Greek Economy & Markets - Issue 7 by Vassilios Loukanidis

7th issue - December 2007

(3.1*)

Greek Economy & Markets

Trends and prospects for the economy in 2008 Strategic companies guarded by new law Private funds for ports Strategy set for tourism

7th issue - December 2007

Contents Trends and prospects for the economy in 2008 Cover Story George Alogoskoufis Strong growth for 2008

(page 17)

Plutarchos Sakellaris Economic reform to enhance growth page Dimitris Maroulis Economy shows growth stamina as external sector lags

(page 18-19) (page 20)

Loukas K. Papazoglou Fiscal developments, reforms and privatizations take center stage

(page 21-23)

Aris Spiliotopoulos Quality twist for tourism

(page 24-25)

Giorgos Voulgarakis Greece strengthens its role in international shipping

(page 26-27)

Spyros Capralos Greek capital market outlook

(page 28-29)

Vassilis Theodorou A stock-picking year

(page 30)

Panagiotis Drossos Foreign investment multiplies

(page 31)

Kostas Axarloglou Economic openness and competitiveness

(page 32)

Leonidas Korres PPP projects point to new deals on the investment map

(page 33)

Sectors Greek Economy & Markets 07 A publication of the â&#x20AC;&#x153;Agora Ideonâ&#x20AC;? 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 distributed along with the International Herald Tribune (IHT) and Kathimerini English Edition newspapers in Greece, Cyprus and Albania. The content of the magazine does not involve the reporting or the editorial departments of the IHT.

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 Gramatica Securities: Alexandros Billis, Manos Hatzidakis, Konstantinos Vergos Themes: Dimitris I. Vidakis, Dr Panagiotis Avramidis International trade relations: Yanos Gramatidis, Harilaos Goritsas, Constantine N. Yannidis

Facts & figures

The profile of the Greek economy

Latest Statistical Data 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

September 07/September 06

4.1

Gross Domestic Product (provisional data)1

Q3 2007

3.8

Unemployment Rate2

Q3 2007

7.9

2001

September 07/September 06

-8.6

Turnover Index in Retail Trade1

Population (2001 Census)4 Building Activity)3 1

Annual rate of Change, 2Rate, 3Periodical rate of change, 4Value

An impressive reduction in the unemployment rate has been observed in the third quarter of 2007, as it fell to 7.9 percent compared to 8.1 percent in the previous quarter. Furthermore, the gross domestic product increased by 3.8 percent on an annual basis in the third quarter of the year. However, building activity is still sluggish. In September building activity displayed an 8.6 percent drop compared to the same period in 2006. Greeceâ&#x20AC;&#x2122;s inflation rate in November picked up to 3.9 percent from 3.1 percent in the previous month.

Participating in the Balkan development

STOMANA INDUSTRY SA, with an active presence of more than 50 years in the Balkans and the international steel markets, 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 technologies, 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 throughout Europe, ensure the future development of STOMANA

SOFIA MED SA, a company active in the production and processing of copper and copper alloy products, 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 established its position in the European market as one of the major manufacturers of copper and brass products such as strips, sheets, discs and profiles. The company employs 460 specialized technical and administrative personnel. The plant which is situated in Sofia comprises three manufacturing departments - 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 products, 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.

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 developing 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 System, certified according to EN ISO 9001:2000, as well as an Environmental Management System certified according to EN ISO 14001:2004.

ETEM is a leading Greek aluminium extruder, founded in 1971. A substantial exporter worldwide, ETEM’s products are certified to the strictest international 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 revolution was brought about with the introduction of composite aluminium panels (metalbond) in architecture. In addition to being the only manufacturer of composite panels in Greece, ETEM is one of the few in Europe. ETEM also produces aluminium industrial profiles, including solid bars in round, hexagonal, flat and square form for automotive and maritime applications.

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 applications, heavy industry, electrical machinery, insulated architectural aluminium profiles, sliding and opening windows, exhibition systems, panels, custom-made systems for hundreds of small and medium-size Bulgarian companies, 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 companies that successfully meet the requirements of their local markets.

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 improvement 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, Hungary, Serbia, Moldova, the Czech Republic, Slovakia, 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 company, have reached approximately 31 million euros since 2000, with the participation of the IFC, a subsidiary of the World Bank.

PUBLI

ICME ECAB SA has over 50 years’ experience in the Romanian and international cables markets. 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 approximately 500 persons. ICME ECAB SA is the leading cable manufacturer in Romania and its products are sold in the Romanian and international markets 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 Environmental Management Systems in accordance with ISO 9001:2001 and ISO 14001 respectively. The company manufactures all kinds of power, telecommunications and data cables, including ACSR conductors. The company holds quality certificates such as IMQ, VDE, LCIE, ELOT, UL and ABS. ICME ECAB SA is an approved provider

Among others, ETEM is an official supplier of the German BMW Group for the new 3 Series. ETEM’s industrial and commercial activity has successfully expanded in Southeastern Europe. Steelmet is the largest manufacturer of extruded and architectural aluminium systems in Bulgaria. 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 commercial company started in 1994, while the construction of a brand-new aluminium profiles manufacturing plant commenced in 1998. This plant still constitutes one of the biggest greenfield investments in the country, in the order of US$16 million. Initially, production comprised two extru-

Facts & figures

PPP projects boost infrastructure

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.

3.1

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 Financeâ&#x20AC;&#x2122;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

January Number of Issued Motor Vehicle Circulation Licenses Industrial Production Index Commercial Transactions (estimates) Building Activity Movement of Museums and Archaeological Sites National Consumer Price Index Harmonized Index of Consumer Prices Import Price Index in Industry Euro-area Festivities in Malta Labor Force Survey (monthly data) Greek Merchant Fleet Input and Output Price Indices in Agricultural-Livestock Production Turnover Index in Industry New Orders Index in Industry Euro-area Festivities in Cyprus Eurogroup-Ecofin meetings in Brussels Material Costs Index for New Residential Buildings Work Categories Price Indices and Construction Costs Indices for New Residential Buildings Commercial Transactions (provisional data) Producer Price Index in Industry Turnover Index in Retail Trade Road Traffic Accidents Traffic of Passengers, Goods and Vehicles by Merchant Ships in Greek Ports

December 2007 November 2007 November 2007 October 2007 September 2007 December 2007 December 2007 November 2007

December 2007

04/01/08 09/01/08 09/01/08 10/01/08 10/01/08 10/01/08 10/01/08 11/01/08 12/01/08 15/01/08 16/01/08 17/01/08 18/01/08 18/01/08 18/01/08 21-22/01/08 22/01/08

4th Quarter 2007 November 2007 December 2007 November 2007 November 2007

22/01/08 25/01/08 29/01/08 30/01/08 31/01/08

2nd Quarter 2007

31/01/08

October 2007 November 2007 November 2007 November 2007 November 2007

February Number of Issued Motor Vehicle Circulation Licenses National Consumer Price Index Building Activity Commercial Transactions (estimates) Industrial Production Index Movement of Museums and Archaeological Sites Eurogroup-Ecofin meetings in Brussels Labor Force Survey (monthly data) Import Price Index in Industry National Accounts (estimates) Greek Merchant Fleet Input and Output Price Indices in Agricultural-Livestock Production Turnover Index in Industry New Orders Index in Industry Ministerâ&#x20AC;&#x2122;s speech at the Hellenic-British Chamber of Commerce in London Harmonized Index of Consumer Prices Material Costs Index for New Residential Buildings Commercial Transactions (provisional data) Road Traffic Accidents Turnover Index in Retail Trade Producer Price Index in Industry

January 2008 January 2008 November 2007 December 2007 December 2007 October 2007 November 2007 December 2007 4th Quarter 2007 December 2007 December 2007 December 2007 December 2007 January 2008 January 2008 December 2007 December 2007 December 2007 January 2008

05/02/08 07/02/08 08/02/08 08/02/08 08/02/08 11/02/08 11-12/02/08 12/02/08 12/02/08 14/02/08 15/02/08 15/02/08 19/02/08 19/02/08 19/02/08 20/02/08 20/02/08 25/02/08 29/02/08 29/02/08 29/02/08

March Eurogroup-Ecofin Meetings in Brussels National Accounts (provisional data) Number of Issued Motor Vehicle Circulation Licenses Building Activity National Consumer Price Index Harmonized Index of Consumer Prices Movement of Museums and Archaeological Sites Turnover Indices in Motor Trade and Wholesale Trade Commercial Transactions (estimates) Industrial Production Index Import Price Index in Industry Labor Force Survey (monthly data) European Council in Brussels Turnover Indices in Post - Telecoms, Computer and Related Activities and other Business Activities Production Index in Construction Turnover Indices in Transports Turnover Index in Tourism Index of Employed in Retail Trade Input and Output Price Indices in Agricultural-Livestock Production Greek Merchant Fleet Labor Force Survey Material Costs Index for New Residential Buildings Turnover Index in Industry

4th Quarter 2007 February 2008 December 2007 February 2008 February 2008 November 2007 4th Quarter 2007 January 2008 January 2008 January 2008 December 2007 13-14/03/08 4th Quarter 2007 4th Quarter 2007 4th Quarter 2007 4th Quarter 2007 4th Quarter 2007 January 2008 January 2008 4th Quarter 2007 February 2008 January 2008

03-04/03/08 04/03/08 05/03/08 07/03/08 11/03/08 11/03/08 11/03/08 11/03/08 11/03/08 11/03/08 12/03/08 12/03/08 14/03/08 14/03/08 17/03/08 17/03/08 17/03/08 18/03/08 18/03/08 19/03/08 21/03/08 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.

PERIOD

New Orders Index in Industry Commercial Transactions (provisional data) Turnover Index in Retail Trade Producer Price Index in Industry Regional Accounts Road Traffic Accidents

January 2008 January 2008 January 2008 February 2008 2004 - 2006 January 2008

DATE 21/03/08 27/03/08 28/03/08 28/03/08 31/03/08 31/03/08

April Number of Issued Motor Vehicle Circulation Licenses Informal Ecofin meeting in Slovenia Building Activity National Consumer Price Index Harmonized Index of Consumer Prices Industrial Production Index Commercial Transactions (estimates) Movement of Museums and Archaeological Sites Import Price Index in Industry Labour Force Survey (monthly data) Greek Merchant Fleet Input and Output Price Indices in Agricultural-Livestock Production Turnover Index in Industry New Orders Index in Industry Work Categories Price Indices and Construction Costs Indices for New Residential Buildings Material Costs Index for New Residential Buildings Commercial Transactions (provisional data) Producer Price Index in Industry Road Traffic Accidents Turnover Index in Retail Trade Traffic of Passengers, Goods and Vehicles by Merchant Ships in Greek Ports

March 2008 January 2008 March 2008 March 2008 February 2008 February 2008 December 2007 February 2008 January 2008 February 2008 February 2008 February 2008 February 2008

04/04/08 04-05/04/08 08/04/08 08/04/08 08/04/08 09/04/08 09/04/08 10/04/08 11/04/08 14/04/08 17/04/08 18/04/08 18/04/08 18/04/08

1st Quarter 2008 March 2008 February 2008 March 2008 February 2008 February 2008

22/04/08 22/04/08 24/04/08 30/04/08 30/04/08 30/04/08

3rd Quarter 2007

30/04/08

May Number of Issued Motor Vehicle Circulation Licenses Building Activity National Consumer Price Index Harmonized Index of Consumer Prices Industrial Production Index Commercial Transactions (estimates) Movement of Museums and Archaeological Sites Import Price Index in Industry Eurogroup-Ecofin Meetings in Brussels Labor Force Survey (monthly data) National Accounts (estimates) Greek Merchant Fleet Input and Output Price Indices in Agricultural-Livestock Production Material Costs Index for New Residential Buildings Turnover Index in Industry New Orders Index in Industry Commercial Transactions (provisional data) Producer Price Index in Industry Turnover Index in Retail Trade Road Traffic Accidents

April 2008 February 2008 April 2008 April 2008 March 2008 March 2008 January 2008 March 2008 February 2008 1st Quarter 2008 March 2008 March 2008 April 2008 March 2008 March 2008 March 2008 April 2008 March 2008 March 2008

05/05/08 08/05/08 08/05/08 08/05/08 09/05/08 09/05/08 12/05/08 13/05/08 13-14/05/08 14/05/08 15/05/08 16/05/08 16/05/08 20/05/08 20/05/08 20/05/08 26/05/08 29/05/08 30/05/08 30/05/08

1st Quarter 2008 May 2008 March 2008 May 2008 May 2008 April 2008 April 2008 February 2008 1st Quarter 2008 April 2008 March 2008 1st Quarter 2008

02-03/06/08 03/06/08 05/06/08 06/06/08 09/06/08 09/06/08 09/06/08 09/06/08 10/06/08 11/06/08 12/06/08 12/06/08 13/06/08

1st Quarter 2008 1st Quarter 2008 1st Quarter 2008 1st Quarter 2008 1st Quarter 2008 April 2008 April 2008

13/06/08 17/06/08 18/06/08 18/06/08 19/06/08 19/06/08 19/06/08

June Eurogroup-Ecofin Meetings in Luxembourg National Accounts (provisional data) Number of Issued Motor Vehicle Circulation Licenses Building Activity National Consumer Price Index Harmonized Index of Consumer Prices Industrial Production Index Commercial Transactions (estimates) Movement of Museums and Archaeological Sites Turnover Indices in Motor Trade and Wholesale Trade Import Price Index in Industry Labor Force Survey (monthly data) Production Index in Construction Turnover Indices in Post - Telecoms, Computer and Related Activities and other Business Activities Index of Employed in Retail Trade Turnover Index in Tourism Turnover Indices in Transports Labor Force Survey Input and Output Price Indices in Agricultural-Livestock Production Turnover Index in Industry

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.

The year aheadâ&#x20AC;Ś

Statistics subject/event

Themes Each month the National Statistics Service and the Ministry of Economy and Finance issue the latest data on the state of the countryâ&#x20AC;&#x2122;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 20082011 will be updated.

Statistics subject/event

PERIOD

New Orders Index in Industry Greek Merchant Fleet Material Costs Index for New Residential Buildings Commercial Transactions (provisional data) Producer Price Index in Industry Turnover Index in Retail Trade Road Traffic Accidents

DATE

April 2008 April 2008 May 2008 April 2008 May 2008 April 2008 April 2008

19/06/08 19/06/08 20/06/08 25/06/08 27/06/08 30/06/08 30/06/08

June 2008 June 2008 June 2008

04/07/08 07/07/08 07/07/08 07-08/07/08 08/07/08 10/07/08 10/07/08 10/07/08 11/07/08 14/07/08 15/07/08 17/07/08 21/07/08 21/07/08 22/07/08

July Number of Issued Motor Vehicle Circulation Licenses National Consumer Price Index Harmonized Index of Consumer Prices Eurogroup-Ecofin meetings in Brussels Building Activity Movement of Museums and Archaeological Sites Industrial Production Index Commercial Transactions (estimates) Import Price Index in Industry Labor Force Survey (monthly data) Input and Output Price Indices in Agricultural-Livestock Production Greek Merchant Fleet Turnover Index in Industry New Orders Index in Industry Material Costs Index for New Residential Buildings Work Categories Price Indices and Construction Costs Indices for New Residential Buildings Commercial Transactions (provisional data) Producer Price Index in Industry Turnover Index in Retail Trade Road Traffic Accidents Traffic of Passengers, Goods and Vehicles by Merchant Ships in Greek Ports

April 2008 March 2008 May 2008 May 2008 May 2008 April 2008 May 2008 May 2008 May 2008 May 2008 June 2008 2nd Quarter 2008 May 2008 June 2008 May 2008 May 2008

22/07/08 25/07/08 29/07/08 30/07/08 31/07/08

4th Quarter 2007

31/07/08

July 2008 July 2008 July 2008 May 2008 June 2008 June 2008 June 2008 April 2008 2nd Quarter 2008 May 2008 June 2008 June 2008 June 2008 July 2008 June 2008 June 2008 July 2008 June 2008 June 2008

05/08/08 07/08/08 07/08/08 07/08/08 08/08/08 08/08/08 08/08/08 11/08/08 11/08/08 12/08/08 13/08/08 19/08/08 19/08/08 22/08/08 25/08/08 28/08/08 29/08/08 29/08/08 29/08/08

2nd Quarter 2008 August 2008 August 2008 August 2008 July 2008 July 2008 May 2008 2nd Quarter 2008 June 2008 June 2008 July 2008 2nd Quarter 2008

03/09/08 05/09/08 08/09/08 08/09/08 09/09/08 09/09/08 10/09/08 10/09/08 11/09/08 12/09/08 12/09/08 12/09/08

2nd Quarter 2008

12/09/08 12-13/09/08 15/09/08 18/09/08 18/09/08 19/09/08 19/09/08 19/09/08 22/09/08 22/09/08 22/09/08 25/09/08 26/09/08 29/09/08 30/09/08

August Number of Issued Motor Vehicle Circulation Licences National Consumer Price Index Harmonized Index of Consumer Prices Building Activity Commercial Transactions (estimates) Industrial Production Index Import Price Index in Industry Movement of Museums and Archaeological Sites National Accounts (estimates) Labor Force Survey (monthly data) Input and Output Price Indices in Agricultural-Livestock Production Turnover Index in Industry New Orders Index in Industry Material Costs Index for New Residential Buildings Commercial Transactions (provisional data) Greek Merchant Fleet Producer Price Index in Industry Turnover Index in Retail Trade Road Traffic Accidents September National Accounts (provisional data) Number of Issued Motor Vehicle Circulation Licenses National Consumer Price Index Harmonized Index of Consumer Prices Industrial Production Index Commercial Transactions (estimates) Movement of Museums and Archaeological Sites Turnover Indices in Motor Trade and Wholesale Trade Labor Force Survey (monthly data) Building Activity Import Price Index in Industry Production Index in Construction Turnover Indices in Post - Telecoms, Computer and Related Activities and other Business Activities Informal Ecofin meeting in France Index of Employed in Retail Trade Greek Merchant Fleet Labour Force Survey Input and Output Price Indices in Agricultural-Livestock Production Turnover Index in Industry New Orders Index in Industry Material Costs Index for New Residential Buildings Turnover Indices in Transport Turnover Index in Tourism Commercial Transactions (provisional data) Road Traffic Accidents Producer Price Index in Industry Turnover Index in Retail Trade

2nd Quarter 2008 July 2008 2nd Quarter 2008 July 2008 July 2008 July 2008 August 2008 2nd Quarter 2008 2nd Quarter 2008 July 2008 July 2008 August 2008 July 2008

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.

PERIOD

October Draft Budget for 2009 Submitted to the Greek Parliament National Reform Program 2008-2011 Submitted to EU Number of Issued Motor Vehicle Circulation Licenses Eurogroup-Ecofin Meetings in Luxembourg Building Activity National Consumer Price Index Harmonized Index of Consumer Prices Movement of Museums and Archaeological Sites Industrial Production Index Commercial Transactions (estimates) Import Price Index in Industry Labor Force Survey (monthly data) Greek Merchant Fleet Input and Output Price Indices in Agricultural-Livestock Production Turnover Index in Industry New Orders Index in Industry Material Costs Index for New Residential Buildings Work Categories Price Indices and Construction Costs Indices for New Residential Buildings Commercial Transactions (provisional data) Producer Price Index in Industry Turnover Index in Retail Trade Traffic of Passengers, Goods and Vehicles by Merchant Ships in Greek Ports Road Traffic Accidents November State Budget for 2009 Submitted to the Greek Parliament Eurogroup-Ecofin meetings in Brussels Number of Issued Motor Vehicle Circulation Licenses Building Activity National Consumer Price Index Harmonized Index of Consumer Prices Industrial Production Index Commercial Transactions (estimates) Movement of Museums and Archaeological Sites Import Price Index in Industry Labor Force Survey (monthly data) National Accounts (estimates) Input and Output Price Indices in Agricultural-Livestock Production Turnover Index in Industry New Orders Index in Industry Greek Merchant Fleet Material Costs Index for New Residential Buildings Commercial Transactions (provisional data) Producer Price Index in Industry Turnover Index in Retail Trade Road Traffic Accidents December Update of the Hellenic Stability and Growth Program 2008-2011 Eurogroup-Ecofin meetings in Brussels National Accounts (provisional data) Number of Issued Motor Vehicle Circulation Licenses National Consumer Price Index Harmonized Index of Consumer Prices Building Activity Movement of Museums and Archaeological Sites Industrial Production Index Commercial Transactions (estimates) Turnover Indices in Motor Trade and Wholesale Trade Import Price Index in Industry Labor Force Survey (monthly data) Production Index in Construction Index of Employed in Retail Trade Turnover Indices in Post - Telecoms, Computer and Related Activities and other business Activities Input and Output Price Indices in Agricultural-Livestock Production Turnover Index in Tourism Turnover Indices in Transports Labor Force Survey Greek Merchant Fleet Material Costs Index for New Residential Buildings Turnover Index in Industry New Orders Index in Indursty Commercial Transactions (provisional data) Producer Price Index in Industry Turnover Index in Retail Trade Road Traffic Accidents

DATE 10/08 10/08 03/10/08

September 2008 06-07/10/08 July 2008 September 2008 September 2008 June 2008 August 2008 August 2008 August 2008 July 2008 August 2008 August 2008 August 2008 August 2008 September 2008

08/10/08 08/10/08 08/10/08 10/10/08 10/10/08 10/10/08 10/10/08 13/10/08 16/10/08 17/10/08 20/10/08 20/10/08 21/10/08

3rd Quarter 2008 August 2008 September 2008 August 2008

22/10/08 27/10/08 30/10/08 30/10/08

1st Quarter 2008 August 2008

30/10/08 31/10/08

October 2008 August 2008 October 2008 October 2008 September 2008 September 2008 July 2008 September 2008 August 2008 3rd Quarter 2008 September 2008 September 2008 September 2008 September 2008 October 2008 September 2008 October 2008 September 2008 September 2008

11/08 03-04/11/08 05/11/08 07/11/08 10/11/08 10/11/08 10/11/08 10/11/08 10/11/08 11/11/08 12/11/08 14/11/08 14/11/08 19/11/08 19/11/08 20/11/08 21/11/08 25/11/08 28/11/08 28/11/08 28/11/08

3rd Quarter 2008 November 2008 November 2008 November 2008 September 2008 August 2008 October 2008 October 2008 3rd Quarter 2008 October 2008 September 2008 3rd Quarter 2008 3rd Quarter 2008

12/08 01-02/12/08 04/12/08 05/12/08 08/12/08 08/12/08 09/12/08 10/12/08 10/12/08 10/12/08 10/12/08 11/12/08 11/12/08 15/12/08 15/12/08

3rd Quarter 2008 October 2008 3rd Quarter 2008 3rd Quarter 2008 3rd Quarter 2008 October 2008 November 2008 October 2008 October 2008 October 2008 November 2008 October 2008 October 2008

16/12/08 16/12/08 16/12/08 16/12/08 18/12/08 18/12/08 19/12/08 19/12/08 19/12/08 24/12/08 30/12/08 30/12/08 31/12/08

SOURCE - FINANCE MINISTRY AND NATIONAL STATISTICS SERVICE 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.

The year aheadâ&#x20AC;Ś

Statistics subject/event

Themes 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, according to the Finance Ministry.

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 interministerial 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

Strategic companies 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 companies (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 substantial percentage of the capital of such companies. Taking into consideration the national interest, the interest of society at large and the need for the smooth operation 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 voting rights in such companies, through the 20% of the share capital or more, requires the approval of the Interministerial Privatizations Committee. This approval is granted if certain criteria, as specified by the new legislation, 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 safeguarded. 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

guarded by new law 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 regarding eligibility of parties intending to acquire voting rights exceeding 20% in strategic industries of national importance 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 acting jointly to 20% unless approval is granted by the Interministerial Privatisation Committee. Approval is conditional on the fulfillment of criteria safeguarding public interest, indicatively are mentioned operational expertise, transparency regarding intended strategy, control of ownership of shareholder etc. The law further stipulates that decisions by companies 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 Parliament 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

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 comanagement 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

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 doubled 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 shareholders 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 refinance 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 borrower - 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 creation. 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 - publicly 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

Cover The 2008 budget includes a set of welfare measures, including the next phase of the tax reform, the increase of low pensions and the establishment of a fund which will gradually allocate 2 billion euros per year to support poor households.

Strong growth for 2008 he reforms program and the fiscal consolidation under way since March 2004 have given a significant boost to the Greek economy. Growth is being fueled by private investment and exports. Unemployment 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 environment 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 banking sector; – The establishment of a more efficient mechanism for the absorption of EU funds; – The new digital strategy for propagating new technologies in Greece. Despite the financial crisis and the high oil prices, growth is expected to remain strong in 2008 and the following years. This growth will stem from the reforms program 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 Community 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 services. 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 pensions 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.

George Alogoskoufis Minister of Economy and Finance www.mnec.gr

Cover The 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 he prospects for the world economy at the end of 2007 are less favorable in comparison 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 recovery of the eurozone. For 2008, international organizations 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 production and demand. For example, when the fiscal policy stance results in budget deficits or when private 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 deficient supply. The result of such mismatches is the accumulation of deficits in the current account balance (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

Plutarchos Sakellaris Professor at Athens University of Economics and Business and Chairman of the Council of Economic Advisers

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 standards. 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 â&#x20AC;&#x201D; both the private and the public sector â&#x20AC;&#x201D; 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 developments since this summer prove that we had not grasped the dimensions of the unstable equilibrium that had developed. Thus, the domino-style reaction that started in August was, to some extent, not predicted. The problems began a while back in the highrisk 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 composition and quality of the vehicles' assets was the catalyst for the developments that followed. In this way, when difficulties arose for US debtors to service their debts, the problems of an individual economy spread to the world economy, as these vehicles have international ownership. At the same time, the lack of transparency damaged the relationship of trust among banks, resulting in a considerable increase in the cost of funds on the interbank market. Overall, I would say that there are four risk factors 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 geopolitical 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

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 government has been implementing since it came into office. The new model is based on the pillars of fiscal consolidation and structural reforms. As a result, the growth rate of the Greek economy 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 create a more productive and outward-looking economy 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 challenges arising from world economic developments. Some of the measures that the government is implementing include: ñ The establishment of a National Social Cohesion Fund in order to fight poverty through actions targeted at specific social groups; ñ Pension reform, which aims at making the system 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 according to their actual means; ñ The third phase of the tax reform, which provides for the simplification of real estate taxation 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 introduction of relevant measures regarding the transparency of financial statements of hospitals, insurance funds and local authorities. On these grounds, the Greek economy is moving 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.

Cover Investment growth is expected to continue at a healthy pace in 2008 and 2009, supported by EU financing and will continue to feature as a primary driver for growth in this period.

Economy shows growth stamina as external sector lags he Greek economy has completed its 11th consecutive year of strong economic growth, having averaged 4.2 percent annually and thereby significantly 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, notwithstanding 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 environment. Investment in modern tourist facilities, in combination 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 restructuring 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 driver 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 relative 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 competitiveness 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 general 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-

Dimitris Maroulis Alpha Bank economist www.alpha.gr

ment, through the substantial increase of net current revenue growth (which averaged an annual rate of 5.9 percent in the 2002-2007 period, way below the 7.8 percent annual growth of nominal GDP) and the deceleration of current primary expenditure growth (which averaged an annual rate of 9.9 percent in 2002-2007). There is ample room for combating tax and social insurance contribution evasion, increasing the current revenue-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 contained through: (1) an appropriate adjustment of public sector employment, wage and pension policies, (2) better control of healthcare payments and (3) rationalization of transfers to social insurance funds and social contributions, 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 current 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 population and particular parameters of the pension system. 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 immigration policy. (2) Increasing pension savings in combination with a substantial reduction of the general government debt/GDP ratio, which today still stands at 92 percent of GDP. Pension savings can be boosted by substantially reducing tax and social security contribution evasion. However, evasion of social security contributions 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) consolidating the highly fragmented pension fund market and (b) the tightening of early retirement provisions and rationalizing the list of â&#x20AC;&#x2DC;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.

Cover The 2008 budget shows the target for the general government deficit next year is 1.6 percent of gross domestic product while public debt is projected at 91 percent of GDP.

Fiscal developments, reforms and privatizations take center stage he economic policy implemented since March 2004 has placed emphasis on restoring the fiscal balance and the credibility of general government data along with improving 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 follow Greece's exit from the excessive deficit procedure. The main policy directions and targets are: – Further deficit reduction aiming at a balanced budget by 2010; – Reforming the compilation process and the presentation of the state budget toward a programsbased budget; – Incorporating extra-budgetary accounts in the budget; – Enhancing fiscal audits; – Completing the tax reform process, with emphasis on the simplification of property taxation, broadening the tax base and combating tax evasion; – Reinforcing social cohesion by establishing a minimum 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 balance 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 percent of GDP, while public debt is projected at 91 percent of GDP. The ordinary budget revenue is expected to grow by 12.1 percent, while primary expendi-

Loukas K. Papazoglou General Secretary of the Treasury www.mof-glk.gr

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 revenue 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 taxation is broadened, through the introduction of a real estate tax. Fiscal consolidation continues while maintaining high growth rates. The effort to improve the quality of public finances is of considerable importance. The government aims at introducing program budgeting, in order to evaluate the effectiveness of public expenditure 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 Programs;

Cover

ñ ñ

A description of the aforementioned programs; Pilot planning for the function of ‘Culture, Religion 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 framework and the development of an assessment framework for the performance and the outcome of the programs and policies of the government;

The unit for the Government Accounting System Reform, responsible for the transition from the existing accounting system to an accounting system 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 particular, according to Law 3492/2006, the responsibilities 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 scheduled and non-scheduled audits, will also audit the administration and control systems of the agencies that manage public funds using its specialized personnel and other experts. The GDFA will also draw up an annual report which will include the conclusions of the audits, the evaluation of the findings of the supervised actors' internal control units and relevant recommendations

Privatization policy The 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 of transaction

% share sold

Hellenic Petroleum

Aug 2004

8.21%

National Bank of Greece

Nov 2004

7.46%

Privatization method

Amount raised by state (mln euros)

Currently under state control

Trade sale

192

35.50%

Accelerated bookbuilding

562

0.00%

Total 2004 Football Prognostics Organization Hellenic Telecommunications Organization

754 Jul 2005 Sep 2005

16.44% 10.00%

Secondary offering (fully marketed) Accelerated bookbuilding

Total 2005 Postal Savings Bank Agricultural Bank of Greece Postal Savings Bank Hellenic Post Postal Savings Bank Commercial Bank of Greece

Feb 2006 May 2006 May 2006 May 2006 May 2006 Aug 2006

-7.18% 10.00% 10.00% 34.84% 11.01%

Recapitalization Accelerated bookbuilding Trade sale to ELTA (1) Trade sale to PSB Initial public offering Trade sale to Credit Agricole through public offer

400 328 15 21 612 364

-77.30% 90.00% 90.00% 55.16% 0.00%

1,740 June 2007 July 2007

10.70% 20.00%

Accelerated bookbuilding Accelerated bookbuilding

1,122 510

Total 2007

1,632

Total 2004-2007

6,227

(1) The total transaction value amounts to 159 euros and is payable until Dec 2010

34.00% 38.70%

2,101

Total 2006 Hellenic Telecommunications Organization Postal Savings Bank

1,266 835

28.03% 34.37%

activity and achieving better utilization of state property. 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 maximization 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 privatizations 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 substantially 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 Telecommunications 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 considerable progress made so far in the field of privatizations, the government's effort will continue at the same pace and with the same focus. In particular, the government's privatization policy includes the following: -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 Casino, 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 corresponding 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 exploration 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 companies. In addition, the government recently introduced a modern and flexible regulatory framework for publicprivate partnerships (PPPs) and public finance initiates (PFIs). The establishment of such a regulatory framework, which underlines the government's intention to promote PPPs/PFIs as a method of privatization, 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 popularity for pursuing privatizations is that, undoubtedly, the private sector has performed far better in a globalized competitive environment than the public sector, 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 privatization 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.

Cover The new broader strategic positioning of our country demands that we portray Greece as a destination of diversity and contrast, leaving each and every visitor with the sense that they have experienced something truly unique and unforgettable.

Quality twist for tourism ourism is a national priority for Greece due to its great contribution to the country's economy. It is neither abstract nor mutable. Its development is perceptible through the rhythms of the economy, outlining an important 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 generation, and we are proud to say that the tourist sector now provides jobs â&#x20AC;&#x201D; directly or indirectly â&#x20AC;&#x201D; 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: firstly, 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

Aris Spiliotopoulos Minister of Tourism www.mintour.gr

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 geographically, economically, socially and in terms of the age of travelers. The top requisite and common denominator in all these shifts is quality and customized 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 methodically create a newly minted, contemporary, attractive and effective tourist model, a model that will prioritize 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 promotion 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 destination of diversity and contrast, leaving each and every visitor with the sense that they have experienced something truly unique and unforgettable. That is our strategy for the new image of Greece, as a destination of global appeal. Sea tourism, cultural tourism, rural tourism, guided tourism, health and wellness tourism, MICE (meetings, incentives, conferences, 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 yearround 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 â&#x20AC;&#x2DC;sun and sea' model. Our aim is to become a preferred destination for potential visitors and, in time, to transform that preference into a solid intention to travel to our country. In order to maximize the returns of the country's

tourism industry, we are implementing new marketing 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 destination of the highest standard. At the same time traditional advertising is being reinforced and renewed as well: Greece will be promoted in the most prominent and prestigious international press. The most popular travel magazines will include thematic features on our country. Moreover our presence will be felt in the traditional markets of Europe and the United States, in developing ones such as Russia and Arab nations, and in emerging ones as well, such as China and India, associating tourism with culture. We will attract, we will create 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 international film productions that will promote the image of Greece in theaters worldwide. This national effort is a vital wager for our country 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.

Cover The Ministry’s action plan includes boosting Greek shipping’s competitiveness, making it a world leader, protecting the number and quality of Greek maritime jobs, while creating better infrastructure.

Greece strengthens its role in international shipping reek 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 thousands 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 shipping companies manage 18 percent of the global fleet. Half of the EU merchant fleet is Greek and handles 25 percent of the imports of oil and other goods by the United States and 23 percent of the international merchant fleet, maximizing thus Grece's influence 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 considerably 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 investments in 2006 and the 2.8 million euros achieved by decentralization between 2004 and 2005. However, the nature of shipping not only represents a challenge for the figures, it also provides effective and continuing action in the field of coastal navigation, it gives real impetus to foundations, hospitals and scholarships by sponsoring them substantially 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-

Giorgos Voulgarakis Mercantile Marine Minister www.yen.gr

ate solutions, the most important of all being the decline in seagoing employment on the one hand and the comprehensive programs of Greek shipping companies 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 concerning 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 regulations 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 alongside logistics. Paramount importance is attached to ports, since they constitute the best ways of promoting a country's development and prosperity. Shipping's contribution to international development 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 investment in new and used ships will probably surpass $15.5 billion. The shipping industry has been investing based on financial support programs, mainly loans from foreign banks. Lately, however, major developments have been achieved with new management 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 character and establish itself quickly in the new markets. Annual turnovers have been estimated to reach $400 billion, at a time when challenges in

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 objectives of boosting competition in the field. Certain measures have been taken to produce steady evolution in different aspects. The new framework had to satisfy the following concerns: 1. Increased competition in the national registry; 2. Establishing the advancement of P&I Clubs legislation 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 Mercantile 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:

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 suggestions and our efforts made to build a stronger regime that will govern the activities of the field. The government shares a common target: to provide better-paid work for seafarers, more revenues and cleaner seas. The Ministry is willing to pursue a new course â&#x20AC;&#x201D; the course of the Maritime Cluster Manager. This sets a new tone in cooperation. We have been elaborating a plan that will reduce juxtapositions 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 solidarity and the priority given to economic cohesion has been translated into a stable and reliable business environment.

Specifically, our action plan includes various aspects, such as boosting Greek shipping competitiveness, making it a leader in the world, protecting the number and quality of Greek maritime jobs, creating the infrastructures necessary for better planning, 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 infrastructure 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 environment are great challenges but are also the tributaries down which we should paddle to seek a better tomorrow for a better future.

Cover 2008 is seen as being a very important year for European capital markets. Pressure from the EU is forcing European exchanges and clearing houses to increase their transparency and reduce transaction costs.

Greek capital market outlook uring 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 percent in 2007, enhanced transparency from the adoption of International Accounting Standards as well as proximity to the countries of SE Europe and the Balkans â&#x20AC;&#x201D; which are also developing rapidly and in which Greece has an important business presence â&#x20AC;&#x201D; 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 considerations 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 certain 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 capital 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 â&#x20AC;&#x2DC;imported' crisis is one of the main reasons behind the volatility that characterized 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 problems, 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. Pressure from the EU is forcing European exchanges and clearing houses to increase their transparency and

Spyros Capralos Athens Exchange Chairman www.axa.gr

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-subsidies 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 environment. 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 market 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 market 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

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 strengthened 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 relative 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 market 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 capitalization of the Athens Exchange, which exceeds 190 billion euros, is in the hands of international investors, and they are responsible on average for approximately 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 market 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 Alternative 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 smaller, dynamic companies that want to raise capital at a low cost, but cannot shoulder the costs and compliance 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 relocation 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 maintaining the characteristics of an emerging market. The size of this market will make it feasible to attract part of the liquidity directed toward emerging markets. The benefits from the unification of the SE European capital markets are increased transaction activity, 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 Common 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 significant increase in transaction activity in Cyprus. To conclude, we believe that we live in interesting times. State monopolies and protectionism are a thing of the past. With free and unfettered access to European markets, and with the appropriate vision in place, as well as the resources to implement it, the Hellenic Exchanges Group will continue to serve the Greek capital market responsibly and effectively, to the benefit of the Greek economy and its shareholders.

Cover If global equity markets enter a bearish phase or volatility increases, then sectorscompanies that trade at a premium vis-a-vis comparable peers may underperform.

A stock-picking year conomic 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 consumer spending. Besides banks and consumer goods we forecast a strong year for domestic broadband and electricity thus supporting respective sectors. Regional expansion: Foreign institutional 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. According to our projections, 2008 will be another year with double-digit earnings growth and it will help the market exhibit absolute gains. Although the key investment themes remain in place, the positive impact of two of them, namely of economic growth and corporate actions, has weakened lately as a result of credit turmoil and the situation between the Hellenic Telecommunications Organization (OTE) and MIG. On the other hand recent developments in the Public Power Corporation (PPC) point toward an acceleration of restructuring efforts, thus

Vassilis Theodorou Research Director National and P&K Securities

enhancing the positive impact of the respective investment theme. I think that the risk profile of the Greek market has increased, which may lead to multiple compression. During the last earnings season negative surprises were almost double the positive ones. The absolute number 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 during 2001-02. The Greek market trades at a premium 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 respectively. During the last 12 months oneyear 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 adjusted downward. Overall, I think that 2008 will not be another bull year for Greek equities because of high expectations, increasing long-term rates and risks of credit crunch. Neither will it be a bear year due to the defensive characteristics of the Greek market and the region. I believe that 2008 will be a stock-picking year for the attractively valued companies,

with resilient business models, earnings quality and defensive characteristics. Sector-wise, I favor gaming and utilities but will briefly discuss all key sectors: Banks: The financial sector worldwide has been experiencing significant 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 financial institutions. Telecoms: Aggressive market share gains by mobile operators may jeopardize the broadband growth outlook for fixed-line providers, while the regulatory pressure to bring wholesale rates further down may spur competitive pricing pressure for facility-based operators. Gaming: The Greek gaming sector appears highly attractive due to positive momentum and resilience to economic slowdown. The outlook is positive for 2008 mainly due to the European Football Championship, Europe's biggest betting firm OPAP's restructuring and further global market penetration by Greek lottery systems 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 opportunities and cost cutting will be the main performance drivers along with the recently announced tariff increases. Energy: The volatile global environment 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 denationalization is likely.

Cover Greece is a country of unique advantages and opportunities, which offers financial and legal stability, a developed infrastructure and new motives for investment.

Foreign investment multiplies he 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 development. 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 promotion of a new development prototype, which is based on entrepreneurship, competition and an outward-looking 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 programs 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 Interreg Initiative. The Ministry of Economy and Finance, in collaboration 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 enterprises 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 institutional framework has been introduced, to simplify and accelerate 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 monitoring; ñ Divided the national territory into three regions of motives according to the intensity of financial support; 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 introduced a modern, effective and well-drawn investment law. It is a powerful development tool that addresses the investment opportunities and challenges of the new programming period and combines the promotion of entrepreneurship with the exploitation of comparative advantages of our country in the European and Balkan territories. The new investment law has already introduced a number of innovations compared to the previous one, such as: the financing of enterprises without discrimination 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 programs, a range of developments in the broader economic, institutional and development environment have strengthened the country's prospects and created new investment opportunities including the new legal framework 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 creation of a series of strategic contracts in the energy sector. It is not by chance that during the past three years, foreign investment has multiplied almost tenfold, reaching 4.3 billion euros in 2006. Greece of 2008 is a country of unique advantages and opportunities, which offers financial and legal stability, 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 Drossos Secretary General for Investments & Development www.ggea.gr

Cover It seems that some Greek companies have already realized the new rules of the global marketplace, and they have found a promising regional niche for themselves.

Economic openness and competitiveness he 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 potential. Actually, the ability of a country to sell its products in the world market reflects the competitive advantage of its companies in the world economy. At the same time, FDI inflows reflect the attractiveness of the country's economy to foreign capital 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 clothing) 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 unimpressive 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 interests 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 (Southeast Asia, Southeast Europe and China) Greece gradually lost its competitive advantage. However, a deeper analysis of the macroeco-

Kostas Axarloglou Associated Professor ALBA Graduate Business School www.alba.edu.gr

nomic data brings a glimmer of hope for the Greek economy. Specifically, at the beginning of 2000, Greek exports of services (tourism, banking/financial, 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.

â&#x20AC;&#x2DC;A deeper analysis of the macroeconomic data brings a glimmer of hope for the Greek economy.â&#x20AC;&#x2122; In other words, during the last few years certain sectors of the Greek economy have displayed noticeable success in the world market. In particular, 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 opportunity 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 support 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 achieving these new roles they have developed a new business model that depends on long-term strategy and planning, investment and, finally, development of human capital. Perhaps these companies will finally become the catalysts of the restructuring of the Greek economy that is way overdue by now.

Cover It is rather encouraging that many large international companies have demonstrated interest in the Greek public-private partnerships market by participating in PPP tenders.

PPP projects point to new deals on the investment map t 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 consistency 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 implementation of PPPs in our country. The establishment of the PPP Taskforce 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 informing 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 governments and all interested stakeholders. Moreover, through a series of special 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 latest news regarding the implementation 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

Leonidas Korres Special Secretary for PublicPrivate Partnerships www.sdit.mnec.gr

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 successful examples and best practices in other European countries that have experience 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 abovementioned actions, the Inter-Ministerial PPP Committee has approved 24 projects, 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 private 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 eliminated or constrained. As had been announced and planned, the first PPP tenders were launched in 2007 in the most transparent way, precisely following EU legislation. The four projects that have been tendered, with financial closure expected within 2008, are the construction and facility management of seven new fire stations, the reconstruction of the existing infrastructure of the Faliron Pavilion into the Athens international Conference Center, the construction and facility management of the Police Headquarters in Piraeus, and the construction and facility management 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 rationale of the public sector regarding these new projects. We now reckon that the market has been prepared to correspond 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 tendering 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 agreements 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 Mediterranean 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 companies that will be involved in PPP projects in Greece will shortly find new investment opportunities in new markets that will be developed in the forthcoming 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 private 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.

SCHOOL BUILDING ORGANIZATION SA

A new reality in development

GENERAL ECONOMIC ENVIRONMENT European economies are faced with common macroeconomic 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 drastic 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 followed 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 investment in all the sectors of economy aiming in maintaining or even increasing the high level of growth.

It must be noted that the Public Investment program in all European countries including Greece can not be easily increased according to the above. The continuous need for development enforces the resource allocation without the parallel increase of public debt. Public Private Partnerships constitute one of the most important policies with the power of contributing substantially 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 implementation 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, government buildings, ports e.t.c. throughout Greece currently calculated at 造3,1 billion and estimated to reach 造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 implementing 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.

There 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 second is that a PPP project is not different than any other public project we know them. Its implementation must be of vital importance and it must be technically and financially mature. The basic criteria for the selection of school units for a PPP project are firstly the necessity for its construction, the time period for its use, the financial and technical maturity and the financial effect of its lifetime 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 necessary 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 financial 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 needed. 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 construction 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: 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

PPP CONCERNS For the economic and technical maturity of the PPP project the following is necessary: First, detailed technical descriptions of the project, meaning the pre-studies 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 public 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.

«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.» PUBLI BusinessOnMedia

SCHOOL BUILDING ISSUES AND PPP IMPLEMENTATION

Stefanos Agiassoglou

North & South Aegean, Crete University of Peloponnese

6 new buildings

(supporting role by SBO)

and administration offices

OSK Director General Planning and Resource Management

Real Estate Shopping malls are new to Greece and are doing extremely well on the back of expanding consumer credit levels. The retail trade’s positive evolution has been exceeding EU averages.

Commercial property sustains momentum

Dika Agapitidou MSc(Econ), MRICS www.athenseconomics.gr

Net Commercial Property Yields Athens - Q4 2007 Sector Prime offices (CBD) Prime offices (Kifissias) Shopping centers Highstreet retail Warehousing - logistics

% 4.5 - 5.5 5.2 - 6.2 5.5 - 5.9 5.6 - 6.5 6.2 - 7.0

Source: Athens Economics ltd - Jones Lang LaSalle

he 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 enhancement of accessibility and visibility in others, as a result of massive improvements in the transport and communications 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 commercial 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 formally, via specialized press, and informally, via greater trust being gradually built among consultants and agents alike) — all leading to higher transparency levels 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 institutions 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 missmatch 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 anticipated 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 expanding consumer credit levels and behavior; indeed, the retail trade's positive evolution — consistently exceeding the European average since 2001 — largely underpins The Mall's and other complexes' outstanding performance. More importantly, neighboring and theoretically competing traditional retail markets have witnessed 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 triggered mainly by multinationals while local players prefer 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.

Real Estate There 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 reece today is still considered an underdeveloped 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 modern 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 welcomed them enthusiastically, despite all the reservations 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 centers, 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

George Papageorgiou General Manager LAMDA Development www.lamda-development.net

found on the outskirts of big cities, offering shoppers 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, hypermarkets 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 heritage 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 population, however its absorbency of European visitors compared to other countries is less impressive since we have not developed the necessary infrastructure, such as complexes that include hotels, villas, bungalows, golf courses, marinas etc, to satisfy the everyday needs of such tourists. An important prerequisite for such development is also the creation of necessary infrastructure such as hospitals, airports and modern highways, which are now missing from the areas that are considered prime destinations for tourism.

‘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.’ 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 financial indices accompanied by a decrease in tax rates. Hence, in these countries there is a lack of modern residential development, offices and shopping malls to satisfy the increasing demand of the local population.

Real Estate Demand for quality premises in prime locations is expected to remain strong while transactions will depend on interest from international investors.

Credit crunch misses Greek commercial property market he 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 commercial real estate market, with demand remaining high in spite of higher interest rates. Despite the yield compression, 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 market 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 determined by the interest of international investors. Furthermore, 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 continue to contract at a slower pace. Regarding the retail market, the majority of developments 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 citizens). 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 centers tends to zero while prime rental rates have been marginally increased. Currently, rental rates for a space of 200 to 300 m2 in a high-quality shopping center range on average 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-

Dr Aristotelis Karytinos Deputy General Manager, Head of Eurobank Real Estate EFG Eurobank Ergasias SA www.eurobank.gr

pletion and implementation of new developments, taking into consideration the increased competition and how the existing traditional retail markets will be affected. Primarily 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 refrigerating 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 supermarket 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 designated 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 majority of new developments are pre-leased. Additionally rents in prime locations are expected to increase slightly, followed 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 properties. 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 residential 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 singledigit percentage increase. In the medium term, zoning measures need to be taken, otherwise available construction 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 national land registry and city planning have prevented the implementation of such investment schemes.

Real Estate The 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 reece will claim a larger share of the international 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 corporations 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 urbanplanning 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 complications 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 environment, in combination with the reduction of tax coefficients, 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 development of modern infrastructure with the provision of financing, development, management and maintenance. 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 development 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

Aris Vovos CEO Babis Vovos International Construction SA www.babisvovos.gr

many thousand square meters that lacks basic infrastructure 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 importantly, 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 Europeans 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 corporate 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 institutional 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 indepth research and given the right timing.

Finance Greek financial institutions operate in an intensely competitive international environment as spreads decline and the MiFID is about to unleash further competitive pressures. Yet banks are well organized and healthy, enjoying high profitability.

The Greek financial system in 2008 he Greek financial sector is one of most dynamic 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 acquisitions, 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 number of challenges regarding their growth and profitability strategy. Some of the open questions are: – Will there be a new cycle of mergers and acquisitions in the Greek financial sector, which would lead to larger financial groups that are able to compete more effectively in the region of New Europe? – What are the consequences of the crisis in the subprime 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 position 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?

Gikas A. Hardouvelis Professor, Department of Banking and Financial Management University of Piraeus Chief Economist, EFG Eurobank www.eurobank.gr

Banking sector Greek bank groups are the key players in the domestic financial system, providing a complete spectrum of financial services. Commercial banks' assets at end-2006 amounted to 352 billion euros or 164 percent of GDP. The degree of concentration in the Greek banking system remains among the highest in the eurozone. The five largest banks in Greece held 66.3 percent 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 international 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 institution losses of approximately $200-$400 billion internationally. With the exception of the Greek Postal Savings 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 outbreak 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 financial institution to derivative securities of low quality makes banks suspicious of each other. This higher marginal cost of bank liquidity, coupled with the reluctance of the European Central Bank (ECB) to cut its intervention 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 government 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 profitability.

Chart 1. The subprime effect on the interbank market Eurozone: 3-month EURIBOR minus the EONIA overnight rate USA: 3-month LIBOR minus the Effective Fed Funds rate

Greek banks do not face any short-term liquidity problems, as is the case with many banks in other

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. Furthermore, those banks with a loans-to-deposits ratio above 100 percent have already secured the required liquidity 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 covered bonds at a lower cost than in the interbank market. 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 collateral 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 countries 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.

Chart 2. The distribution of the branch network of the 4 largest Greek banks (3rd quarter 2007)

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.

Chart 3. The contribution to profits according to domestic and international activities for the 4 largest Greek banks (3rd quarter 2007) 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

Finance

eurozone) while business loans increased by 12.1 percent (13.4 percent in the eurozone). In the last two years, there has been an increase in the growth of business loans with a simultaneous decrease in the growth of loans to households (Chart 4). Total loans are expected 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).

Chart 5. The spread between lending and deposit rates (percent)

Chart 4. Loan growth in Greece 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 nonperforming 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 underdeveloped and has great prospects for future growth. Despite an important increase in premium production in 2006 â&#x20AC;&#x201D; 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 component 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 eurozone), 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 reliability in the Greek insurance sector. The establishment of a new public authority at the Ministry of National Economy for monitoring the insurance market constitutes an important first step. There is significant consolidation in the sector as well with the weaker companies being forced to cease operations or be taken over. The number of insurance companies 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 companies) 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 insurance premiums (percent GDP)

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 interest 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 billion. A main feature of this period is the continuously rising share in the participation of foreign investors. In October 2007, the share of foreign investors amounted to 57.2 percent of total capitalization 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 single European market for financial services (MiFID). The transposition of European directives concerning 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 reducing transactions costs.

Mutual funds Greek mutual funds are bleeding. In 2007, just as in 2006 and earlier, both open-end and closedend 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 environment for funds (Chart 7). Something is definitely not right. Perhaps the funds market would reverse course with the application of long-awaited essential reforms (tax regime, legal framework for operation 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 December 2007 were approximately 0.25 billion. Part of the drop in size is also due to the fact that a number 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 organized and healthy, enjoying high profitability. This is also evidenced by the fact that the current international 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, international 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 problems and weaknesses, before achieving sustainable and dynamic growth.

Chart 7. The increase in mutual fund assets during the 1st quarter of 2007 (percent)

Finance The 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 have invested successfully in the area, mainly in banking, energy and telecoms.

Positive year for Greek economy ahead, but challenges remain he 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 expansion. 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 fasterdeveloping regions globally. Greek companies have invested successfully in the area, mainly in banking, 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 competitiveness, 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 â&#x20AC;&#x201D; although they do not have a direct impact on Greek banking

Dinos Kamaris Head of Treasury and Capital Market, HSBC Greece www.hsbc.gr

as there is limited exposure to it â&#x20AC;&#x201D; 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 eventually 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 majority of investors have turned risk-averse. There is little 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 percent 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 investment value.

Our forecast for 2008 is: FX EUR/USD GBP/USD USD/JPY

End 2008 1.3500 1.8300 115.00

RATES FED FUNDS ECB 10Y USD YIELD 10Y EURO YIELD

3.50 percent 3.75 percent 4.80 percent 4.10 percent

Insurance Curbing the generosity of state pension systems is the task of the day — they will otherwise collapse under the burdens piled upon them by demographic change.

Reform trends and social security challenges emographic 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, however, the message finally began to sink in and the reform process was launched. Nevertheless, different countries across Europe are proceeding at different 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 European 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 collapse under the burdens piled upon them by demographic 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 systems. Since taxes or social security contributions cannot 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 countries 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 retirement. Returns in PAYG systems are as volatile as the rules, determining how entitlements are translated 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 comparable or lower risk. Unfortunately, a complete system 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 correlated, 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 markets affect pensions directly. However, some fears in this respect are ill-founded. A very common argument against funding is the so-called assetmeltdown 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 argument concentrates on the demand side while completely 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 production 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 population 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 investment concepts can significantly contribute to alleviating the pension challenge.

Petros Papanikolaou CEO Allianz Greece www.allianz.com.gr

Insurance Greece has bright prospects as local consumers are under-insured compared to their EU counterparts, with financial services representing a mere 2 percent of the Greek GDP.

Untapped market full of promise reece has a bright economic future. Compared to more mature European countries, the Hellenic Republic capitalizes on continuous superior growth, skilled human resources, European support and a lot of unfulfilled social needs. Financial services definitely have a big role to play. Experience shows that insurance contribution to GDP increases more than proportionally with the revenue per capita. Greece has even brighter prospects as local consumers are currently under-insured compared to their EU counterparts: 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 product and service range, in pricing techniques, in business-oriented communication, and in distribution and market-driven field-marketing approaches. Overall practice looks very traditional, competing mainly on price and commissions, refraining from entering differentiation and customer-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 services, in benefits, in segmented pricing, in servicing, and in improved end customer share in the value chain: With the current distribution and management costs, the return from his premium is definitely 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 combined (including claims, commissions and management costs but excluding financial profits)

Eric Kleijnen Managing Director AXA Asfalistiki SA www.alpha-insurance.gr

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 professional 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 definitely 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 pension 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 nationalism 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. Leveraged 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.

Insurance A growing number of insurance companies are operating successfully in bancassurance, which is seen as being the major driver for market growth.

Insurance market grows while converging with European peers he 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 consumption 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. However, 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 completed by 2009. According to this directive, which concerns third-party liability, the limit of compensation 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 limits will be doubled in 2012. These changes combined with the implementation of Solvency II and the new solvency framework increase the pressure for major changes. Market dynamics and management 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 insurance 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).

â&#x20AC;&#x2DC;The outlook for the Greek markets remains positive despite the expected turbulence in global markets.â&#x20AC;&#x2122; Estimates for macroeconomic developments are positive, a fact that surely reinforces the prospects of the insurance market. Î&#x201D;he sector has the potential to grow faster than the Greek economy, due to low penetration compared to other sectors such as banking. Bancassurance and other retail businesses are positioned to be the driving forces. The market 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 specifically 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 positive despite the expected turbulence in global markets. The Greek insurance sector will most probably continue its growth and reform, eventually converging with European averages from both the quantitative and qualitative perspectives.

Doukas Palaiologos President and CEO Ethniki Insurance www.ethniki-asfalistiki.gr

Market The soft-drinks market is expected to keep on moving at a stable pace, with consumers showing a preference for established brands.

Drinks market growing fast he 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 consumers' 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 international 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 Hellenic Group) is to further enhance its key position in these markets via the launch of innovative products, responding to continuously evolving consumer needs,

Dimitris I. Vidakis Country General Manager Coca-Cola Hellenic Bottling Company www.coca-cola.gr

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 penetration. 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-toopen 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.

Promoting Attica Region The strategic development objective set for the Attica Region is the promotion of the international role of the capital, combined with measures to alleviate intra-regional disparities and improve the quality of life.

General Secretary Region of Attica

The overall public expenditure of the Program is 1,502,736,617 euros.

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 Sepolia to Peristeri and Anthoupoli. ñ General Oncology Hospital of Kifissia. ñ Construction of the new A. Kieriakou wing at the General Children’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.

Among the future projects that the Region of Attica intends to carry out are: ñ ñ ñ ñ ñ ñ ñ ñ ñ ñ ñ ñ ñ ñ ñ

Extension of the Suburban Railway at the Koropi-Lavrion section, along with its completion (through the competent ministries). Extension of the tram service to Piraeus (through the competent ministries). Creation of a commercial center on the Thriasio Plain (through the competent ministries). Extension of the fast lane in the Markopoulo-Lavrion area. Extensions to the whole network of Attiki Odos. Projects to upgrade the Elefsina-Iliki-Thiva road axis. Creation of ‘urban type’ health centers. Sewage networks and waste water treatment plants in four nearly developed housing settlements (Directive 91/271) in Eastern Attica. Large-scale renovations on coastal sections in the Promponas area and the nearby Athens-Lamia National Road. Improvement works to the greater part of Rafina port Repairs following the earthquake on Kythera island (water supply - road works) The Attica Park. Pedion tou Areos park. Opthalmic Hospital of Athens. 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 number 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 Mediterranean 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.

The Program aims to: ñ ñ ñ ñ

Enhance the status of the Region of Attica as an international business center. Boost competitiveness by encouraging innovation plans, entrepreneurship, research, technology, dissemination and utilization of new information technologies. Elevate the quality of life and the protection of the environment. Create new and better jobs.

PUBLI

Haralambos Maniatis

The Priority Axes which have been appointed by the Regional Operational Plan of Attica are fully identified 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 Development Plan of the Region of Attica. The fifth concerns reconstruction following the1999 Athens earthquake, and the sixth involves the technical support of the Program.

Telecoms Greece is faced with four major difficulties that are hindering market competiveness; these are: high inflation, indirect tax increases, bureaucracy and the public sectorâ&#x20AC;&#x2122;s unwillingness to utilize telecom services.

Telecoms sector on the move he telecommunications industry and related 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 developed its services with the aim of providing total integrated communications solutions to its customer 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 communications provider. In addition, the company is proceeding with major investments regarding its network, 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 solution (Vodafone Home, Vodafone ADSL Internet, Vodafone 3in1) to the Greek market in an attempt to offer maximum quality, state-of-the-art infrastructure and first-class services to Greek consumers. This business approach has resulted in an unexpectedly pleasant consumer reaction, exceeding all initial company targets; it is estimated 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 initial 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, contributing in speeding up the services infrastructure. 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!Internet 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,

Babis Mazarakis Chief Operating Officer of Vodafone www.vodafone.gr

Vodafone is placing emphasis on Mobile Plus, which will provide integrated mobile/PC Internet, leading IP services and VAP complete home solutions. 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 listening 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 firstclass products and services. We are very optimistic 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 competitiveness 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 competiveness: 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 communities is not the desired one and is holding back the upgrading of citizens' living standards and lifestyles.

Telecoms 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.

Telecom industry being transformed hen talking about the telecoms environment in Greece today, one thing is more than evident: the mass use of mobile telephony. 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 percent in other member states of the European Union. These figures — nominal, of course, and one should provide room for a degree of inactivity — nevertheless indicate that mobile products and services have enhanced and facilitated the lives of citizens and have brought social and economic benefits to individuals 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. However, I strongly believe that there is still a lot of potential in the increase of mobile usage that will drive mediumto 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 technologies 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 possibilities in the telecommunications sector as a whole. Let us not forget that in some countries (mainly Scandinavia) mobile phones tend to substitute the traditional means of communication like the fixed-line phone and have somehow become a portable computer. In that sense, I see the

vertical disposal of services, including 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 communicate, 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) applications gradually increase in usage, and this is definitely something that will grow significantly in the next years. Although voice services continue 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. Therefore, considerable investments in new infrastructure for the expansion of 3G networks and generally wireless 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 convergence that big enterprises seem to be adopting. Customers seem to prefer to have all their communication services (fixed line phone, mobile, broadband internet and gradually TV services) 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 Hellenic Telecommunications Organization (OTE). The major characteristic since market liberalization is the great number of companies that provide telecommunications services. Especially at the beginning, this number seemed and truly was disproportional 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 technological evolution. This implies considerable costs for those who wish to gain a share of the market and remain competitive and I believe that progressively a lot of small providers will face difficulties in surviving. Mergers and acquisitions among small telecom enterprises will remain the main trend in the telecommunications 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 consider that in 2006 the value of mergers and acquisitions in the telecommunications sector reached almost 3 trillion 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 Germanos by Cosmote, the cooperation of HOL and Vodafone, and last but not least the buyout of our company by Weather Investments last February, which by the way is considered one of the biggest deals in the telecommunications sector worldwide. 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, introducing them to a new era of converged technologies and becoming the leader in the Greek telecommunications 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 continuing to increase rapidly, shaking

OTE's position in the market. More than 2,000 new broadband connections 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 penetration 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 consumer, thus increasing the demand of new telecommunications services. In this environment, WIND Hellas is favorably positioned to offer integrated telecommunications services, namely mobile telephony, fixed telephony, broadband Internet and also video on demand.

George Tsaprounis Corporate Communication Executive Director of WIND www.wind.com.gr

Telecoms The 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 favorable socioeconomic and sector indicators.

Broadband market marching up the growth path he 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 figure of one year ago (488,000 lines). This growth was triggered by the great reduction in ADSL prices alongside 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 program 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 broadband connections. This means that there is still plenty of room for growth ahead so that the country can converge with the EU-27 penetration average of 18 percent. The future prospects are so good that most analysts and government institutions agree that such convergence may now take place sooner than expected â&#x20AC;&#x201D; 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 unemployment rates and GDP growing significantly faster than in the other EU-15 countries. GDP growth is likely 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 services 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 penetration. Such programs include subsidies for the development of broadband infrastructure throughout the country 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 monitoring its effective implementation in the market. Additional regulation to stimulate competition is currently under examination, the most important being the ECsponsored separation of the Hellenic Communications Organization (OTE)'s network arm from its retail services arm. If implemented, it is likely to bring further transparency 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

Ruggero Gramatica Managing Director On Telecoms SA www.ontelecoms.com

roll-out, capacity enhancement and the development of new applications such as IPTV (Internet Protocol Television). These investments will enlarge the market, making fast Internet connections available to a growing number of potential customers, households and businesses. Personal computer and Internet penetration, still among the lowest in Europe, are growing rapidly, benefiting, among others, from government programs bringing PCs and connectivity to primary and secondary schools. Internet applications such as file downloading, 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 dataintensive 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 indicators. 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 information society.

Markets 2008 Sectoral Overview National P&K Securities

conomic 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 quality and defensive characteristics. Sector-wise we present our view below:

Banks During 2007 Greek banks enjoyed a growing market for credit products; however competition in the sector 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 experiencing 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 domestically, are applying their respective business models in these foreign markets. In the coming year we expect enhanced business volumes, and increasing bottomline contributions from the foreign operations. In addition to this, many Greek and Cypriot banks are maintaining 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 experiencing 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 scenario 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 activity and any further divesting of state-owned banks.

Telecoms Broadband growth in the domestic market (that lags at least 20 percentage points in country penetration vs EU averages) makes the Greek telecom market looking promising. Furthermore, the consumer trend toward bundled usage tariffs and the uptake in unbundling of local exchanges enhance the view that sector development has

National P&K Securities 54

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 outright 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 activities for the Hellenic Telecommunications Organization (OTE) Group coupled with possible government stake disposal/strategic investor interest. It is worth noting that during 2007 the shares price performance was positively sustained by Marfin Investment Group (MIG)'s build-up position in OTE and Cosmote's minority buyout by OTE. On corporate 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.

Gaming The Greek gaming sector appears highly attractive since growth â&#x20AC;&#x201D; in terms of revenues â&#x20AC;&#x201D; is continuous (CAGR 1998-2006: 16.2 percent) while domestic sales per capita are the highest within Europe. No matter if the Greek gaming sector is inelastic to economic slowdown, the sector 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 betting 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 following 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 Stoichima by OPAP, and f) further market penetration by Intralot despite the fact that US lotteries privatizations look highly improbable for 2008.

Consumer Goods - Retail Consolidation activity, consumer consumption, credit and regional expansion, positive demographics from immi-

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 performance drivers are still the macroeconomic environment in Greece and SE Europe, consumption trends along with regional expansion and M&A activity.

Industrials During 2007 industrial sector companies intensified their efforts in further expanding their business in the fast-growing Balkan regions and establishing distribution networks in Southeast Europe. However, high commodity prices hurt demand for some products (especially copper products) and affected fabrication 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 anticipated 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).

Utilities Utilities 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 deregulation on July 1, 2007 along with the strong and sustainable electricity 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 carbon 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.

Energy The 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 competitors. In addition, solid financials with low leverage, tight CapEx discipline, ongoing cost containment, operational expenditure (OPEX)

restructuring (Hellenic Petroleum) and CapEx rationalization, all aim at tangible benefits such as maximizing profits â&#x20AC;&#x201D; an investor-friendly policy evident from the high dividend payout (Motor Oil). However, 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.

Transport Industry consolidation and last year's vessel disposals are likely to boost utilization rates and load factors in the Adriatic Sea, offsetting 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 markets remain the major catalysts in 2008 following the public offer of MIG for the Attica/Blue Star shares, which may lead to owner structure 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.

RES The 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 levels may vary from year to year and good spots for wind park installation become fewer due to high investor interest. Moreover, there are high CapEx needs and the timely supply of wind generators is not guaranteed as demand is reaching higher levels. Bureaucracy and litigation issues as well as local community 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 expectations for the sector are justified and whether huge investment projects are feasible.

Food & Beverages In 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 consumption and the increase in market share through (further) penetration 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.

Securities Volatility is expected to continue in 2008. The majority of banks and companies do not seem affected by the defaults in the US subprime sector but there will be some side effects.

Market challenges for 2008 ith 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 markets, 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 nonpartisan 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 increases 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-denominated. 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 markets in an effort to boost liquidity. The rising worries about difficulties in the US subprime mortgage market have left banks uneasy regarding interbank lending. 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 interest 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 certain 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 internationally. 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,

Alexandros Billis President of Euroxx Securities www.euroxx.gr

that as the crisis becomes deeper, we will inevitably see some side effects in the Athens Exchange. Foreign 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 companies, their market positioning, and, most importantly, 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 percent per annum) and favorable market conditions (i.e. underdeveloped financial activities). Greek companies 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.

Securities On the domestic scene, the economic agenda in 2008 will be centered on market deregulation and social security reforms.

Foreign funds keeping an eye on Greece he 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 developed 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 percent 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 volume 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 procedures of financial groups (MIFID) and other delicate currency and energy balances. The agenda of the American economy is expected 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 energy sufficiency, waste management or recycling. Activity regarding legal changes and regulations from institutional regulators (European Union, international conditions etc) has already contributed 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 infrastructure 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 alternative market on the Athens bourse, licensing casinos, speeding up energy projects and the utilization of state real estate assets are also likely to have an impact on different economic fields. Company profitability in the next financial period will not enjoy the same tax benefit from a reduction 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 commercial 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 digits between 12 to 14 percent.

â&#x20AC;&#x2DC;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.â&#x20AC;&#x2122; 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 catalyst 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 margins. 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 economy's stability we believe will continue to draw foreign investment capital, further improving participation of foreign institutional investors.

Manos Hatzidakis Head of Investment Strategy Pegasus Securities www.pegsec.gr

Securities Compared to other markets, investment confidence is expected to become more concrete from the second quarter of the year, due to positive economic and political developments.

Strong growth gives Greek market an edge n 2008 the Greek capital market is expected to be affected by turbulence in major foreign capital 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 eurozone 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 confidence 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 â&#x20AC;&#x2DC;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 determination 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 percent per annum in FY 2008 and FY 2009, something that gives the Greek market an edge as far as continuing interest is concerned. During the first half of the year interest is expected to be stronger in utilities and banks, for different reasons. Utilities are expected to continue to see more privatizations while also being favored by the government's decisiveness to raise bills, especially in electricity 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 proceed 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 utilities, banks are favored by merger trends and sus-

Konstantinos Vergos PhD Head of Research Cyclos Securities SA www.cyclos.gr

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 operations, 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 second half of the year, something possible â&#x20AC;&#x201D; while unknown for the moment â&#x20AC;&#x201D; the switching of investment funds to other, but not financial, sectors could eventually tend to an appreciation not only of largecaps, 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.

International trade relations

Trade boost with Britain for 2008 odern commerce, no matter what market or country it originates from, is a highly sophisticated and technical arena. The British Hellenic Chamber of Commerce (BHCC) was founded in Athens in 1945 and was ostensibly created to evolve and cultivate twoway 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 commercial 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 independent 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 organized 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 products 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 companies 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 businesspeople. We have created a framework and it is now up to progressive business people to use this framework not only for the benefit of themselves but also to increase trade figures.

Harilaos Goritsas BHCC President www.bhcc.gr

Optimism on Greek-Chinese ties ince 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 indicate 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 constant 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 dollars 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 relatively 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 country. 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 internationally. 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 developed area of Southeastern Europe, as well as the rest of the European continent, 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 Chinese products to Europe and vice versa. This possibility helps to maintain a mutual interest in promoting joint programs to interconnect Greek and Chinese ports, and the Chinese interest for investments in Greek ports is evident. The development margins for GreekChinese business and investment cooperations and the increase of Greek exports are immense. As regards further improvement of industrial cooperation, 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 relatively low. If 5 percent of those 22 million 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. Furthermore, 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 rapprochement 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. Yannidis President of the Hellenic-Chinese Chamber www.chinese-chamber.gr

International trade relations The USA is looking toward Greece more than at any time in the past. The agreement between the Greek government and the Microsoft Corporation is testimony to this attitude.

USA looks toward Greece uring the 18th Annual Conference, ‘The Hour of the Greek Economy,' organized recently by the American-Hellenic Chamber of Commerce (AMCHAM) it became apparent that Greece is taking radical steps toward the liberalization of its economy. More specifically it was established that: – International observers are tremendously encouraged by the developments in the Greek economy over the past three years, particularly by Greece's dual achievements of reducing deficit and expanding growth. – There is a rapid development in the country's infrastructure and more specifically in transportation, communications and energy. Greece has secured a place on the world energy map having being developed into an important energy center, a development 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 products 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 investment 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 testimony to this attitude. Microsoft's agreement with Greece provides significant discounts for the Greek government 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 solutions. The USA recognized Greece's increasing regional and global economic role when it revived the Economic and Commercial Cooperation Council (ECCC) in March of this year. The ECCC brought high-level officials to Greece from the departments of State and Commerce, as well as from the US Agency for International Development. In the meeting, the full range of economic 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.

Yanos Gramatidis President of the AmericanHellenic Chamber of Commerce www.amcham.gr

There are, however, still several sector-specific challenges in increasing US private investment in Greece: – Public hospital debt: Greece has a history of accumulating 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 stateowned 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 administrative 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 onerous ways of implementing EU procurement requirements, which are designed to increase competition. – IP rights: There is a need for immediate intervention in order to stop illegal trade that, among others, 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 protection of intellectual property rights by means of preventive as well as repressive measures should be one of the priorities of the Greek government. – Transparency: In relation to the increase of competitiveness 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 extroversion 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 governments so that actions toward the implementation of this cooperation are planned and materialized. Finally, in cooperation with the ministries of Economy, Development, Tourist Development and Foreign Affairs, and also with the Athens Chamber of Commerce & Industry, the Investment Support Bureau (ELKE) and the Export Promotion Agency (OPE), AMCHAM will undertake targeted actions in the USA commencing in spring 2008.

Themes The new regulatory framework, scheduled for 2008, is designed to change the way banking institutions manage risk and calculate capital requirements.

A new era in credit management asell II: The adoption of the new regulatory framework, which is scheduled for 2008, is designed to change the way banking institutions manage risk and calculate 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 naturally 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 credit 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 minimum effort for implementation of the new rules at the cost of higher capital requirements as shown from the example below. Foundation IRB. Regulatory capital is calculated using a set of equations that are mainly driven by three components: 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.

Fitch/S&P 9 Point Rating Scale

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 common: 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 output, data collection is essential. Typically data requirements include population characteristics such as financial ratios or commercial data for companies and demographic data for consumers as well as default data for all customers based on historical transactional behavior. The next step is the estimation of model parameters through an optimization process. Once the parameters are estimated, the model's performance must be assessed. A successful credit evaluation model must display high discriminatory power, i.e. be able to distinguish the â&#x20AC;&#x2DC;good' customers from the â&#x20AC;&#x2DC;bad' ones. On top of that, the predictions 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 discriminatory power1.

Advanced IRB. In addition to estimating the probability of default, advanced IRB requires the internal estimation of loss given default and exposure at default. Due to high demand for accurate 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 â&#x20AC;&#x201D; Table 1. Under Basel I, regulatory capital for the credit portfolio was calculated as 8 percent of the full value (100 percent) of the risky asset with few exemptions for OECD-sovereigns and mortgage-backed loans. In monetary terms, for every 1,000 euros of credit, the bank's capital requirement was 80 euros independent of the borrowers creditworthiness. Under the new accord, capital calculations for the credit portfolio will distinguish borrowers based on their risk profile. Banks that choose the standardized

Risk Weights

Exposure Value (euros)

Basel I

Standardized

AAA AA A BBB BB B CCC CC C

1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000

100% 100% 100% 100% 100% 150% 100% 100% 100%

20% 20% 50% 100% 100% 150% 150% 150% 150%

Total

9,000

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 percent 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 alternative 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 distributed credit portfolio (equal borrowers for each rating class), the IRB approach produces the lowest capital requirements, followed by the standardized approach and the Basel I framework.

Capital Requirements (euros) Foundation IRB 3.89% 10.02% 17.50% 29.19% 45.83% 67.91% 99.63% 152.27% 230.23%

Basel I

Standardized

Foundation IRB

80 80 80 80 80 80 80 80 80

16 16 40 80 80 120 120 120 120

3 8 14 23 37 54 80 122 184

720

712

525

Dr Panagiotis Avramidis Professor of credit risk management & statistics American College of Greece Graduate School www.acg.gr

Basel Committee on Banking Supervision (February 2005), Studies on the Validation of Internal Rating Systems, Working Paper No.14

History finds a new home 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 worthy of our history, a museum with unique architecture, in harmony with the surrounding environment, strong enough to safeguard our national heritage from the perils 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 masterpieces which adorned the Sacred Rock of the Acropolis 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 beauty. Well, at least five of them. The sixth one, we are still waiting for her to return from her long trip abroad.

Images by Harry van Versendaal