address, the prime minister said that the economic and monetary union constituted the "most advanced pylon of the common European edifice." "The introduction of the euro and the establishment of the European Central Bank is one of the most important landmarks in the course towards European integration," he added.
"It was the initial move in a comprehensive plan, a plan which had been worked out and is now being implemented with the aim of making European economy capable of meeting the global changes and challenges...The globalisation of markets and the ever increasing international competition proved that the plan was, and is, not only feasible but also absolutely necessary, in all its extent, regarding both monetary stability and fiscal reform as well as structural changes," Karamanlis said.
Karamanlis said that the EU's monetary unification, the creation of a large common market and the establishment of a single currency entailed substantial benefits for the member countries of the Euro-zone. "The economies of our countries were relieved of the cost entailed by the 12 different currencies. Cross-border trade, commercial transactions and tourism movement were facilitated to a large degree. The medium-term and long-term interest rates were reduced and have been maintained at low levels, which significantly contributed to investments, growth, reduction of the cost of servicing the public debt. Significant stability was achieved in prices, as inflation in the Euro-zone, despite the unprecedented skyrocketing of international oil prices, is at a historic low. A more stable and efficient economic environment was created," he said. 
The prime minister also referred at length to the impact of the EU's economic and monetary union (EMU) on Greece and the achievements of the Greek government in the sector of economy in the past 18 months.
"The monetary stability, but also the low interest rates of the euro, gave a substantial boost to private consumption and facilitated the servicing of the public debt," Karamanlis said, stressing, however, that the postponements and particularly the lack of reforms in the past had left intense marks on the operation of the State and the economy, but adding that the new government, that of his ruling New Democracy party (ND), with a sense of responsibility and respect to the Stability and Growth Pact, immediately pinpointed the chronic problems of the past and was developing effective policies to tackle them.
He noted that his government was applying a policy of mild fiscal adjustment so as to reduce the deficit to below the 3 percentage point mark by end-2006, was formulating a new developmental model based on encouraging healthy entrepreneurship, cooperation between the public and private sectors, constant improvement of quality, productivity and competitiveness, exploitation of the new advancements, technology, research and innovation, and economic outwardness.
The government was also proceeding, with determination and a sense of social responsibility, in reforms that have been necessary for many years, in order to render the Greek economy more productive, more competitive, and more out-reaching, he said.
It had further reduced the corporate tax brackets and simplified taxation procedures, introduced increased investment incentives and a uniform legal framework for collaboration between the public and private sectors, advanced reforms in the banking sector to make it more efficient and more competitive, reinforced flexibility in the labour market, and was continuing to reduce bureaucracy with respect to the establishment of new enterprises, was proceeding with new denationalisations and liberalisation of the energy market, and was applying policies for the gradual reduction of the country's oil dependence, for conservation of energy and for exploitation of renewable energy sources, the prime minister explained.
Karamanlis stressed that the investment environment in Greece had improved over the past 18 months and continued to improve consistently; that Greece had achieved a substantial fiscal adjustment in an environment of high domestic growth, which was expected to accelerate further in the immediate future; the public debt was de-escalating at a faster rate; exports and tourism traffic to Greece were increasing; and unemployment was presenting encouraging signs of reduction.
The country, the premier said, was moving decisively towards more efficient and speedier exploitation of its participation in the EMU. It was creating a new developmental environment that was more attractive for investments and friendly to business concerns. It was also playing a decisive role in the developmental efforts in SE Europe, and utilising its geopolitical position and its membership in all the major international financial and political organizations with the aim of strengthening cooperation, growth and progress throughout the wider region.
Making a major play, consistent with his Balkan leadership ambitions, he claimed that Greece today was the most appropriate location for the headquarters and research centres of major European enterprises penetrating the neighbouring countries. It was the gateway to Europe for Asia, the Middle East, and the eastern Mediterranean. It was the only EU and EMU member country in a region of substantial developmental prospects. Greece was gradually developing into an international energy hub, which reinforced not only the developmental prospects but also cooperation, stability and peace in the entire region, Karamanlis added.

The legacy of the Athens Olympics 
In a programme to exploit what he called the "intangible legacy" of the 2004 Athens Olympics, Prime Minister Costas Karamanlis has underlined the social benefits to be derived from the use of facilities built for the Games, with the majority of them remaining under state ownership. 
While the extent of that legacy, Mr. Karamanlis said, is difficult to assess, it certainly had a "multiplying effect" by upgrading the country's image abroad and by helping to attract productive investments and tourism. "We are determined," Mr. Karamanlis said in a joint press conference with Alternate Culture Minister Fani Palli-Petralia, "to capitalize on this added value for the good of the social whole," using developmental rather than strictly financial criteria in the use of the Olympic facilities. 
Ms. Palli-Petralia then spoke of the post-Olympic plans in greater detail, noting that the government has earmarked 85 million Euro for the maintenance of the Olympic facilities in 2005. Several of them will be developed as parks, sports and recreational areas. The Olympic Shooting Centre will be available for the training of Greek security forces. And other facilities will become art centres housing academies for dance, drama, theatre and music. The International Broadcasting Centre will house the Olympic Games Museum, and the Main Press Centre will be occupied by the Environment, Town Planning and Public Works ministry. 
Most important of all the main Olympic complex, designed to become a key post-Olympics attraction, will not only host sports activities but also provide an attraction for both Greeks and foreign tourists interested to see the Calatrava Dome, the Agora and Wall of Nations in a unique "Olympic Walk." 
Much of this information was also contained in an address by Ms. Palli-Petralia on December 8 at New York's Columbia University. "The Olympic Games," she said, "proved that we have both the capabilities and the human resources to place Greece among the group of the planet's developed countries." 
Ms. Palli-Petralia said that the Athens Olympics, covered by more than 200 TV networks and watched by some 4 billion viewers during 3,800 hours of live coverage, were praised in opinion polls conducted in the US and in several European countries. The image of Athens has "drastically improved" and it will be the chosen destination of more travellers, especially high-income visitors, in the years ahead. Analysts predict that tourist arrivals may increase, by the end of the decade, from the current 13 million annually to 18-20 million. A major Greek bank, she added, estimates that for the period of 2000-2008 the Greek economy will grow by 25 billion Euro, and may be expected to grow further as Greek businesses take advantage of the positive Olympic publicity and of the improved infrastructure assisting exports. 
"The Olympic facilities," Ms. Palli-Petralia concluded, "represent a significant state asset . . . The aim is to attract important foreign investors and make Athens a unique tourist destination and especially a place where international conferences and fairs can be held as well as a place for worldwide cultural, entertainment and sports events."

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CREDIT RATINGS

Greece gets A/A-1 LT/ST ratings affirmed 


Standard & Poor's Ratings Services announced recently that it affirmed its A long-term and A-1 short-term sovereign credit ratings on the Hellenic Republic (Greece), as slow progress on fiscal consolidation coincides with Standard & Poor's expectations. The outlook is stable, it added. "The Greek economy continues to expand at a fast pace, fuelled by strong private consumption growth as a result of rising real wages and buoyant credit growth," said Standard & Poor's credit analyst Trevor Cullinan. "However, strong nominal GDP growth in the past has been accompanied by lacklustre efforts to implement public sector reform and by general government deficits averaging about six percent of GDP over the past four years," New Europe reported.
Commenting on the one-off measures of the government, Standard & Poor's said it expected the deficit to remain above 3 per cent out to 2008. "The pressure on Greek public finances is balanced against our assessment that the public debt ratio will post marginal declines in the medium term," said Cullinan. "The government intends to reduce its deficit to less than 3 per cent of GDP by 2006, but this is unattainable without additional measures or recourse to one-off transactions." 
The ratings could be raised if structural budgetary improvements were to lead to a clearly discernible trend toward the primary surpluses of the late-1990s (about 5 per cent of GDP) and if the public debt ratio was to embark on a speedy and sustainable decline. Conversely, an increase in the general government debt ratio would bring the ratings on the Republic under renewed pressure.

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ENERGY

Greece and Italy sign agreement for gas pipeline 

Italy and Greece signed an accord for a 950 million Euro gas pipeline construction deal which will bring gas from Turkey through Greece to Puglia, on the south eastern coast of Italy. Italy's Industry Minister, Claudio Scajola, and Greece's Development Minister, Dimitris Sioufas, signed the accord for the Igi pipeline, New Europe reported.
The 200 km pipeline between the coasts of Italy and Greece will be built by Poseidon, a joint venture between Edison and Greek gas firm Depa, with an investment of 350 million Euro. Turkish firm Botas could join the venture later. The remaining 600 km in Greece will be built by Depa, costing 600 million Euro. Work should start in 2007 and finish in 2010. Italy should import between 8 and 10 billion cubic metres of natural gas from the Caspian Sea and the Middle East through the pipeline when it is finished. Italy wants to cut its heavy dependence on fuel oil for electricity sharply by 2010, Scajola said, replacing it with a mix of gas, clean coal and renewable energy, to cut electricity prices which are currently the highest in Europe. Edison, which is now controlled by France's Electricite de France and Milan utility AEM, has favoured gas as a replacement source of energy while the country's biggest utility, Enel, has bet on coal.

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FOREIGN RELATIONS

Karamanlis, Koizumi discuss Balkans, investments and trade 

Bilateral relations, the Balkans, investments and trade were at the centre of talks held in Tokyo recently, between Greek Prime Minister, Costas Karamanlis, and Japanese Premier, Junichiro Koizumi. Karamanlis, who was in Japan on a four-day official visit, said he and Koizumi had discussed prospects for greater cooperation by the two countries in international fora. He also noted that the two countries were currently both non-permanent members of the UN Security Council, stressing that this offered "a first-class opportunity to make cooperation closer in the future." The Greek premier pointed to Japan's "extremely positive presence in the western Balkans," saying that the political and economic interests of the two countries provided margins for greater cooperation. He also stressed that bilateral economic cooperation was currently below its potential for both countries, particularly for Greek agricultural products, shipping and tourism, New Europe reported.

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GREEK ECONOMY

The Greek economy in 2005 and its future 

How prepared is the Greek economy to face the main challenges of the 21st century and the globalisation era? Is the Greek economy able to be reformed? 
The debate over the speed of economic reform often becomes an angry exchange of analogies. One side claims that you cannot cross a chasm in two laps. The other side retorts that you cannot cross it in one leap either, unless you are Indiana Jones, so you should instead drop a bridge, writes Athanassios Papandropoulos, Senior Writer, New Europe. 
Then again, shock therapists argue, if you want to cut a dog's tail, you do it in one slash of the knife, not bit by bit. The gradualists reply that you train a dog by setting incrementally escalating heights for him to jump. Or yet again, when shock therapists say that you have to kick a door open, the gradualists retort that if you do, the door is likely to rebound shut, whereas a gentle pressure on the door is certain to succeed in opening it wide. Under these circumstances, let's have a look at the real performances of the Greek economy. According to the latest OECD's report, in terms of real GDP growth, the Greek economy has performed very well in recent years and has weathered the international slowdown in activity better than most OEDC countries. However, in part this has been achieved at the cost of a sharply widening fiscal deficit to very high levels and high and rising public indebtedness. 
Hence, a major challenge of economic policy will be to rein in government deficits to meet European obligations and to prepare for the spending pressures that will start emerging after 2015 arising from an ageing population and an actuarially unsound and largely unreformed public pension system. The growing cost of the public health system will also add to the pressures on the government budget. Further policy challenges arise from the government` s objective to narrow the gap in living standards between Greece and the EU, which had widened from the late 1970s to the mid-1990s, but has narrowed since. Eliminating the remaining substantial gap in per-capita incomes requires: i) mobilising the existing large reserves of labour inputs through comprehensive labour market reforms, including the education and training system; ii) keeping productivity growth at high level over a long period, mainly through the removal of the still widespread government control in the economic process and the establishment of a competition culture in product markets; iii) and preserving macroeconomic stability while improving international competitiveness through eliminating the persisting inflation differential with the Euro area.
A recent fiscal audit revealed that the true public debt and deficit positions were considerably worse than previously thought. The latest Stability and Growth Program envisages a major reduction of the general government deficit from six percent in 2004 to below three percent of GDP in 2006. The public debt remains high, at around 110 percent of GDP. The objective is to constrain primary expenditure - through spending prioritisation- and limit tax evasion, making room for lower taxes and enhanced spending in growth-promoting areas. There is also a need to enhance administrative efficiency and reform the health care system. Tax reform should aim at further simplification, reducing distortions, augmenting equity and reducing administrative and compliance costs. 
Another challenge facing Greece as from the next decade is a large and steady increase in spending on old-age pensions. This will require a major overhaul of the public pension system to make it financially sustainable without compromising the income adequacy of the elderly or reducing the production capacity of the economy.
Further policy challenges arise from the government's objective to eliminate the gap in per capita incomes with the EU 15, which widened from the late 1970s to the mid-1990s, but has narrowed since. A decomposition exercise shows that most of the income gap reflects low labour productivity rather than low labour inputs. There is substantial scope for catching up with best practice in leading countries in a number of policy areas, including competition policy; liberalisation of product markets, especially telecommunications and energy; policies to foster entrepreneurship; and the implementation of a better corporate governance regime.
Convergence with EU member countries could also be accelerated by getting more people into work through higher flexibility in the wage bargaining system; lower non-wage labour costs, especially for the lower-skilled; less stringent employment protection provisions; enhanced labour mobility; and more effective active labour market policies. In addition, training and education could be upgraded to improve educational outcomes, ensure that school-leavers have useful skills and to support life-long learning. This would make workers more productive and raise their employability at both ends of the age spectrum
The inflow of immigrants during the 1990s was large, raising the share of foreigners in the population to over 10 percent and increasing the labour force by between five percent and 10 percent. Given the rigidities of the formal labour market in Greece, the existence of a substantial informal sector with latent demand for low-paid labour allowed illegal immigrants to find jobs in large numbers, even while structural unemployment among the Greek population remained stubbornly high. While highlighting the effect that the relatively high ratio of minimum to average wages can have in reducing employment opportunities for the low-skilled, immigration has reduced the economic cost of these restrictions by allowing at least some Greeks to move to higher level jobs and by increasing output and profitability in a number of sectors. In conclusion, the main challenge for the Greek economy is to find the courage for real reforms in all sectors of the everyday life. 

 

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