07GreekEconomy&Markets

Trends andprospects for theeconomy in 2008

Strategic companies guarded by new law

Private funds for ports

Strategy set for tourism

7th issue - December 2007

(3.1*)

4

Sectors

Real Estate: Dika Agapitidou, George Papageorgiou, Dr Aristotelis Karytinos, Aris Vovos Finance: Gikas A. Hardouvelis, Dinos Kamaris Insurance: Petros Papanikolaou, Eric Kleijnen, Doukas Palaiologos Telecoms: Babis Mazarakis, George Tsaprounis, Ruggero GramaticaSecurities: Alexandros Billis, Manos Hatzidakis, Konstantinos VergosThemes: Dimitris I. Vidakis, Dr Panagiotis AvramidisInternational trade relations: Yanos Gramatidis, Harilaos Goritsas, Constantine N. Yannidis

Greek Economy & Markets 07A publication of the “Agora Ideon” forum.

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Contents

7th issue - December 2007

Trends and prospects for the economy in 2008Cover Story

George Alogoskoufis Strong growth for 2008 (page 17)

Plutarchos Sakellaris Economic reform to enhance growth page (page 18-19)

Dimitris Maroulis Economy shows growth stamina as external sector lags (page 20)

Loukas K. PapazoglouFiscal developments, reforms and privatizations take center stage (page 21-23)

Aris SpiliotopoulosQuality twist for tourism (page 24-25)

Giorgos VoulgarakisGreece strengthens its role in international shipping (page 26-27)

Spyros Capralos Greek capital market outlook (page 28-29)

Vassilis TheodorouA stock-picking year (page 30)

Panagiotis DrossosForeign investment multiplies (page 31)

Kostas AxarloglouEconomic openness and competitiveness (page 32)

Leonidas KorresPPP projects point to new deals on the investment map (page 33)

5

Facts & figures

An impressive reduction in the unemployment rate has been observedin the third quarter of 2007, as it fell to 7.9 percent compared to 8.1percent in the previous quarter. Furthermore, the gross domesticproduct increased by 3.8 percent on an annual basis in the thirdquarter of the year. However, building activity is still sluggish. InSeptember building activity displayed an 8.6 percent drop compared tothe same period in 2006. Greece’s inflation rate in November picked upto 3.9 percent from 3.1 percent in the previous month.

Period Value

Consumer Price Index (CPI)1 November 07/November 06 3.9

Harmonized Index of Consumer Prices (HICP)1 November 07/November 06 3.9

Producer Price Index in Industry1 October 07/October 06 5.9

Industrial Production Index (excluding construction)3 October 07/October 06 -0.1

Turnover Index in Retail Trade1 September 07/September 06 4.1

Gross Domestic Product (provisional data)1 Q3 2007 3.8

Unemployment Rate2 Q3 2007 7.9

Population (2001 Census)4 2001 -

Building Activity)3 September 07/September 06 -8.6

1Annual rate of Change, 2Rate, 3Periodical rate of change, 4Value

Latest Statistical Data

The profile of the Greek economy

8

Facts & figures

In the last two years the Inter-Ministerial Public-Private Partnership committee has approved 24

projects with a total budget of billion euros which correspond to 140 new infrastructure

sites spreading throughout the peripheral regions of the country. The projects come under the

sectors of health, civilization, education, public sector accommodation, the environment and

ports infrastructure.

Pride of place regarding the number of public works undertaken is held by the education sector.

More than 80 new schools have been approved for construction. The budget for the realization

of these school complexes exceeds 340 million euros. The total accommodation investment

program to be undertaken through PPPs will come to 1.14 billion euros and is expected to be

implemented during the 2007-2011 period.

Among the most important projects are four new hospitals. These are the new Oncological

Hospital of Thessaloniki (330 million euros), the new General Hospital of Preveza (110 million

euros), the Paediatric Hospital of Thessaloniki (325 million euros) and the Rehabilitation and

Recovery Center of Northern Greece (103 million euros).

Public-private partnerships will also help to solve the perpetual accommodation problems faced

by almost all prefectural authorities in the country. A significant example is the remodeling of

Domboli building complex in the city of Ioannina.

Another sector where PPPs are crucial is that of ports growth. The installation of security

systems has been approved for 12 Greek ports. It is one of the costliest public projects to have

been approved by the committee, since its total budget exceeds 340 million euros.

PPP projects boost infrastructure

3.1

10

Themes

Economic calendar 2008 As expected, the Greek

economy will progress

vigorously according to plan

in the new year. Several

important meetings and

events are set to take place

either in Greece or at the

headquarters of the

European Union. Greece will

take part in many of these in

order to strengthen its

position in the market. Most

important of course are

Eurogroup-Ecofin meetings

in Brussels where the Greek

Ministry of Economy and

Finance’s chief figures will

examine forthcoming issues

and evaluate past actions.

The topics of growth and

employment will again top

the agenda. Furthermore,

the economic situation

based on the latest surveys

will be discussed by Ecofin

ministers and International

Monetary Fund proposals

will be analyzed. The latest

report of the European

Commission will be another

subject of discussion in

Ecofin meetings.

Minister George

Alogoskoufis will travel to

London to deliver a speech

at the Hellenic-British

Chamber of Commerce. This

visit demonstrates the high

regard that Greece has for its

trade relations with Britain.

Statistics subject/event PERIOD DATE

JanuaryNumber of Issued Motor Vehicle Circulation Licenses December 2007 04/01/08Industrial Production Index November 2007 09/01/08Commercial Transactions (estimates) November 2007 09/01/08Building Activity October 2007 10/01/08Movement of Museums and Archaeological Sites September 2007 10/01/08National Consumer Price Index December 2007 10/01/08Harmonized Index of Consumer Prices December 2007 10/01/08Import Price Index in Industry November 2007 11/01/08Euro-area Festivities in Malta 12/01/08Labor Force Survey (monthly data) October 2007 15/01/08Greek Merchant Fleet November 2007 16/01/08Input and Output Price Indices in Agricultural-Livestock Production November 2007 17/01/08Turnover Index in Industry November 2007 18/01/08New Orders Index in Industry November 2007 18/01/08Euro-area Festivities in Cyprus 18/01/08Eurogroup-Ecofin meetings in Brussels 21-22/01/08Material Costs Index for New Residential Buildings December 2007 22/01/08Work Categories Price Indices and Construction Costs Indicesfor New Residential Buildings 4th Quarter 2007 22/01/08

Commercial Transactions (provisional data) November 2007 25/01/08Producer Price Index in Industry December 2007 29/01/08Turnover Index in Retail Trade November 2007 30/01/08Road Traffic Accidents November 2007 31/01/08Traffic of Passengers, Goods and Vehicles by MerchantShips in Greek Ports 2nd Quarter 2007 31/01/08

FebruaryNumber of Issued Motor Vehicle Circulation Licenses January 2008 05/02/08National Consumer Price Index January 2008 07/02/08Building Activity November 2007 08/02/08Commercial Transactions (estimates) December 2007 08/02/08Industrial Production Index December 2007 08/02/08Movement of Museums and Archaeological Sites October 2007 11/02/08Eurogroup-Ecofin meetings in Brussels 11-12/02/08Labor Force Survey (monthly data) November 2007 12/02/08Import Price Index in Industry December 2007 12/02/08National Accounts (estimates) 4th Quarter 2007 14/02/08Greek Merchant Fleet December 2007 15/02/08Input and Output Price Indices in Agricultural-Livestock Production December 2007 15/02/08Turnover Index in Industry December 2007 19/02/08New Orders Index in Industry December 2007 19/02/08Minister’s speech at the Hellenic-British Chamber of Commerce in London 19/02/08Harmonized Index of Consumer Prices January 2008 20/02/08Material Costs Index for New Residential Buildings January 2008 20/02/08Commercial Transactions (provisional data) December 2007 25/02/08Road Traffic Accidents December 2007 29/02/08Turnover Index in Retail Trade December 2007 29/02/08Producer Price Index in Industry January 2008 29/02/08

MarchEurogroup-Ecofin Meetings in Brussels 03-04/03/08National Accounts (provisional data) 4th Quarter 2007 04/03/08Number of Issued Motor Vehicle Circulation Licenses February 2008 05/03/08Building Activity December 2007 07/03/08National Consumer Price Index February 2008 11/03/08Harmonized Index of Consumer Prices February 2008 11/03/08Movement of Museums and Archaeological Sites November 2007 11/03/08Turnover Indices in Motor Trade and Wholesale Trade 4th Quarter 2007 11/03/08Commercial Transactions (estimates) January 2008 11/03/08Industrial Production Index January 2008 11/03/08Import Price Index in Industry January 2008 12/03/08Labor Force Survey (monthly data) December 2007 12/03/08European Council in Brussels 13-14/03/08Turnover Indices in Post - Telecoms, Computer and Related Activities and other Business Activities 4th Quarter 2007 14/03/08Production Index in Construction 4th Quarter 2007 14/03/08Turnover Indices in Transports 4th Quarter 2007 17/03/08Turnover Index in Tourism 4th Quarter 2007 17/03/08Index of Employed in Retail Trade 4th Quarter 2007 17/03/08Input and Output Price Indices in Agricultural-Livestock Production January 2008 18/03/08Greek Merchant Fleet January 2008 18/03/08Labor Force Survey 4th Quarter 2007 19/03/08Material Costs Index for New Residential Buildings February 2008 21/03/08Turnover Index in Industry January 2008 21/03/08

Note: First column displays economic events and announcements. The second displays the period represented. The third shows the exact day of the event or the announcement.

11

The year ahead…Statistics subject/event PERIOD DATE

New Orders Index in Industry January 2008 21/03/08Commercial Transactions (provisional data) January 2008 27/03/08Turnover Index in Retail Trade January 2008 28/03/08Producer Price Index in Industry February 2008 28/03/08Regional Accounts 2004 - 2006 31/03/08Road Traffic Accidents January 2008 31/03/08

AprilNumber of Issued Motor Vehicle Circulation Licenses March 2008 04/04/08Informal Ecofin meeting in Slovenia 04-05/04/08Building Activity January 2008 08/04/08National Consumer Price Index March 2008 08/04/08Harmonized Index of Consumer Prices March 2008 08/04/08Industrial Production Index February 2008 09/04/08Commercial Transactions (estimates) February 2008 09/04/08Movement of Museums and Archaeological Sites December 2007 10/04/08Import Price Index in Industry February 2008 11/04/08Labour Force Survey (monthly data) January 2008 14/04/08Greek Merchant Fleet February 2008 17/04/08Input and Output Price Indices in Agricultural-Livestock Production February 2008 18/04/08Turnover Index in Industry February 2008 18/04/08New Orders Index in Industry February 2008 18/04/08Work Categories Price Indices and Construction Costs Indicesfor New Residential Buildings 1st Quarter 2008 22/04/08

Material Costs Index for New Residential Buildings March 2008 22/04/08Commercial Transactions (provisional data) February 2008 24/04/08Producer Price Index in Industry March 2008 30/04/08Road Traffic Accidents February 2008 30/04/08Turnover Index in Retail Trade February 2008 30/04/08Traffic of Passengers, Goods and Vehicles by Merchant Shipsin Greek Ports 3rd Quarter 2007 30/04/08

MayNumber of Issued Motor Vehicle Circulation Licenses April 2008 05/05/08Building Activity February 2008 08/05/08National Consumer Price Index April 2008 08/05/08Harmonized Index of Consumer Prices April 2008 08/05/08Industrial Production Index March 2008 09/05/08Commercial Transactions (estimates) March 2008 09/05/08Movement of Museums and Archaeological Sites January 2008 12/05/08Import Price Index in Industry March 2008 13/05/08Eurogroup-Ecofin Meetings in Brussels 13-14/05/08Labor Force Survey (monthly data) February 2008 14/05/08National Accounts (estimates) 1st Quarter 2008 15/05/08Greek Merchant Fleet March 2008 16/05/08Input and Output Price Indices in Agricultural-Livestock Production March 2008 16/05/08Material Costs Index for New Residential Buildings April 2008 20/05/08Turnover Index in Industry March 2008 20/05/08New Orders Index in Industry March 2008 20/05/08Commercial Transactions (provisional data) March 2008 26/05/08Producer Price Index in Industry April 2008 29/05/08Turnover Index in Retail Trade March 2008 30/05/08Road Traffic Accidents March 2008 30/05/08

JuneEurogroup-Ecofin Meetings in Luxembourg 02-03/06/08National Accounts (provisional data) 1st Quarter 2008 03/06/08Number of Issued Motor Vehicle Circulation Licenses May 2008 05/06/08Building Activity March 2008 06/06/08National Consumer Price Index May 2008 09/06/08Harmonized Index of Consumer Prices May 2008 09/06/08Industrial Production Index April 2008 09/06/08Commercial Transactions (estimates) April 2008 09/06/08Movement of Museums and Archaeological Sites February 2008 10/06/08Turnover Indices in Motor Trade and Wholesale Trade 1st Quarter 2008 11/06/08Import Price Index in Industry April 2008 12/06/08Labor Force Survey (monthly data) March 2008 12/06/08Production Index in Construction 1st Quarter 2008 13/06/08Turnover Indices in Post - Telecoms, Computer and Related Activities and other Business Activities 1st Quarter 2008 13/06/08Index of Employed in Retail Trade 1st Quarter 2008 17/06/08Turnover Index in Tourism 1st Quarter 2008 18/06/08Turnover Indices in Transports 1st Quarter 2008 18/06/08Labor Force Survey 1st Quarter 2008 19/06/08Input and Output Price Indices in Agricultural-Livestock Production April 2008 19/06/08Turnover Index in Industry April 2008 19/06/08

Note: First column displays economic events and announcements. The second displays the period represented. The third shows the exact day of the event or the announcement.

12

ThemesEach month the National

Statistics Service and the

Ministry of Economy and

Finance issue the latest data

on the state of the country’s

economy. Figures such as

building activity, the import

price and new order indices

in industry, the national

consumer price index as

well as the turnover index in

retail trade help analysts

and services to make the

right decisions and act on

them accordingly.

In October the draft budget

will be submitted to the

Greek Parliament followed

by the state budget for 2009

in November.

In the last month of the year

(12/08) the Hellenic Stability

and Growth Program 2008-

2011 will be updated.

Statistics subject/event PERIOD DATE

New Orders Index in Industry April 2008 19/06/08Greek Merchant Fleet April 2008 19/06/08Material Costs Index for New Residential Buildings May 2008 20/06/08Commercial Transactions (provisional data) April 2008 25/06/08Producer Price Index in Industry May 2008 27/06/08Turnover Index in Retail Trade April 2008 30/06/08Road Traffic Accidents April 2008 30/06/08

JulyNumber of Issued Motor Vehicle Circulation Licenses June 2008 04/07/08National Consumer Price Index June 2008 07/07/08Harmonized Index of Consumer Prices June 2008 07/07/08Eurogroup-Ecofin meetings in Brussels 07-08/07/08Building Activity April 2008 08/07/08Movement of Museums and Archaeological Sites March 2008 10/07/08Industrial Production Index May 2008 10/07/08Commercial Transactions (estimates) May 2008 10/07/08Import Price Index in Industry May 2008 11/07/08Labor Force Survey (monthly data) April 2008 14/07/08Input and Output Price Indices in Agricultural-Livestock Production May 2008 15/07/08Greek Merchant Fleet May 2008 17/07/08Turnover Index in Industry May 2008 21/07/08New Orders Index in Industry May 2008 21/07/08Material Costs Index for New Residential Buildings June 2008 22/07/08Work Categories Price Indices and Construction Costs Indices for New Residential Buildings 2nd Quarter 2008 22/07/08Commercial Transactions (provisional data) May 2008 25/07/08Producer Price Index in Industry June 2008 29/07/08Turnover Index in Retail Trade May 2008 30/07/08Road Traffic Accidents May 2008 31/07/08Traffic of Passengers, Goods and Vehicles by Merchant Ships in Greek Ports 4th Quarter 2007 31/07/08

AugustNumber of Issued Motor Vehicle Circulation Licences July 2008 05/08/08National Consumer Price Index July 2008 07/08/08Harmonized Index of Consumer Prices July 2008 07/08/08Building Activity May 2008 07/08/08Commercial Transactions (estimates) June 2008 08/08/08Industrial Production Index June 2008 08/08/08Import Price Index in Industry June 2008 08/08/08Movement of Museums and Archaeological Sites April 2008 11/08/08National Accounts (estimates) 2nd Quarter 2008 11/08/08Labor Force Survey (monthly data) May 2008 12/08/08Input and Output Price Indices in Agricultural-Livestock Production June 2008 13/08/08Turnover Index in Industry June 2008 19/08/08New Orders Index in Industry June 2008 19/08/08Material Costs Index for New Residential Buildings July 2008 22/08/08Commercial Transactions (provisional data) June 2008 25/08/08Greek Merchant Fleet June 2008 28/08/08Producer Price Index in Industry July 2008 29/08/08Turnover Index in Retail Trade June 2008 29/08/08Road Traffic Accidents June 2008 29/08/08

SeptemberNational Accounts (provisional data) 2nd Quarter 2008 03/09/08Number of Issued Motor Vehicle Circulation Licenses August 2008 05/09/08National Consumer Price Index August 2008 08/09/08Harmonized Index of Consumer Prices August 2008 08/09/08Industrial Production Index July 2008 09/09/08Commercial Transactions (estimates) July 2008 09/09/08Movement of Museums and Archaeological Sites May 2008 10/09/08Turnover Indices in Motor Trade and Wholesale Trade 2nd Quarter 2008 10/09/08Labor Force Survey (monthly data) June 2008 11/09/08Building Activity June 2008 12/09/08Import Price Index in Industry July 2008 12/09/08Production Index in Construction 2nd Quarter 2008 12/09/08Turnover Indices in Post - Telecoms, Computer and Related Activities and other Business Activities 2nd Quarter 2008 12/09/08Informal Ecofin meeting in France 12-13/09/08Index of Employed in Retail Trade 2nd Quarter 2008 15/09/08Greek Merchant Fleet July 2008 18/09/08Labour Force Survey 2nd Quarter 2008 18/09/08Input and Output Price Indices in Agricultural-Livestock Production July 2008 19/09/08Turnover Index in Industry July 2008 19/09/08New Orders Index in Industry July 2008 19/09/08Material Costs Index for New Residential Buildings August 2008 22/09/08Turnover Indices in Transport 2nd Quarter 2008 22/09/08Turnover Index in Tourism 2nd Quarter 2008 22/09/08Commercial Transactions (provisional data) July 2008 25/09/08Road Traffic Accidents July 2008 26/09/08Producer Price Index in Industry August 2008 29/09/08Turnover Index in Retail Trade July 2008 30/09/08

Note: First column displays economic events and announcements. The second displays the period represented. The third shows the exact day of the event or the announcement.

13

The year ahead…

SOURCE - FINANCE MINISTRY AND NATIONAL STATISTICS SERVICE

Statistics subject/event PERIOD DATE

OctoberDraft Budget for 2009 Submitted to the Greek Parliament 10/08National Reform Program 2008-2011 Submitted to EU 10/08Number of Issued Motor Vehicle Circulation Licenses September 2008 03/10/08Eurogroup-Ecofin Meetings in Luxembourg 06-07/10/08Building Activity July 2008 08/10/08National Consumer Price Index September 2008 08/10/08Harmonized Index of Consumer Prices September 2008 08/10/08Movement of Museums and Archaeological Sites June 2008 10/10/08Industrial Production Index August 2008 10/10/08Commercial Transactions (estimates) August 2008 10/10/08Import Price Index in Industry August 2008 10/10/08Labor Force Survey (monthly data) July 2008 13/10/08Greek Merchant Fleet August 2008 16/10/08Input and Output Price Indices in Agricultural-Livestock Production August 2008 17/10/08Turnover Index in Industry August 2008 20/10/08New Orders Index in Industry August 2008 20/10/08Material Costs Index for New Residential Buildings September 2008 21/10/08Work Categories Price Indices and Construction Costs Indices for New Residential Buildings 3rd Quarter 2008 22/10/08Commercial Transactions (provisional data) August 2008 27/10/08Producer Price Index in Industry September 2008 30/10/08Turnover Index in Retail Trade August 2008 30/10/08Traffic of Passengers, Goods and Vehicles by MerchantShips in Greek Ports 1st Quarter 2008 30/10/08Road Traffic Accidents August 2008 31/10/08

NovemberState Budget for 2009 Submitted to the Greek Parliament 11/08Eurogroup-Ecofin meetings in Brussels 03-04/11/08Number of Issued Motor Vehicle Circulation Licenses October 2008 05/11/08Building Activity August 2008 07/11/08National Consumer Price Index October 2008 10/11/08Harmonized Index of Consumer Prices October 2008 10/11/08Industrial Production Index September 2008 10/11/08Commercial Transactions (estimates) September 2008 10/11/08Movement of Museums and Archaeological Sites July 2008 10/11/08Import Price Index in Industry September 2008 11/11/08Labor Force Survey (monthly data) August 2008 12/11/08National Accounts (estimates) 3rd Quarter 2008 14/11/08Input and Output Price Indices in Agricultural-Livestock Production September 2008 14/11/08Turnover Index in Industry September 2008 19/11/08New Orders Index in Industry September 2008 19/11/08Greek Merchant Fleet September 2008 20/11/08Material Costs Index for New Residential Buildings October 2008 21/11/08Commercial Transactions (provisional data) September 2008 25/11/08Producer Price Index in Industry October 2008 28/11/08Turnover Index in Retail Trade September 2008 28/11/08Road Traffic Accidents September 2008 28/11/08

DecemberUpdate of the Hellenic Stability and Growth Program 2008-2011 12/08Eurogroup-Ecofin meetings in Brussels 01-02/12/08National Accounts (provisional data) 3rd Quarter 2008 04/12/08Number of Issued Motor Vehicle Circulation Licenses November 2008 05/12/08National Consumer Price Index November 2008 08/12/08Harmonized Index of Consumer Prices November 2008 08/12/08Building Activity September 2008 09/12/08Movement of Museums and Archaeological Sites August 2008 10/12/08Industrial Production Index October 2008 10/12/08Commercial Transactions (estimates) October 2008 10/12/08Turnover Indices in Motor Trade and Wholesale Trade 3rd Quarter 2008 10/12/08Import Price Index in Industry October 2008 11/12/08Labor Force Survey (monthly data) September 2008 11/12/08Production Index in Construction 3rd Quarter 2008 15/12/08Index of Employed in Retail Trade 3rd Quarter 2008 15/12/08Turnover Indices in Post - Telecoms, Computer and Related Activities and other business Activities 3rd Quarter 2008 16/12/08Input and Output Price Indices in Agricultural-Livestock Production October 2008 16/12/08Turnover Index in Tourism 3rd Quarter 2008 16/12/08Turnover Indices in Transports 3rd Quarter 2008 16/12/08Labor Force Survey 3rd Quarter 2008 18/12/08Greek Merchant Fleet October 2008 18/12/08Material Costs Index for New Residential Buildings November 2008 19/12/08Turnover Index in Industry October 2008 19/12/08New Orders Index in Indursty October 2008 19/12/08Commercial Transactions (provisional data) October 2008 24/12/08Producer Price Index in Industry November 2008 30/12/08Turnover Index in Retail Trade October 2008 30/12/08Road Traffic Accidents October 2008 31/12/08

Note: First column displays economic events and announcements. The second displays the period represented. The third shows the exact day of the event or the announcement.

Specifically, Greek Minister of Economy and Finance,

made the following statement regarding the new legislation

for the participation of private investors to companies of

national strategic importance:

“Privatizations have become a common practice

throughout the European Union and often pertain to com-

panies (S.A.s) which own or manage national infrastructure

networks. Nevertheless, it is imperative to establish an

approval mechanism which will safeguard national interests

when individual investors or legal entities acquire a sub-

stantial percentage of the capital of such companies.

Taking into consideration the national interest, the inter-

est of society at large and the need for the smooth opera-

tion of markets, the Greek government tabled a new piece

of legislation to the Greek parliament today.

The legislation specifies the following:

1. In the case of companies (S.A.s) of national strategic

importance, especially when they own or manage

national infrastructure networks, the acquisition of vot-

ing rights in such companies, through the 20% of the

share capital or more, requires the approval of the Inter-

ministerial Privatizations Committee. This approval is

granted if certain criteria, as specified by the new legis-

lation, are fulfilled to protect the public interest.

2. Certain decisions of great strategic importance within

these companies pertaining to issues mentioned in the

new legislation, should be approved by the Minister of

Economy and Finance so that the public interest is safe-

guarded.

This is an important institutional step for Greece and for

the safeguarding of the national interest and is in full force

as of the time of submission to parliament.”

Finance Minister G. Alogoskoufis

14

Strategic companies Greece’s Finance Ministry has

introduced a law which protects the

interests of strategic state-owned

companies and limits the stake held

in them by investors to 20 percent,

unless given previous approval by

an inter-ministerial privatizations

committee.

‘The acquisition of a stake higher

than 20 percent in companies of

strategic importance that manage

national infrastructure networks will

require approval from the inter-

ministerial committee on

privatization,” Finance Minister

George Alogoskoufis told reporters.

Alogoskoufis pointed out that there

are similar limits imposed in other

privatization cases in the EU where

the companies being sold manage

infrastructure networks.

‘The acquisition of shares in these

companies... cannot be done without

imposing control procedures for the

protection of national and social

interests,’ he added.

The amendment was submitted to

Parliament where the ruling New

Democracy Party holds a majority.

The minister added that the

government considers listed OTE,

one of the most heavily traded

stocks on the Athens Stock

Exchange, as a ‘strategic’ enterprise

The acquisition of a stake higher than 20 percent in companies of strategicimportance that manage national infrastructure networks will require approval fromthe inter-ministerial committee on privatization, according to the Finance Ministry.

Themes

in the development of the

telecommunications sector in

Greece.

Alogoskoufis also stressed that no

further privatization of OTE will take

place without a specific decision by

the relevant inter-ministerial

committee on privatizations.

‘The government is also not

discussing any issue of co-

management with any institutional

investor or any other investment

company,’ he said.

In order to clarify what the law

means for shareholders, the CEO of

OTE, Panagis Vourloumis, explained

that the law intends to provide an

orderly framework for its

privatization.

‘Δhe law intends to provide an

orderly framework for privatization.

It will be discussed and voted in

Parliament soon and there may be

amendments. If passed, which we

expect, it will be applicable as of the

date it was tabled,’ the OTE CEO said.

‘We believe that this development

does not affect in the least the value

of OTE which will depend on the

effectiveness of the management in

carrying out the business plan, as it

has been doing in the past,’ he

added.

In response to recent comments

made by MIG on OTE, Execution

Limited analyst Will Draper pointed

out that the attack was ‘not justified’

and that a little more patience and

diplomacy are needed. Execution

Limited has a fair value of 35 euros

on OTE shares.

‘We can understand that MIG is

seeking better representation on the

We wish to inform you that on Friday December 7,

the Government tabled a law in Parliament, effective as

of that date. The law sets conditions and criteria regard-

ing eligibility of parties intending to acquire voting rights

exceeding 20% in strategic industries of national impor-

tance which were previously State monopolies. OTE

belongs to this category.

The law limits maximum voting rights by a single

shareholder or groups of shareholders judged to be act-

ing jointly to 20% unless approval is granted by the Inter-

ministerial Privatisation Committee. Approval is condi-

tional on the fulfillment of criteria safeguarding public

interest, indicatively are mentioned operational expertise,

transparency regarding intended strategy, control of own-

ership of shareholder etc.

The law further stipulates that decisions by compa-

nies considered to be of strategic national importance

need approval by the Minister of Economy in order to

carry out certain actions such as dissolution, merger,

change of purpose, major divestments etc.

Δhe law intends to provide an orderly framework for

privatization. It will be discussed and voted in Parlia-

ment soon and there may be amendments. If passed,

which we expect, it will be applicable as of the date it

was tabled. We believe that this development does not

affect in the least the value of OTE which will depend on

the effectiveness of the management in carrying out the

business plan, as it has been doing in the past.

Letter to shareholders

by CEO P. Vourloumis

guarded by new law

15

16

Themes

board for its 19-20 percent stake. We

can also understand that it wants

more involvement in OTE’s

corporate actions. But to show its

teeth in this way – publicly

undermining an excellent CEO – is

clumsy and unlikely to lead to the

desired result,’ said Draper.

‘We still believe MIG can act as a very

positive catalyst for OTE, by shaking

out value in real estate for example,

but it perhaps needs to exercise a

little more patience and diplomacy,’

he added.

OTE has a market capitalization of

11.7 billion euros and its shares are

traded on the Athens bourse.

OTE Group is Greece’s leading

telecommunications organization

and one of the pre-eminent players

in Southeastern Europe, providing

top-quality products and services to

its customers.

Apart from serving as a full service

telecommunications group in the

Greek telecoms market, OTE Group

has also expanded its geographical

footprint throughout Southeast

Europe during the last decade,

acquiring stakes in the incumbent

telecommunications companies of

Romania and Serbia, and

establishing mobile operations in

Albania, Bulgaria, the Former

Yugoslav Republic of Macedonia and

Romania.

At present, companies in which OTE

Group has an equity interest employ

over 30,000 people in six countries,

and our portfolio of solutions ranges

from fixed and mobile telephony to

Internet applications, satellite,

maritime communications and

consultancy services.

MIG has attacked OTE's CEO on three counts, none of which

are justified. Let's take a look at the criticisms:

1. “The CEO ought to work for the shareholders and not boss

them around”. Vourloumis was appointed in May 2004 when

the stock was at eur11.50. Since then it has more than dou-

bled and outperformed the sector by three times (OTE

+116.9%, SXKP +42.9%), creating eur6.6bn of market cap

in the process. Vourloumis has been responsible for the VRP,

fixed network upgrade, expansion in Balkans, broadband

invigoration, buy-in of Cosmote minorities and reinstatement

of dividend: all value accretive initiatives in our view. It is

simply not credible to say he has worked against sharehold-

ers interests. It is not obvious that removing him would lead

to better share price performance: his relationship with the

Govt and Unions is critical, and we need some stability at

Cosmote until the new team beds down.

2. “The loan taken out to fund the Cosmote buy-in is bad”. OTE

took a strategic decision to buy-in Cosmote. Yes, they should

have done it earlier and yes they paid a full price. But the

deal still makes great sense financially and strategically. It

will allow OTE to better offer converged fixed/mobile services,

will generate synergies (we estimate NPV of eur0.5bn), it will

raise leverage, and it will make OTE more attractive/valuable

to a strategic investor.

OTE has financed the buy-in via a bridging loan and we re-

finance this with long term debt or a loan. It has not decided

which, has not disclosed the terms of the bridge so MIG has no

basis for criticising. Historically OTE has been an adept borrow-

er - 4.6% for its 10 year even at below A grade credit rating - so

we are not concerned here. It is true that credit markets have

tightened and therefore OTE will have to pay more than a year

ago, but this will not be anywhere near enough to undermine the

rationale for the buy-in.

3. “The sale of InfOTE needs some explanation”. Well there was

never any disclosure on InfOTE so we cannot comment on the

multiple, although the company has described it as “fat”. To

us eur300m looked like a very good price for something that

we a) thought was very small, b) will have a negligible impact

on financials, and c) was not even in our sum of the parts. So

as far as we are concerned this is eur0.60/share of value cre-

ation.

In conclusion we can understand that MIG is seeking better

representation on the Board for its 19-20% stake.

We can also understand that it wants more involvement in

OTE's corporate actions. But to show its teeth in this way - pub-

licly undermining an excellent CEO - is clumsy and unlikely to

lead to the desired result. We still believe MIG can act as a very

positive catalyst for OTE, by shaking out value in real estate for

example, but it perhaps needs to exercise a little more patience

and diplomacy. Our OTE fair value is euro35 and we have a BUY

rating on the stock.

Execution Limited analyst Will Draper

17

Cover

Strong growth for 2008

The reforms program and the fiscal consolidation

under way since March 2004 have given a signifi-

cant boost to the Greek economy. Growth is being

fueled by private investment and exports. Unem-

ployment is reduced and social cohesion is

enhanced.

Within the framework of our reforms program we have

placed emphasis on entrepreneurship, competitiveness and

the international orientation of the Greek economy. Such

reforms include:

– The reduction of corporate taxation — from 35 percent

in 2004 to 25 percent in 2007 — and the reduction of

personal income tax rates;

– The introduction of incentives for private investment in

the form of subsidies of up to 60 percent of the total

sum;

– The new legal framework for public-private partnerships;

– The new exports policy;

– The establishment of an investment-friendly environ-

ment in Greece and the support of Greek businesses

operating in the broader region of Southeast Europe and

the Eastern Mediterranean;

– The new privatizations agenda — especially in the bank-

ing sector;

– The establishment of a more efficient mechanism for the

absorption of EU funds;

– The new digital strategy for propagating new technolo-

gies in Greece.

Despite the financial crisis and the high oil prices,

growth is expected to remain strong in 2008 and the fol-

lowing years. This growth will stem from the reforms pro-

gram under way and will be based on the following:

ñ In the period leading to 2013, Greece will receive signif-

icant EU funds, exceeding 24 billion euros. At the same

time, major infrastructure projects of the Third Commu-

nity Support Framework are expected to be completed.

ñ The implementation of several approved public-private

partnership projects begins in 2008. These projects are

estimated at 3.1 billion euros. Additional major projects

are also under way and are expected to fundamentally

transform the transport network in Greece.

ñ Within the framework of the new Investment Incentives

Law, private investments of up to 8.78 billion euros are

already being implemented. These investments boost

regional development in Greece and capitalize on the

country's comparative advantages.

ñ Growth within the broader region of Southeast Europe,

where Greece plays a key role, continues to be robust,

maintaining a fertile market for Greek products and serv-

ices.

The solid progress of the Greek economy allows for the

gradual implementation of important measures which

strengthen social cohesion and improve the welfare state.

The objective of our policies has been to disseminate the

fruits of economic progress in Greek society as a whole. The

2008 budget includes a set of welfare measures, such as

the next phase of the tax reform, the increase of low pen-

sions and unemployment benefits, and the establishment of

the Social Cohesion Fund, which will gradually allocate 2

billion euros per year to support poor households.

The prospects of the Greek economy remain positive. So

far, our economic policies have led to tangible results. We

are committed to continue working toward a more dynamic

economy and a fair society.

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

George AlogoskoufisMinister of Economy and Finance www.mnec.gr

18

CoverThe Greek economy has been fortified to a large extent by the new growth model which is based on the pillars of fiscal consolidation and structural reform.

Economic reform to enhance growth

The prospects for the world economy at the

end of 2007 are less favorable in compari-

son to those at the beginning of the year.

For three years, the world economy has

recorded remarkable growth, based mainly

on the dynamism of emerging economies, the

strong consumer demand in the US and the recov-

ery of the eurozone. For 2008, international organ-

izations are forecasting a slowdown in world

growth, which, nonetheless, will continue to be

one of the highest in the last 30 years.

In broad terms, the cloudy outlook is due to the

persistent macroeconomic imbalances and the

financial system's instability.

Macroeconomic imbalances are the result of

domestic conditions and policies in specific

economies which lead to a mismatch between pro-

duction and demand. For example, when the fiscal

policy stance results in budget deficits or when pri-

vate consumption is exceptionally high then we

have excess demand. If economic policies are not

productivity-enhancing and do not provide support

for profitable new investment then there is defi-

cient supply. The result of such mismatches is the

accumulation of deficits in the current account bal-

ance (when demand exceeds supply, as in the case

of the US) or surpluses (when supply exceeds

demand, as in some Asian countries, as well as in

the oil-producing countries of the Middle East). In

fact, countries that record surpluses are lending

funds to the countries that record deficits, in order

to allow the latter to maintain their living stan-

dards. But this situation is not sustainable, as

debts have to be repaid eventually. Thus, the

potential for trouble lies in how these major

macroeconomic imbalances will unwind. How will

the indebted economies — both the private and the

public sector — find the resources to pay off their

debts? Will the necessary adjustment, which may

affect the world economic growth, be gradual or

abrupt?

Regarding the financial system, the develop-

ments since this summer prove that we had not

grasped the dimensions of the unstable equilibrium

that had developed. Thus, the domino-style reac-

tion that started in August was, to some extent, not

predicted.

The problems began a while back in the high-

risk subprime-mortgage market in the US. The

modern methods of securitization redistributed this

risk from the banks where these loans originated to

other investment vehicles, many of which were

owned or guaranteed by other banks. That was a

way for these banks to evade rules of prudential

supervision.

The lack of transparency regarding the compo-

sition and quality of the vehicles' assets was the

catalyst for the developments that followed. In this

way, when difficulties arose for US debtors to serv-

ice their debts, the problems of an individual econ-

omy spread to the world economy, as these vehi-

cles have international ownership. At the same

time, the lack of transparency damaged the rela-

tionship of trust among banks, resulting in a con-

siderable increase in the cost of funds on the inter-

bank market.

Overall, I would say that there are four risk fac-

tors that may affect the world economy in 2008:

1. The developments in exchange rates, which are

related to the macroeconomic imbalances that I

described above;

2. The high prices of oil, raw materials and basic

food items due to the strong international

demand;

3. The condition of the financial system, and

4. The fears for economic protectionism or geopo-

litical upheaval.

Among these factors, the most serious one, in

my opinion, is the one related to the conditions in

the financial system. The persistence of the high

cost of banks for borrowing in the money market

will eventually affect the rest of the economy, as it

has a negative impact on the cost and availability

of borrowing for households and firms. A further

Plutarchos SakellarisProfessor at Athens University of

Economics and Business and

Chairman of the Council of

Economic Advisers

19

risk factor for the Greek economy in particular is

the economic environment in our neighborhood.

We should monitor closely developments in the

wider region of Southeastern Europe, as a large

part of our economic activity is related to the

economies of our neighbors.

International organizations estimate that these

conjunctural developments will have limited

impact on the Greek economy. Nonetheless, the

government is following closely the developments

in the international environment to ensure that the

impact on economic growth and living standards

will be minimal.

The Greek economy has been fortified to a large

extent by the new growth model that the govern-

ment has been implementing since it came into

office. The new model is based on the pillars of fis-

cal consolidation and structural reforms.

As a result, the growth rate of the Greek econ-

omy remains at high levels, but what is more

important is that the qualitative aspects of this

growth are different than in the past. In the last

few years, growth has mainly been based on

exports and private investment, with housing

investment playing a diminishing role compared to

investment in equipment. Therefore, efforts to cre-

ate a more productive and outward-looking econo-

my are bearing fruit.

The government is continuing to implement

important reforms so as to strengthen growth and

social cohesion. These reforms are necessary in

order to tackle existing problems and face the chal-

lenges arising from world economic developments.

Some of the measures that the government is

implementing include:

ñ The establishment of a National Social Cohe-

sion Fund in order to fight poverty through

actions targeted at specific social groups;

ñ Pension reform, which aims at making the sys-

tem more fair, sustainable and efficient;

ñ Intensifying the efforts to combat tax evasion,

corruption and smuggling so that all contribute

to the financing of the social safety net accord-

ing to their actual means;

ñ The third phase of the tax reform, which pro-

vides for the simplification of real estate taxa-

tion in parallel with lowering the tax burden for

individuals, which was initiated this year and

will be completed in 2009. The central tax rate

will be 25 percent, down from current rates of

30 percent and 40 percent;

ñ The full implementation of Law 3249/2005 for

Public Enterprises and Entities and the intro-

duction of relevant measures regarding the

transparency of financial statements of hospi-

tals, insurance funds and local authorities.

On these grounds, the Greek economy is mov-

ing into 2008 with considerable ammunition. Its

growth potential is solid and based on:

– Effective use of the structural funds of the next

programming period, which will amount to

more that 24 billion euros;

– A broad program of public investment, which

will amount to 9.3 billion euros in 2008;

– Private investment projects which have already

been approved within the framework of the

Investment Law of 2005 amounting to 8.78

billion euros, and

– Public-private partnership projects already

approved by the Interministerial Committee

amounting to more than 3.1 billion euros,

which will be undertaken starting in 2008.

20

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

Economy shows growth staminaas external sector lags

The Greek economy has completed its 11th con-

secutive year of strong economic growth, having

averaged 4.2 percent annually and thereby sig-

nificantly narrowing the real per capita income

gap between Greece and the EU-15. The primary

growth driver during this period has been domestic

demand, comprising solid investment growth (with the

support of EU financing through the Community Support

Framework III program) and sustained (albeit it below

the rate of GDP growth) consumption growth, notwith-

standing the persistent negative contribution of net

exports to GDP growth.

Substantial investment was channeled toward the

utilities sector but also infrastructure, general areas

which had seen little investment before the mid-1990s.

Investment in new machinery and equipment has aided

Greek corporations in their efforts to modernize,

enabling them to capitalize on the rapid growth of SE

Europe via the expansion of their branch networks and

production facilities, which in turn has contributed

greatly to the restructuring of the Greek business envi-

ronment. Investment in modern tourist facilities, in com-

bination with the new business model applied following

the Olympics of 2004, has allowed Greece to capitalize

on its comparative advantage in tourism. Investment in

housing received a significant boost from the rapid rise

in mortgage credit due in large part to the low interest

rate environment in the eurozone, while the substantial

rate of commercial investment reflected broad restruc-

turing within the sector as large supermarket and chain

stores and shopping malls rapidly replaced the more

fragmented and small-scale retail and wholesale stores.

Investment growth is expected to continue at a healthy

pace in 2008 and 2009, supported as well by EU

financing, and will continue to feature as a primary driv-

er of growth during this period, notwithstanding the

expected moderation in housing investment.

Consumption growth has also proved to be robust,

supported by: (1) solid gains in employment (mainly in

the public sector), (2) consistently high real wage

increases in excess of the eurozone average, (3) low

interest rates and a low level of credit penetration rel-

ative to the eurozone driving the rapid expansion of

consumer credit.

However, the external sector has remained a drag on

Greek GDP growth despite the satisfactory performance

of Greek exports in the last years. A combination of the

high growth of domestic demand, the surge in oil prices

and the gradual deterioration of Greek international com-

petitiveness has led to the surge in growth of imports,

with the resultant current account deficit of 11.5 percent

of GDP in 2007. On the fiscal adjustment front, the gen-

eral government deficit has been reduced to 2.7 percent

in 2007 and it is projected to fall further to 1.6 percent

in 2008. However, there is still ample room for improve-

ment, through the substantial increase of net current rev-

enue growth (which averaged an annual rate of 5.9 per-

cent in the 2002-2007 period, way below the 7.8 per-

cent annual growth of nominal GDP) and the decelera-

tion of current primary expenditure growth (which aver-

aged an annual rate of 9.9 percent in 2002-2007).

There is ample room for combating tax and social insur-

ance contribution evasion, increasing the current rev-

enue-to-GDP ratio above the 35.7 percent reached in

2007, compared with 44.7 percent in the eurozone. On

the other hand, current primary expenditure can be con-

tained through: (1) an appropriate adjustment of public

sector employment, wage and pension policies, (2) bet-

ter control of healthcare payments and (3) rationalization

of transfers to social insurance funds and social contri-

butions, which, without extensive restructuring of the

social security system, are set to register explosive growth

in the years to come.

In this regard, the government is currently in the

process of reviewing the Greek pension system with

the aim of finalizing the necessary reform legislation by

the first half of 2008. Such reform should entail: (1)

The stabilization of national pension payments in the

medium and long term at a level not far above the cur-

rent level of 12.6 percent of GDP, whereas, void of

necessary reforms, pension payments are projected to

reach 16 percent of GDP in 2020 and 20 percent of

GDP in 2030. Stabilization of pension payments in

terms of GDP requires the continued healthy growth of

GDP, taking into account the projected negative

employment growth due to the aging of the Greek pop-

ulation and particular parameters of the pension sys-

tem. Growth needs to be based on productivity

improvements necessitating the reform of the labor

market, the education and healthcare systems as well

as the central government. Maintaining healthy

employment growth requires a well designed immigra-

tion policy. (2) Increasing pension savings in combina-

tion with a substantial reduction of the general gov-

ernment debt/GDP ratio, which today still stands at 92

percent of GDP. Pension savings can be boosted by

substantially reducing tax and social security contribu-

tion evasion. However, evasion of social security con-

tributions can be tackled by establishing a tighter link

between pension contributions and pension benefits.

(3) The current attempt at the rationalization of the

government-backed Greek pension system by: (a) con-

solidating the highly fragmented pension fund market

and (b) the tightening of early retirement provisions

and rationalizing the list of ‘occupations benefiting

from lower retirement age limits due to associated

health-risks or onerous physical conditions,' as well as

the disability pension code, should contribute not only

to the achievement of substantial efficiency gains, but

also to the fairness of the system.

Dimitris MaroulisAlpha Bank economistwww.alpha.gr

21

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

Fiscal developments, reforms andprivatizations take center stage

The economic policy implemented since

March 2004 has placed emphasis on restor-

ing the fiscal balance and the credibility of

general government data along with improv-

ing the quality of public finance. Moreover, a

far-reaching reform program was launched aiming at

enhancing the growth potential of the economy. The

targets of fiscal consolidation and the reform agenda

are outlined in the 2008 draft budget, the first to fol-

low Greece's exit from the excessive deficit proce-

dure. The main policy directions and targets are:

– Further deficit reduction aiming at a balanced

budget by 2010;

– Reforming the compilation process and the pres-

entation of the state budget toward a programs-

based budget;

– Incorporating extra-budgetary accounts in the

budget;

– Enhancing fiscal audits;

– Completing the tax reform process, with empha-

sis on the simplification of property taxation,

broadening the tax base and combating tax eva-

sion;

– Reinforcing social cohesion by establishing a min-

imum national pension by 2009 and by setting

up the National Fund for Social Cohesion;

– Reform of the social security system following a

broad social and political dialogue;

– Further implemention and enriching of the new

economic model for growth, employment and

social welfare implemented since March 2004.

At the end of 2007, the general government bal-

ance for the year is expected to reach 2.7 percent of

GDP compared to 2.5 percent in 2006; however,

excluding the one-off payment to the EU (amounting

to 0.5 percent of GDP) the implementation of the

budget is right on track despite incorporating the cost

of natural disasters during the summer. The general

government debt is expected to fall in 2007 by 1.9

percentage points reaching 93.4 percent of GDP

(down from 95.3 percent in 2006). The ordinary

budget revenue for 2007 is expected to increase by

8.1 percent reaching 51,800 million euros, thus

overshooting the original target set in the budget. On

the other hand, primary expenditure is growing at

11.7 percent, higher than originally projected. This is

the result of the settlement of the debt to Olympic

Airways, the cost of tackling natural disasters and

offering assistance, and the cost of elections.

According to the 2008 budget, the target for the

general government deficit for next year is 1.6 per-

cent of GDP, while public debt is projected at 91 per-

cent of GDP. The ordinary budget revenue is expect-

ed to grow by 12.1 percent, while primary expendi-

ture is projected to decelerate significantly (+7.3

percent compared to 11.7 percent in 2007) reaching

19.8 percent of GDP. The improvement in tax rev-

enue collection is mainly the result of further tackling

tax evasion through intensifying fiscal and customs

audits and the restructuring of the system related to

fuel distribution. In parallel, providing tax incentives

for consumers to request receipts and comply with

their tax obligations is a measure along the same

lines. At the same time, the tax base in property tax-

ation is broadened, through the introduction of a real

estate tax. Fiscal consolidation continues while main-

taining high growth rates.

The effort to improve the quality of public

finances is of considerable importance. The govern-

ment aims at introducing program budgeting, in

order to evaluate the effectiveness of public expendi-

ture and to implement a new accounting system that

will support the state budget for the most accurate

and concise presentation of public finances. The

2008 state budget is accompanied by a special

report, consisting of:

ñ A presentation of the state's budget, structured in

functions and programs, the National Plan of Pro-

grams;

Loukas K. PapazoglouGeneral Secretary of the Treasurywww.mof-glk.gr

22

Cover

ñ A description of the aforementioned programs;

ñ Pilot planning for the function of ‘Culture, Reli-

gion and Sport.'

Furthermore, according to Law 3513/2006, two

new units, subordinate to the General Directorate for

the Treasury and Budget have been established in

the General Secretariat for Fiscal Policy within the

General Accounting Office:

ñ The unit for the government budget reform,

responsible for the introduction of a program

budget structure in a multi-annual budget frame-

work and the development of an assessment

framework for the performance and the outcome

of the programs and policies of the government;

ñ The unit for the Government Accounting System

Reform, responsible for the transition from the

existing accounting system to an accounting sys-

tem on an accrual basis.

By the end of 2006, a substantial step had

been taken for the reorganization of the existing

auditing system for public expenditure. In particu-

lar, according to Law 3492/2006, the responsibil-

ities of the Ministry of Economy and Finance as an

external auditor are being reinforced on the basis of

the principles of efficiency and effectiveness. In

particular, a General Directorate for Fiscal Audits

(GDFA) has been established in the General

Accounting Office/General Secretariat for Fiscal

Policy. This General Directorate, apart from sched-

uled and non-scheduled audits, will also audit the

administration and control systems of the agencies

that manage public funds using its specialized per-

sonnel and other experts. The GDFA will also draw

up an annual report which will include the conclu-

sions of the audits, the evaluation of the findings of

the supervised actors' internal control units and

relevant recommendations

Privatization policyThe primary goal of the government elected in

March 2004 with regard to privatizations was

decreasing the state's participation in economic

PRIVATIZATION REVENUES 2004-2007

Company Date % share sold Privatization Amount raised Currently under of transaction method by state (mln euros) state control

Hellenic Petroleum Aug 2004 8.21% Trade sale 192 35.50%

National Bank of Greece Nov 2004 7.46% Accelerated bookbuilding 562 0.00%

Total 2004 754

Football Prognostics Organization Jul 2005 16.44% Secondary offering (fully marketed) 1,266 34.00%

Hellenic Telecommunications Organization Sep 2005 10.00% Accelerated bookbuilding 835 38.70%

Total 2005 2,101

Postal Savings Bank Feb 2006 -- Recapitalization 400 --

Agricultural Bank of Greece May 2006 7.18% Accelerated bookbuilding 328 77.30%

Postal Savings Bank May 2006 10.00% Trade sale to ELTA (1) 15 90.00%

Hellenic Post May 2006 10.00% Trade sale to PSB 21 90.00%

Postal Savings Bank May 2006 34.84% Initial public offering 612 55.16%

Commercial Bank of Greece Aug 2006 11.01% Trade sale to Credit Agricole through public offer 364 0.00%

Total 2006 1,740

Hellenic Telecommunications Organization June 2007 10.70% Accelerated bookbuilding 1,122 28.03%

Postal Savings Bank July 2007 20.00% Accelerated bookbuilding 510 34.37%

Total 2007 1,632

Total 2004-2007 6,227

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

23

activity and achieving better utilization of state prop-

erty. The new era of privatizations is characterized by

moving away from the accounting approach in favor

of methods that maximize social welfare. In this

respect, it is very important to emphasize the maxi-

mization of the value of state-owned enterprises

before the actual privatization process. Thus, the

government chose to privatize mature enterprises

first, the value of which was widely recognized in the

market.

During 2004-2006, total privatization revenues

in Greece reached 4,595 million euros, substantially

reducing public debt. More specifically, a series of

privatization transactions was successfully carried

out in the 2004-2005 period, generating revenues of

2,855 million euros, while 2005 was a particular

success, exceeding the target revenue from privatiza-

tions by 31.3 percent.

During 2006, the privatization program focused

on further liberalizing financial markets through the

reduction of the state's participation in the banking

sector. In particular, with the restructuring and IPO

of Postal Savings Bank, the restructuring and further

privatization of Agricultural Bank of Greece

(ATEbank) and the full privatization of Emporiki

Bank, the banking sector in Greece was substantial-

ly reformed, while the corresponding privatization

revenues reached 1,740 million euros exceeding the

national budget target of 1,650 million euros.

In 2007, the government proceeded further

toward reducing its share in the banking sector

through the sale of 20 percent of Postal Savings

Bank via an accelerated bookbuild offering. In addi-

tion, 10.7 percent of the Hellenic Telecommunica-

tions Organization (OTE) was similarly sold, thus

resulting in revenues from privatizations reaching a

total of 1,632 million euros, coming within reach of

the 1,700-million-euro budget target.

The table below summarizes the privatization

transactions carried out during 2004-2007.

It is important to point out that despite the con-

siderable progress made so far in the field of privati-

zations, the government's effort will continue at the

same pace and with the same focus. In particular,

the government's privatization policy includes the fol-

lowing:

-Tourist Development Company (TDC)

The Interministerial Privatization Committee

(IPC) has decided to develop certain assets of the

company, such as the Faliro Marina, the Corfu Casi-

no, the Golf Club of Afandou on Rhodes and hotels in

various places of tourist interest in Greece. The

process for many of the aforementioned projects is

well advanced.

-Public Gas Corporation (DEPA)

The IPC has decided to proceed with the listing of

DEPA on the Athens Exchange. The listing will follow

the restructuring of the company, the legal

unbundling of the transportation activity and the cor-

responding formation of the subsidiary companies

pursuant to Law 3428/2005 for the Deregulation of

the Gas Market in Greece.

The privatization program also includes the explo-

ration of the optimal way to further privatize Athens

International Airport, as well as examining the most

appropriate methods for bringing out the value of

state participations in listed and non-listed compa-

nies.

In addition, the government recently introduced a

modern and flexible regulatory framework for public-

private partnerships (PPPs) and public finance initi-

ates (PFIs). The establishment of such a regulatory

framework, which underlines the government's inten-

tion to promote PPPs/PFIs as a method of privatiza-

tion, could drastically transform the privatization

framework in Greece while attracting foreign and

domestic direct investment.

Privatization is a method of reallocating assets

and economic activities from the public to the private

sector. Even though there was much controversy

about privatizations, mainly during the 1980s and

90s, nowadays they are widely accepted as a major

means of economic policy and structural reforms,

even more so since it has been adopted across the

world and by different political regimes.

The driving force behind the increasing populari-

ty for pursuing privatizations is that, undoubtedly,

the private sector has performed far better in a glob-

alized competitive environment than the public sec-

tor, offering products and services of better quality

and lower prices.

Both empirical and theoretical studies support

the fact that privatization increases profitability and

efficiency at the microeconomic level. Apart from

that, in the case of Greece it is evident that the pri-

vatization program has had a positive impact on the

reduction of public debt, the attraction of foreign

direct investment, and the increase in the liquidity

and capitalization of the stock market.

24

Cover

Quality twist for tourism

Tourism is a national priority for Greece due to

its great contribution to the country's econo-

my. It is neither abstract nor mutable. Its

development is perceptible through the

rhythms of the economy, outlining an impor-

tant aspect of our country's general profile. The

income from tourism alone exceeds the amount of

11.5 billion euros and represents 18.2 percent of the

gross national product. Furthermore, it serves for the

creation of new jobs. Tourism development in Greece

has opened up thousands of employment posts over

the past few years, especially for the younger gener-

ation, and we are proud to say that the tourist sector

now provides jobs — directly or indirectly — to more

than 850,000 citizens. Considering the above, it is

clear to see that tourism development is a stake of

national importance.

Our efforts are focused on three main goals: first-

ly, to enhance quality at all levels and in all aspects

of the Greek tourism industry; secondly, to establish

the country within the top world rankings of preferred

year-round tourist destinations; and last, but not

least, to attract and encourage more investment and

new business ventures. To attain these goals we

must take into consideration the fact that the tourism

environment needs to grow, with new destinations

and new services that will boost the market and lead

to shifts in traditional destinations.

At the same time, tourism itself is shifting geo-

graphically, economically, socially and in terms of

the age of travelers. The top requisite and common

denominator in all these shifts is quality and cus-

tomized options. Alongside quality and customized

options, new trends in demand are surfacing, trends

that lead to the formation of new consumer attitudes

and the emergence of new customer groups. Were

we to rest on our laurels of traditional advantages

and numeric data of recent times, the results yielded

would not come up to expectations nor would they

correspond to the expected gains of an increase in

revenues and new employment opportunities. Times

are demanding and it is imperative that we method-

ically create a newly minted, contemporary, attrac-

tive and effective tourist model, a model that will pri-

oritize Greece's new key position as a preferred

tourist destination.

To this end, we ought to be realists and willing to

comprehend that nothing can yield fruit if we haven't

invested first. That is why we start with the country's

promotion abroad. This entails dealing not only with

investment in our international image abroad, but

with its reformation as well. So, we start with pro-

motion that is inspired by vision, imagination and

inventiveness. And so far we have presented the

modern image of Greece, the image of a country with

four seasons where everyone can have a truly special

experience.

The new broader strategic positioning of our

country demands that we portray Greece as a desti-

nation of diversity and contrast, leaving each and

every visitor with the sense that they have experi-

enced something truly unique and unforgettable.

That is our strategy for the new image of Greece,

as a destination of global appeal. Sea tourism, cultur-

al tourism, rural tourism, guided tourism, health and

wellness tourism, MICE (meetings, incentives, confer-

ences, events) tourism, luxury tourism, city breaks,

and seaside tourism: These nine strategic branches are

the ones in which Greece will invest in the following

years, in order to transform the country into a year-

round destination and enhance the tourism product.

We cannot speak of a national strategy for tourism

without having constructed a new image of Greece, a

new international identity with new aesthetics that go

far beyond the ‘sun and sea' model.

Our aim is to become a preferred destination for

potential visitors and, in time, to transform that pref-

erence into a solid intention to travel to our country.

In order to maximize the returns of the country's

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

Aris SpiliotopoulosMinister of Tourism www.mintour.gr

tourism industry, we are implementing new market-

ing designs and new media plans to meet the

demands of the increased competition. This year, we

are taking the promotion of Greek tourism to a whole

new level: We are no longer investing in traditional

forms of advertising alone, but also in new creative

communication channels, where the Internet and

digital technologies have the leading role. Now,

Greece can finally claim its place as a superior desti-

nation of the highest standard.

At the same time traditional advertising is being

reinforced and renewed as well: Greece will be pro-

moted in the most prominent and prestigious inter-

national press. The most popular travel magazines

will include thematic features on our country. More-

over our presence will be felt in the traditional mar-

kets of Europe and the United States, in developing

ones such as Russia and Arab nations, and in emerg-

ing ones as well, such as China and India, associat-

ing tourism with culture. We will attract, we will cre-

ate and we will support international sporting and

cultural events that will be hosted here. We intend to

show the world that Greece has the same capacities,

services and infrastructures as the other developed

countries in the European Union. In 2008 we will be

present in China with exhibitions, taking advantage

of the Cultural Year of Greece in that country and the

Olympic Games in Beijing. We will support interna-

tional film productions that will promote the image of

Greece in theaters worldwide.

This national effort is a vital wager for our coun-

try that will transport Greece from the 20th to the

21st century. We all hope that this effort will touch

the hearts and minds of those who choose to visit our

country. We are very optimistic that we can make it

no matter how high our expectations are.

Tourism is a great force in the context of which

there is much more to unite than to divide us. After

all, tourism is Greece itself, and Greece is a matter

that concerns one and all. Greece is who we are. We

can have more and we deserve more. It is a cause

worth striving for to the best of our abilities.

25

26

CoverThe Ministry’s action plan includes boosting Greek shipping’s competitiveness, making it aworld leader, protecting the number and quality of Greek maritime jobs, while creatingbetter infrastructure.

Greece strengthens its role in international shipping

Greek shipping offers various challenges to the

international and business community via

contributing to the international trade and to

international and European bodies through its

experience, know-how and figures.

It stimulates unrelenting interest among thou-

sands of investors, businesspeople and workers, it

encourages discussions, actions and policies as

regards issues related to the environment, education,

technology and research, but above all it challenges

the Greek state and the Ministry of Mercantile Marine

to make it expand at a strong pace and increase the

vigor of this national asset.

Greek-owned shipping plays a prominent role as

a key participant in global trade, since Greek ship-

ping companies manage 18 percent of the global

fleet. Half of the EU merchant fleet is Greek and han-

dles 25 percent of the imports of oil and other goods

by the United States and 23 percent of the interna-

tional merchant fleet, maximizing thus Grece's influ-

ence on the international scene.

In addition, Greek ships have progressively

improved their age and safety standards. According

to estimations, the volume of shipping exchange will

reach 15 million euros in 2007, a ratio that will

cover approximately one-third of our trade deficit and

which is almost equal to 8 percent of the GDP.

The volume of this influx of exchange is consider-

ably important, comparing it to the 8.5 million euros

of exports total value in the past half year, the 488

million euros that came from foreign direct invest-

ments in 2006 and the 2.8 million euros achieved by

decentralization between 2004 and 2005.

However, the nature of shipping not only repre-

sents a challenge for the figures, it also provides

effective and continuing action in the field of coastal

navigation, it gives real impetus to foundations, hos-

pitals and scholarships by sponsoring them substan-

tially and gives valuable support to onshore business

since it contributes to the transportation of fuel and

other sectors such as air transport, finance, tourism,

the mass media etc.

To carry out shipping management effectively, a

resource input of 1,200 shipping companies and a

work force of 11,500, mainly Greek, are required on

a substantial scale, reflecting 160,000 to 200,000

job positions.

It is because of shipping that Greece has

strengthened its role in the international environment

and it promises a benign and sustainable outcome in

the new world where geo-economic criteria have

reshaped powers.

Nonetheless, there are factors that hinder the

development of Greek shipping and require immedi-

ate solutions, the most important of all being the

decline in seagoing employment on the one hand and

the comprehensive programs of Greek shipping com-

panies on the other, which aim at job creation via the

establishment of academies for foreign officers in the

Far East and the promotion of a skilled and trained

work force.

In addition to that, two-thirds of Greek-owned

ships do not sail under the Greek flag, a fact that

marks the priority that should be given to issues con-

cerning the shipping register.

Another crucial area is the new environment for

shipping companies where new criteria should be set

regarding sector differentials that unavoidably vary as

time passes. Thus, the setting up of cohesion criteria

is more than important and a basic precondition for a

better modus operandi in concert with shipping regu-

lations and structures that will suit today's needs.

Finally, one of the greatest challenges is the issue

of ports that undeniably play an important role along-

side logistics. Paramount importance is attached to

ports, since they constitute the best ways of promot-

ing a country's development and prosperity.

Shipping's contribution to international develop-

ment is enormous, serving 90 percent of global trade by

carrying huge quantities of cargo cleanly and safely.

There are new trends paving the way for the

future of shipping and these are:

■ Global trade is going to be increased (China's

demand for iron and copper set the pace in Asia);

■ The unified European market is wider in shipping

competition (Denmark's aspirations, which plan

to put its strength in a modern project);

■ Stricter legislation;

■ Merging trends;

■ Change of policy in shipping banks and stock

market prospects.

Greek shipowners take these trends into account.

The year 2007 has been a milestone since 850 new

ships are being built around the world. Overall invest-

ment in new and used ships will probably surpass

$15.5 billion. The shipping industry has been invest-

ing based on financial support programs, mainly

loans from foreign banks. Lately, however, major

developments have been achieved with new man-

agement trends and funds have been derived from

the international stock markets in New York, Oslo,

Amsterdam, London and Cyprus.

The 25 new Greek shipping companies listed

on international stock markets have helped Greek

shipping to become more comprehensive in char-

acter and establish itself quickly in the new mar-

kets. Annual turnovers have been estimated to

reach $400 billion, at a time when challenges in

Giorgos Voulgarakis Mercantile Marine Ministerwww.yen.gr

27

the global world are at their most acute.

Great efforts have been made to avoid distortions

of the past, to open up the shipping sector, and to

gain ground for the purposes of achieving the objec-

tives of boosting competition in the field.

Certain measures have been taken to produce

steady evolution in different aspects. The new frame-

work had to satisfy the following concerns:

1. Increased competition in the national registry;

2. Establishing the advancement of P&I Clubs legis-

lation in Greece;

3. Adopting the 3450/2006 and 3490/2006 laws,

which upgrade the status of the Merchant Marine

Academies, supervised by the Ministry of Mer-

cantile Marine, the Aegean Sea and Island Policy;

4. Reducing income taxation for seafarers;

5. Securing Greek shipping competitiveness;

6. Modifying the framework of maritime cabotage in

order to achieve higher objectives;

7. Proceeding to seaplanes, providing a stimulus for

the advancement of sea transport;

8. In the prospect of transport corridors and port

policy, we signed up the of 3-billion-euro Protocol

financing port infrastructures;

9. The Ministry has a wider scope since it merged

with the Ministry of the Aegean Sea and Islands,

given the range of responsibilities involved.

Finally, four major pivots should be highlighted:

1) Further support of shipping and development,

given the linkage with the national economy;

2) Introduction of innovative measures and actions

to move toward differentiation of Greek shipping

products and services;

3) Cooperation between the ministries of Mercantile

Marine and the Aegean Sea that can generate

positive outcomes and support for the economy of

the aforementioned area;

4) Deliberations with all interested parties. We do

not wish others to be distrustful of our sugges-

tions and our efforts made to build a stronger

regime that will govern the activities of the field.

The government shares a common target: to pro-

vide better-paid work for seafarers, more revenues

and cleaner seas.

The Ministry is willing to pursue a new course —

the course of the Maritime Cluster Manager.

This sets a new tone in cooperation. We have

been elaborating a plan that will reduce juxtaposi-

tions and will summon into being a unique outfit

linking shipping to other fields of the economy,

entering thus the heartlands of national interest

and attracting new funds from foreign countries.

Part-time investment does not assure financial sol-

idarity and the priority given to economic cohesion

has been translated into a stable and reliable busi-

ness environment.

Specifically, our action plan includes various

aspects, such as boosting Greek shipping competi-

tiveness, making it a leader in the world, protecting

the number and quality of Greek maritime jobs, cre-

ating the infrastructures necessary for better plan-

ning, organization and control of freight transport

operations, and adopting concrete actions in further

using ships in logistic services.

Other facets of this plan involve upgrading ports,

port-building facilities, developing modern port infra-

structure so as to meet the requirement of supply of

services to passenger ships and cargoes, enhancing

port competitiveness that will give access to markets

and support of sea tourism, recreational diving,

cruise ships, yachting, marinas-mooring etc.

Providing research and innovation for all shipping

and shipbuilding industries, guaranteeing navigation

safety, police surveillance and protection of the

marine environment through the coast guard and

ensuring sustainable transport operations for islands

that will boost their local economies are also targets

of primary importance.

Finally, playing a key role in the international

forums so as to support Greek shipping and increase

our efficiency in the protection of the marine envi-

ronment are great challenges but are also the tribu-

taries down which we should paddle to seek a better

tomorrow for a better future.

28

Cover

Greek capital market outlook

During the last four years we have seen

tremendous progress in the Greek economy

and the Greek capital market. The Greek

economy continues to maintain one of the

fastest growth rates in Europe. The stability

provided by the euro, the progressive income tax

reduction for companies from 35 percent to 25 per-

cent in 2007, enhanced transparency from the adop-

tion of International Accounting Standards as well as

proximity to the countries of SE Europe and the

Balkans — which are also developing rapidly and in

which Greece has an important business presence —

have all contributed toward the strengthening of the

development potential of the country. The Greek

economy is expected to keep on developing at a

faster pace than most other European countries.

On the other hand there are a series of consider-

ations that we need to take into account, both

domestically as well as internationally, that could put

a damper on this optimistic outlook.

Oil prices have increased considerably, and many

believe that the day is not far off when the price of

oil will surpass the $100 mark. The full effects of the

oil price increase have not yet been felt, but it is cer-

tain that they will negatively impact both the growth

rate and inflation.

Additionally, European exports and marketplaces

as a whole are expected to be affected by the slide of

the US dollar vs the euro.

Finally, following the strong performance of cap-

ital markets in the first half of 2007, the subprime

loan crisis hit exchanges. Most capital markets are

far from their highs set earlier in the year, while

price volatility has increased and the willingness of

investors to take on risk is at historic lows. The

financial sector in North America and Western

Europe has been the hardest hit, and many believe

that we have not yet reached the end of the tunnel.

Without any doubt, this ‘imported' crisis is one of

the main reasons behind the volatility that charac-

terized ATHEX last August and November. As far as

we are aware, it is quite encouraging that Greek

banks have had little exposure to subprime loans or

similar products, and are thus expected to weather

the crisis.

The mood therefore regarding the economy and

the business environment, despite the potential prob-

lems, is one of reserved optimism. On the other

hand, we believe that 2008 is going to be a very

important year for European capital markets. Pres-

sure from the EU is forcing European exchanges and

clearing houses to increase their transparency and

reduce transaction costs. The Markets in Financial

Instruments Directive (MiFID) came into effect on

November 1, 2007 and allows the internalization of

trade, meaning that trade can be executed without

necessarily going through an exchange.

The Code of Conduct, on the other hand, signed

one year ago in Brussels, is a voluntary agreement

between European exchanges and clearing houses

that aims to liberalize charges, eliminate cross-subsi-

dies and allow interoperability between clearing

houses.

The basic aim of both the MiFID and the Code of

Conduct is to increase transparency, reduce the cost

of transactions for the benefit of investors, and

increase the level of services provided.

For traditional exchanges, life is expected to

become more difficult and demanding, but also to

provide opportunities to those that are able to take

advantage of them. On the one hand, just as the

telecommunications market opened up a few years

ago and became more competitive, so too must

exchanges offer better, faster and cheaper services in

order to respond to the demands of this new envi-

ronment. Only the exchanges that invest in their

infrastructure, mostly in technology, in their human

resources and in product development will survive in

this environment of increasing competition.

The Hellenic Exchanges Group at the beginning of

this past year took a significant step in that direction

by reducing its transaction fees by 33 percent. This

is the largest fee reduction in the history of the

Athens Exchange.

Of course, one of the basic outstanding issues in

need of immediate resolution is the elimination of the

sales tax (0.15 percent), which at present reduces

the competitiveness of the Greek market. Unless this

tax is eliminated, our market runs the serious risk of

seeing transactions migrate to other platforms

abroad, where the tax will not be paid, and our mar-

ket will become marginalized.

While all of the above might sound like threats for

European exchanges, for those exchanges that are

successful in achieving their targets, national borders

will no longer be a constraint, as their potential mar-

ket will be the whole of Europe.

The opening of the exchange markets of Europe

is expected to strengthen the trend toward mergers

and acquisitions. The merger of the New York

Stock Exchange with Euronext, the merger of the

London Stock Exchange with Borsa Italiana, and

the acquisition of OMX by the NASDAQ and the

Dubai Stock Exchange, all of which took place in

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

Spyros CapralosAthens Exchange Chairmanwww.axa.gr

29

2007, are indicative of things to come.

The Hellenic Exchanges Group is ready to face

the challenge posed by the MiFID. During the last

few years a series of changes took place — some of

them visible to the average investors and others more

technical in nature. These changes have strength-

ened our capital market, effectively protecting private

investors and increasing the liquidity of the market.

In particular, the new Athens Exchange Rulebook,

with its corporate governance standards, has

increased the quantity and quality of information that

is made available to investors. Furthermore, the

extension of market trading hours has facilitated the

increased presence of investors from Western Europe

and North America.

In the past few years, international investors have

given the Greek market and the improvement of the

investing climate their vote of confidence with their

money. Nevertheless, we must not forget that the rel-

ative absence of local private investors is cause for

concern. Mutual funds and pension funds, with all

the problems that they have recently been facing, as

well as Greek institutional investors still seem to be

unable to play the role that they should, a role that

they play in other developed markets.

Therefore, the only way for us to develop our mar-

ket is to become more extroverted. With roadshows

in Europe and the United States in order to promote

our listed companies to international institutional

investors, we are trying to increase interest in the

local market.

Today, 53 percent of the total market capitaliza-

tion of the Athens Exchange, which exceeds 190 bil-

lion euros, is in the hands of international investors,

and they are responsible on average for approximate-

ly 60 percent of total daily trading activity. It should

be noted that, since the beginning of 2005, the net

capital inflow from other countries to the Greek mar-

ket is now approaching 17 billion euros.

In 2004, the average daily turnover at the

Athens Exchange was 140 million euros, while in

2007 this figure has been in excess of 480 million

euros. And that is not all: 2007 has been one of the

most important years in the history of the Greek

capital market as regards rights issues. Capital

raised from ATHEX in 2007 exceeded 10 billion

euros, a record amount for us, and noteworthy even

by international standards.

We believe that the HELEX Group's strategy for

growth should adhere to the following three axes:

– Organic growth

– Reduction in operational costs

– Expansion in Southeastern Europe

At the beginning of 2008 a new product and a

new market segment will be introduced as part of our

strategy. In January 2008 the first Exchange Traded

Fund (ETF) will be introduced in our market. ETFs

are like mutual funds which are listed and traded on

the exchange during market opening hours, just like

shares. ETFs are baskets of shares and thus reduce

investment risk through diversification.

Additionally, at the beginning of 2008 our Alter-

native Market, ENA, will become operational. This

new market segment, a semi-regulated market, will

have reduced listing and corporate governance

requirements and low fees, in order to attract small-

er, dynamic companies that want to raise capital at

a low cost, but cannot shoulder the costs and com-

pliance requirements of a listing in our main markets.

Furthermore, we are now ready to open our

market to remote members. The MiFID has led to

the elimination of the last remaining barriers to

entry for remote members, and their introduction is

expected to increase competition, reduce access

costs to our market, and significantly increase

transaction activity.

Concerning the second leg of our strategy, the

reduction in operating costs, the efforts of the past

few years have been quite successful, given that we

have been able to reduce our operating cost by

approximately 40 percent since 2003. The reloca-

tion of the HELEX Group to our new building, which

was completed in 2007, is expected to lead to fur-

ther synergies and economies of scale.

Finally, as regards geographical expansion in SE

Europe, our vision is to create a single hub for entry

into the capital markets of the region while main-

taining the characteristics of an emerging market.

The size of this market will make it feasible to

attract part of the liquidity directed toward emerg-

ing markets.

The benefits from the unification of the SE Euro-

pean capital markets are increased transaction activ-

ity, reduced operating expenses for exchanges, which

in turn are expected to lead to reduced costs for the

final investor, the introduction of new products to

final investors, and an increased capacity by listed

companies to raise capital.

Our guide in that vision is the cooperation

between the Greek and the Cypriot exchanges. The

Athens Exchange began the operation of the Com-

mon Platform with the Cyprus Stock Exchange in

October 2006 and the first year of operation was a

complete success, as this cooperation led to a signif-

icant increase in transaction activity in Cyprus.

To conclude, we believe that we live in inter-

esting times. State monopolies and protectionism

are a thing of the past. With free and unfettered

access to European markets, and with the appro-

priate vision in place, as well as the resources to

implement it, the Hellenic Exchanges Group will

continue to serve the Greek capital market respon-

sibly and effectively, to the benefit of the Greek

economy and its shareholders.

30

CoverIf global equity markets enter a bearish phase or volatility increases, then sectors-companies that trade at a premium vis-a-vis comparable peers may underperform.

A stock-picking year

Economic growth, regional

expansion, corporate actions,

restructuring and earnings

growth have been key drivers

of Greek share performance

during 2007.

The same themes will support

2008 market performance, namely:

Economic growth: High GDP

growth of 3.7 percent in Greece is

expected in 2008 as a result of a still

healthy credit expansion, and con-

sumer spending. Besides banks and

consumer goods we forecast a strong

year for domestic broadband and

electricity thus supporting respective

sectors.

Regional expansion: Foreign insti-

tutional investors have been investing

in the Greek equity market as a safer

proxy to SE European markets and

primarily the Bal-kans. We expect

that bottom-line contribution from

the region will be significant during

2008 for Greek banks. Exposure will

remain high for the Greek telecoms,

industrials, gaming and consumer

goods sectors.

Corporate actions: M&A activity

involving listed companies remained

strong in 2007 mainly due to the

Marfin Investment Group (MIG). For

2008 we expect continued corporate

action across sectors also supported

by the Greek state denationalization

plan.

Restructuring: Although a big part

of corporate restructuring of Greek

banks and telecoms is behind us

there is more to come, primarily in

electricity, water and ports.

Earnings growth: Double-digit

earnings growth has supported the

bull run of the last five years. Accord-

ing to our projections, 2008 will be

another year with double-digit earn-

ings growth and it will help the mar-

ket exhibit absolute gains.

Although the key investment

themes remain in place, the positive

impact of two of them, namely of eco-

nomic growth and corporate actions,

has weakened lately as a result of

credit turmoil and the situation

between the Hellenic Telecommuni-

cations Organization (OTE) and MIG.

On the other hand recent develop-

ments in the Public Power Corpora-

tion (PPC) point toward an accelera-

tion of restructuring efforts, thus

enhancing the positive impact of the

respective investment theme. I think

that the risk profile of the Greek mar-

ket has increased, which may lead to

multiple compression.

During the last earnings season

negative surprises were almost double

the positive ones. The absolute num-

ber of negative surprises increased

significantly quarter-on-quarter while

the respective positive surprises

decreased q-o-q. Given that the third

quarter follows another quarter with

increased negative surprises, if Q4

net earnings surprises are negative it

will set a trend that we last saw dur-

ing 2001-02.

The Greek market trades at a pre-

mium to Europe in terms of P/E

(2007e: 17.0x vs 13.6x and 2008e:

13.7x vs 12.4x), which is justified by

its stronger earnings growth profile.

Earnings-per-share (EPS) growth in

2008 is forecast at 23 percent,

expecting that banks and utilities will

be the key contributors to this growth

with an estimated EPS growth of 20

percent and 166 percent respective-

ly. During the last 12 months one-

year forward-looking P/E multiple

decreased by 1.0x, yet the respective

gap with Europe remained unchanged

at 1.3x.

If global equity markets enter a

bearish mood or volatility increases

then sectors-companies that trade at a

premium vis-a-vis comparable peers

may underperform. Banks, passenger

ferries, Titan, Corinth Pipeworks,

Fourlis and Piraeus Port (OLP) trade at

a premium, while Intralot, Folli-Follie,

Autohellas, Sidenor and Halcor trade

at a discount to close peers.

During the course of the year, we

maintained our risk-free and premium

rates at 4.0 percent and 4.5 percent

respectively. But as a result of still

high long rates and increased EPS

growth, required returns are higher

now and valuations have to be adjust-

ed downward. Overall, I think that

2008 will not be another bull year for

Greek equities because of high expec-

tations, increasing long-term rates

and risks of credit crunch. Neither

will it be a bear year due to the defen-

sive characteristics of the Greek mar-

ket and the region. I believe that

2008 will be a stock-picking year for

the attractively valued companies,

with resilient business models, earn-

ings quality and defensive character-

istics.

Sector-wise, I favor gaming and

utilities but will briefly discuss all key

sectors:

Banks: The financial sector world-

wide has been experiencing signifi-

cant difficulties that have led to poor

share price performance lately.

Although the Greek financial sector

has no direct exposure to the credit

issues faced by others, should this

turmoil continue far into 2008, then

possibly we could see the problem

spill over to Greek and Cypriot finan-

cial institutions.

Telecoms: Aggressive market

share gains by mobile operators may

jeopardize the broadband growth out-

look for fixed-line providers, while the

regulatory pressure to bring wholesale

rates further down may spur compet-

itive pricing pressure for facility-based

operators.

Gaming: The Greek gaming sector

appears highly attractive due to posi-

tive momentum and resilience to eco-

nomic slowdown. The outlook is posi-

tive for 2008 mainly due to the Euro-

pean Football Championship,

Europe's biggest betting firm OPAP's

restructuring and further global mar-

ket penetration by Greek lottery sys-

tems provider Intralot.

Consumer Goods - Retail: Although

competition is intensifying, the outlook

of the sector will still be dictated by the

macroeconomic environment in Greece

and SE Europe and consumption

trends along with regional expansion

and M&A activity.

Industrials: Sector performance

will depend on commodity prices,

regional expansion and the resilience

of regional growth.

Utilities: Restructuring opportuni-

ties and cost cutting will be the main

performance drivers along with the

recently announced tariff increases.

Energy: The volatile global envi-

ronment and weather conditions will

once again be critical parameters for

Greek refiners.

Transport: Following ownership

changes in the passenger ferry sector

there will be increased speculation for

corporate action during 2008.

Regarding ports, further denational-

ization is likely.

Vassilis Theodorou Research Director

National and P&K Securities

31

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

Foreign investment multiplies

The year 2008 will be significant for Greece, since

the country will actually cross the threshold of

the new Programming Period 2007-2013, for

which Greece has ensured European Union

resources of 24.6 billion euros. Together with the

national resources, the total amount reaches 36.5 billion

euros, a remarkable investment in the country's develop-

ment.

The priorities of the Lisbon and Gothenburg strategies

and the obvious turn of European policies toward the

objective of productivity and concern for the European

industry, posed significant issues for the 2007-2013

period policy guidelines. Consequently, the National

Strategic Reference Framework 2007-2013 (NSRF, or

ESPA in Greek) has explicit priorities focused on the pro-

motion of a new development prototype, which is based

on entrepreneurship, competition and an outward-look-

ing approach. The structure of its operational programs

places particular emphasis on cooperation between the

sectors, Operational Programs (OPs) and ministries, as

well as networking of the regions.

The NSRF actually offers a wide range of financing

possibilities for Greek enterprises, from the sectoral pro-

grams of Competitiveness and Entrepreneurship, Digital

Convergence and Rural Development, to the Human

Resources Development program, for enterprises that

facilitate access to employment.

Besides the abovementioned programs, enterprises

can exploit the financial possibilities of the five Regional

Operational Programs, as well as EU Target 3 programs

of territorial cooperation, successors of the former Inter-

reg Initiative.

The Ministry of Economy and Finance, in collabora-

tion with the European Investment Bank Group, is also

promoting modern financing tools, characterized by the

multiplicative character of allocated capital. Specifically

regarding small and medium-sized enterprises, which

face more difficulties in financing, the JEREMIE financial

tool has been recently introduced, to facilitate access to

financing sources, covering a wide spectrum of products,

which include microlending via banks. Equally important

is the JESSICA program, which aims at supporting enter-

prises in urban regions. Of course, apart from programs

included in the NSRF, there is always the possibility of

financing investments via the other programs of the

European Union.

However, the most important development has to do

with the implementation of the programs themselves.

The government and the Ministry of Economy and

Finance have developed the experience gained during

previous programming periods in order to maximize the

effectiveness and the NSRF programs. A new institution-

al framework has been introduced, to simplify and accel-

erate administrative procedures and to enhance trans-

parency. Among other measures, the Greek government:

ñ Reduced the number of operational programs from

24 to 13, to ensure better implementation and mon-

itoring;

ñ Divided the national territory into three regions of

motives according to the intensity of financial sup-

port;

ñ Introduced a more effective monitoring system;

ñ Accelerated administrative procedures for projects

with a budget of under 5 million euros;

ñ Signed an agreement with the Hellenic Organization

for Standardization (ELOT) for the creation of a

national project management model, to ensure

administrative sufficiency of final beneficiaries;

ñ Introduced the measure of open proclamations during

all 2007-2013 period.

Of equal importance, however, is that they are the

financing possibilities resulting from the exploitation of

national resources. The Greek government has intro-

duced a modern, effective and well-drawn investment

law. It is a powerful development tool that addresses the

investment opportunities and challenges of the new pro-

gramming period and combines the promotion of entre-

preneurship with the exploitation of comparative advan-

tages of our country in the European and Balkan territo-

ries. The new investment law has already introduced a

number of innovations compared to the previous one,

such as: the financing of enterprises without discrimina-

tion between the old and new, strategic emphasis on

quality and new technologies, tourism, renewable

sources of energy, transport and communications, more

simple and objective processes, and more emphasis on

transparency.

Along with the abovementioned actions and pro-

grams, a range of developments in the broader econom-

ic, institutional and development environment have

strengthened the country's prospects and created new

investment opportunities including the new legal frame-

work for collaboration between the private and public

sectors, the adoption of modern methods for the use of

public and Olympic properties, the liberalization of the

electricity and natural gas supply market, and the cre-

ation of a series of strategic contracts in the energy sec-

tor.

It is not by chance that during the past three years,

foreign investment has multiplied almost tenfold, reach-

ing 4.3 billion euros in 2006.

Greece of 2008 is a country of unique advantages

and opportunities, which offers financial and legal sta-

bility, a developed infrastructure, a competent work

force, an improved tax establishment and new motives

for investment. With the proper implementation of the

NSRF, there will be even more room for business to

explore, exploit and develop.

Panagiotis DrossosSecretary General for Investments

& Development www.ggea.gr

32

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

Economic openness and competitiveness

The openness of an economy, frequently

measured as a country's exports as a share

of its gross domestic product (GDP) as well

as foreign direct investment (FDI) inflows

as a share of its GDP, usually reflects the

country's competitive strength and growth poten-

tial.

Actually, the ability of a country to sell its prod-

ucts in the world market reflects the competitive

advantage of its companies in the world economy.

At the same time, FDI inflows reflect the attrac-

tiveness of the country's economy to foreign capi-

tal either as a market destination or a production

location or both.

Unfortunately, over the last 15 years the Greek

economy has not performed well on either aspect

of economic openness.

Although Greek exports have increased in value

(especially in the late 1990s and early 2000s),

they still represent a small share of the GDP (6.8

percent in 2006).

However, this development coincides with the

significant growth of world trade during the same

period leading thus to a remarkable drop in the

share of Greek exports in the world total (from

0.47 percent in 1995 to 0.39 percent in 2006).

Moreover, the relevant data show that Greek

exports of labor-intensive products (such as cloth-

ing) have literally collapsed during the last decade.

Finally, Greek exports to European Union countries

(as a share of total Greek exports) have shrunk

from 60.6 percent (in 1995) to 44.4 percent (in

2006).

The Greek economy is not faring very well in

terms of FDI inflows either. In fact, in the last 15

years the Greek economy has attracted unimpres-

sive FDI inflows despite the significant surge in the

world FDI flows during the same period.

Data indicate that the limited FDI inflows in

Greece are due to the fact that countries that have

traditionally invested in Greece, such as Germany

and the UK, have switched their investment inter-

ests in favor of other countries (such as Slovakia or

the Balkan states) instead of Greece.

All in all, these facts point out that the Greek

economy has lost its competitive edge in the world

economy since this edge had been developed on a

cost-centric business model that drew a lot from

the relatively low labor costs here in the 1960s

and 70s.

However, as low labor cost countries entered

the world market in the mid-80s and 90s (South-

east Asia, Southeast Europe and China) Greece

gradually lost its competitive advantage.

However, a deeper analysis of the macroeco-

nomic data brings a glimmer of hope for the Greek

economy. Specifically, at the beginning of 2000,

Greek exports of services (tourism, banking/finan-

cial, telecoms etc) started growing rapidly, thus

increasing their share in the world total (from 1.44

percent in 1997 to 2.74 percent in 2005).

At the same time, certain sectors, such as

chemicals, pharmaceuticals, telecommunications

and IT equipment, have gained a significant share

among Greek exports. Finally, in 2006 FDI inflows

in Greece amounted to 1 percent of the EU total,

while that share was as little as 0.1 percent in

2003.

In other words, during the last few years certain

sectors of the Greek economy have displayed

noticeable success in the world market. In particu-

lar, it appears that:

1. Some Greek companies have already realized

the immense business opportunities that are

available in the Balkans and Southeast Europe

(both as market places and also as production

locations) and thus they have quickly moved

into the region.

2. Also, Greek companies have seen an opportuni-

ty to become important regional players (e.g.

banks) and thus they have quickly expanded

their operations in the area.

3. Finally, in focusing more outside of Greece,

local companies have realized the need to

develop long-term strategies and also to sup-

port those strategies by developing the human

capital necessary to run their international

operations.

All in all, it seems that at least some Greek

companies have already realized the new rules of

the global marketplace, and they have found a

promising regional niche for themselves. In achiev-

ing these new roles they have developed a new

business model that depends on long-term strategy

and planning, investment and, finally, develop-

ment of human capital.

Perhaps these companies will finally become

the catalysts of the restructuring of the Greek

economy that is way overdue by now.

Kostas AxarloglouAssociated Professor

ALBA Graduate Business Schoolwww.alba.edu.gr

‘A deeper analysis of themacroeconomic data brings a glimmer of hope for the Greek economy.’

33

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

PPP projects point to new deals on the investment map

It was back in September 2005

that the Greek Parliament ratified

Law 3389/2005, the new legal

framework that regulates the

implementation of public-private

partnerships (PPPs) in Greece. Today,

two years later, the Greek government

has demonstrated in practice its con-

sistency between words and actions,

according to its commitments and the

timetables set. The ratification of the

legal framework was the first step in a

series of actions that in a very short

time, especially in comparison with

other European countries, have laid the

foundations for the efficient implemen-

tation of PPPs in our country.

The establishment of the PPP Task-

force has contributed decisively toward

the integration of PPPs in the agenda of

public authorities. According to a plan

of actions and priorities, we identified

the sectors, whereby this new tool

could first be implemented, and the

public authorities that had the capacity

to successfully implement it.

In parallel, we focused on inform-

ing the market and training officials of

the public sector. We have organized

more than 30 presentations across all

the Greek regions aiming at raising

awareness of PPPs within local gov-

ernments and all interested stakehold-

ers. Moreover, through a series of spe-

cial educational seminars, we have

trained both public sector officials and

officials from authorities that are in

the process of implementing PPPs.

Last but not least, the PPP Taskforce

has its own dedicated website

(www.ppp.mnec.gr/en) both in Greek

and in English, which is regularly

updated with all information and lat-

est news regarding the implementa-

tion of PPPs in Greece. Regarding the

reimbursement of the private sector,

the Inter-Ministerial PPP Committee

established a procedure that secures

their timely payment. According to

this procedure, PPP projects fall under

separate categories in the Public

Investment Program. Funds for the

reimbursement of a private partner of

a PPP project cannot be used for any

other purpose.

In any case, our main effort was the

creation of a new market of works and

services. This target depended entirely

on planning and tendering a sufficient

number of pilot PPP projects across

various sectors. By replicating success-

ful examples and best practices in other

European countries that have experi-

ence in implementing PPPs, and by

closely cooperating with the competent

public sector authorities, we have

designed and approved the first PPP

projects, which fall into diverse sectors

of the economy.

Today, as a result of all abovemen-

tioned actions, the Inter-Ministerial

PPP Committee has approved 24 proj-

ects, with a total budget of 3.1 billion

euros, which correspond to 140 new

infrastructures sites spreading

throughout the peripheral regions of

the country. The sum of the annual

future payments to be made to the pri-

vate sector contractors comes to 3-4

percent of the total annual Public

Investment Program. This practically

demonstrates the government's will

and commitment to use PPPs as a

tool, complementary to public works,

which in any case will not be eliminat-

ed or constrained.

As had been announced and

planned, the first PPP tenders were

launched in 2007 in the most trans-

parent way, precisely following EU leg-

islation. The four projects that have

been tendered, with financial closure

expected within 2008, are the con-

struction and facility management of

seven new fire stations, the reconstruc-

tion of the existing infrastructure of the

Faliron Pavilion into the Athens inter-

national Conference Center, the con-

struction and facility management of

the Police Headquarters in Piraeus,

and the construction and facility man-

agement of six new buildings for the

University of the Peloponnese.

The gradual tendering of the first

PPP projects has given the market the

opportunity to familiarize itself with the

prerequisites and the underlying ration-

ale of the public sector regarding these

new projects. We now reckon that the

market has been prepared to corre-

spond to the requirements of PPPs.

Therefore, given that public authorities

now have the required expertise and

know-how, in order to efficiently tackle

these new projects the Ministry of

Economy and Finance aims at tender-

ing one PPP project per month.

It is rather encouraging that many

large international companies have

demonstrated their interest in the

Greek PPP market by participating in

the current PPP tenders. Actually, for

some of them it is the first time that

they are bidding in Greece. This comes

to certify the rapid, yet cautious and

consistent development of PPPs in

Greece.

Today, with the rapid expansion of

PPPs and building on the know-how

acquired through the concession agree-

ments implemented in the past, our

country has all it takes to become a

focal point on the map of PPPs across

Southeastern Europe and the Mediter-

ranean region. It is a fact that many

countries are trying to replicate the

Greek model, in terms of our legal

framework, the procedures we have

established and the strategy we have

designed.

This in essence means that compa-

nies that will be involved in PPP proj-

ects in Greece will shortly find new

investment opportunities in new mar-

kets that will be developed in the forth-

coming years in neighboring countries.

The Greek government's launch of

PPPs is a major reform which is now

being implemented. It is a reform that,

as has been proven, can yield great

benefits for both the public and the pri-

vate sectors. In any case, however, it is

a reform that will yield great benefits to

the Greek citizens and that will enjoy

more and better-quality infrastructure

and services in the years to come.

Leonidas KorresSpecial Secretary for Public-

Private Partnershipswww.sdit.mnec.gr

Sector %Prime offices (CBD) 4.5 - 5.5

Prime offices (Kifissias) 5.2 - 6.2

Shopping centers 5.5 - 5.9

Highstreet retail 5.6 - 6.5

Warehousing - logistics 6.2 - 7.0

Source: Athens Economics ltd - Jones Lang LaSalle

36

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

Commercial property sustains momentum

The real estate sector has traditionally been a

solid pillar in Greek culture and this has been

proving particularly true over the past two to

three years. Indeed, following the 2004

Olympic Games the market has witnessed a

number of positive developments, such as:

– The emergence of new areas and the enhance-

ment of accessibility and visibility in others, as a result

of massive improvements in the transport and commu-

nications networks; naturally, the Games were a real

catalyst on this front.

– Favorable changes in tax rates: (a) of immediate

effect — corporate tax was slashed from 35 percent in

2003 to 25 percent today, while the recent property

taxation laws have only marginally touched on com-

mercial real estate; (b) of medium-term effect — the

imposition of VAT on new construction as well as

(optionally) on shopping centers no smaller than 4,000

square meters.

– Improvements in business practices, underpinned

by better-qualified personnel entering the sector and

greater exchange of information and statistics (both for-

mally, via specialized press, and informally, via greater

trust being gradually built among consultants and

agents alike) — all leading to higher transparency lev-

els and marking a stark difference from the opaque

state of the market as recently as a decade ago.

– Improvements in construction standards, often

triggered by the increasing presence of foreign institu-

tions and their quest for suitable investment products

and resulting in higher specification buildings with

faultless zoning and land use parameters.

In our view, the above trends are not expected to

come to a halt, despite the international credit crunch

which is undermining real estate performance almost

worldwide. Admittedly, the residential sector is already

feeling the squeeze; however, this is to a large extent

due to the sector's overexpansion in the recent past.

Conversely, the commercial sector is recording very

healthy transaction levels and as far as the latter can be

traced, they exceeded 1 billion euros in 2006 and may

well reach 1.3 billion in 2007. More specifically by

subsector: The office sector features a serious miss-

match between supply and demand, with companies

often unable to find quality premises >3,000 sq.m.

while an abundance of grade C&D offices plagues the

market, especially downtown. This situation is antici-

pated to continue well into 2008, although it is hard to

imagine that supply shortages will lead to monthly

rents beyond 40 euros/sq.m. — the last two take-ups

from the banking sector in the central business district!

Highstreet shops are solidly sought in prime locations

and the operation of a two-tier market is increasingly

apparent: Top locations command high monthly rents

(up to 220 euros/sq.m.) as well as key money (up to

5,000 euros/sq.m.) while secondary ones count vacant

units in despair. Again, supply constraints are a key

parameter, fragmented ownership in particular.

Shopping centers are a newcomer to Greece — and

are doing extremely well for it, on the back of expand-

ing consumer credit levels and behavior; indeed, the

retail trade's positive evolution — consistently exceed-

ing the European average since 2001 — largely under-

pins The Mall's and other complexes' outstanding per-

formance. More importantly, neighboring and theoreti-

cally competing traditional retail markets have wit-

nessed only small adverse effects to date, not least

because Greece is considered terribly undersupplied by

international standards. The future holds a big increase

in shopping center floor space (the 300,000 sq.m. of

existing shopping center space in greater Athens alone

is expected to more than double by 2010 should all

schemes in the pipeline materialize), so this is an area

to follow closely, as not everyone will emerge a winner

at the end of the day. In my view, certain centers will

be very successful while others may not even make it

to opening day. Lastly, warehousing and logistics is

probably the sector undergoing the greatest changes at

present, with several schemes in the pipeline and

strong demand from all quarters. Notwithstanding this

is probably the sub-sector offering less potential in the

short term to institutions, as occupier demand is trig-

gered mainly by multinationals while local players pre-

fer to owner-occupy. Still, with demand seriously

exceeding supply, initial yields currently range between

6 and 7 percent and monthly rents for quality new

space are expected to continue to fetch 6 euros/sq.m.

In reflection of such trends and expectations, net

profitability in publicly listed property companies has

been outperforming most other sectors, ranging

between 130 and 180 percent in 2005 and 2006 and

anticipated to reach at least 120 percent in 2007.

Dika AgapitidouMSc(Econ), MRICSwww.athenseconomics.gr

Net Commercial Property Yields Athens - Q4 2007

37

Real EstateThere is an important window of opportunity regarding second-home developments as Greece has not yet taken advantage of its significant assets.

Greek real estate map changes

Greece today is still considered an under-

developed country regarding its real estate

market. We must not forget that up until

recently numerous significant projects of

international and Greek companies were

unable to go ahead due to certain deficiencies in

the Greek system.

The sector received a significant boost as a

result of the country being chosen to host the 2004

Olympic Games and the increasing need for mod-

ern and sustainable infrastructure. It was then that

major real estate projects with emphasis on the

retail real estate sector began to get under way.

Two of these, The Mall Athens and Mediterranean

Cosmos, which were the first large-scale indoor

shopping centers in Greece, were developed by

LAMDA.

Today, the whole picture has definitely changed

in comparison to the previous decade, but it is very

important to note that we are still at the very

beginning of the changes that are going to take

place in the next years. At this point I would like to

briefly mention the prospects for the Greek real

estate market in 2008.

Regarding shopping center development, it is

more than evident that the two new malls have

proven a great success and that Greeks have wel-

comed them enthusiastically, despite all the reser-

vations and negative predictions that were heard

before their opening. The Mall Athens alone

receives more than 13 million visitors each year.

This new concept is not only endorsed by visitor

numbers but also by retailers who are now seeking

similar new business opportunities.

There is still room for more such development

in Athens since the average shopping center space

rate per resident is the lowest in the European

Union. This is why LAMDA Development is already

introducing a second upscale shopping center in

the Greek capital — Golden Hall — which will

open its doors to the public during fall 2008. It is

very important to note that Golden Hall has already

signed retail contracts for almost all of its spaces.

Regarding the new concept of outlets which

can be used either as factory outlets (big boxes) or

designer outlets, the opportunities are significant

since such developments are very rare in Greece.

Here, it should be mentioned that an important

characteristic of this sector is that outlets usual

appear in a market with a history of shopping cen-

ters, while malls familiarize the visitors with this

new trend.

This kind of development is very common and

popular in other European countries and is usually

found on the outskirts of big cities, offering shop-

pers the possibility to purchase brand labels at

affordable prices.

As far as logistic centers are concerned, we

should definitely mention that there is a serious

lack of modern facilities here in Greece. This is a

fast-growing market, especially now that major

international chains (ie in electronics, food, hyper-

markets etc) are entering the country and are in

need of modern spaces to store their merchandise.

Last but not least, we should mention that

there is an important window of opportunity in

regards to second-home developments. Greece has

not yet taken advantage of its significant assets,

including its climate and beautiful landscape,

which in combination with the Greek cultural her-

itage give it an important lead when compared

with other countries.

We should also not forget that Greece now

receives more tourists annually than its entire pop-

ulation, however its absorbency of European visi-

tors compared to other countries is less impressive

since we have not developed the necessary infra-

structure, such as complexes that include hotels,

villas, bungalows, golf courses, marinas etc, to sat-

isfy the everyday needs of such tourists. An impor-

tant prerequisite for such development is also the

creation of necessary infrastructure such as hospi-

tals, airports and modern highways, which are now

missing from the areas that are considered prime

destinations for tourism.

Regarding the great evolution that is now taking

place in the Balkans, and especially in Romania,

Bulgaria and Serbia, we should mention that the

right set of circumstances exist for developers due

to the increase in the standard of living, the change

in society structures and the improvement in finan-

cial indices accompanied by a decrease in tax

rates. Hence, in these countries there is a lack of

modern residential development, offices and shop-

ping malls to satisfy the increasing demand of the

local population.

George Papageorgiou General Manager

LAMDA Developmentwww.lamda-development.net

‘The whole picture has definitelychanged in comparison to theprevious decade, but it is veryimportant to note that we arestill at the very beginning of thechanges.’

38

Real EstateDemand for quality premises in prime locations is expected to remain strong whiletransactions will depend on interest from international investors.

Credit crunch misses Greekcommercial property market

The main characteristics of the Greek real estate

market in 2007 were the stabilization of prices in

the residential market and the yield contraction in

commercial real estate properties. The credit

crunch that has followed the subprime crisis on the

international level, especially since the summer, does not

seem to have had a noticeable effect on the Greek com-

mercial real estate market, with demand remaining high in

spite of higher interest rates. Despite the yield compres-

sion, Greece remains an attractive market, as better yields

can be achieved compared to the average European levels,

especially in the office and logistics market. In 2008 mar-

ket trends are expected to remain the same, with yields of

commercial properties estimated to continue contracting,

though at a slower pace.

The main office market in Greece is located in Athens.

The improvement of basic infrastructure, the expansion of

the Athens metro and the need for corporate consolidation

in modern buildings have led to the development of new

market areas, while traditional markets have maintained

their prestige. Growing demand for prime office space has

led to a positive average annual price growth. Average rents

have been stabilized in 2007 ranging from 24 to 34 euros

per square meter for prime locations in the central business

district (CBD) and from 15 to 22 euros/m2 for Grade A

office buildings in other submarkets. Average yields for

prime properties continue to decrease, indicating a rate of

between 6 and 6.5 percent.

Demand for top-quality premises in prime locations is

expected to remain strong while transactions will be deter-

mined by the interest of international investors. Further-

more, the market is going to be affected by the decision to

transfer government services from leased buildings into

new state-owned ones. Supply is expected to meet demand

as long as the majority of new developments are either

owner-occupied or pre-leased. The prime rental levels are

expected to grow at a constant rate while yields will con-

tinue to contract at a slower pace.

Regarding the retail market, the majority of develop-

ments are related to the construction of shopping centers

around the country, as Greece has a significant low rate of

available shopping space per person (55 m2 per 1,000 cit-

izens). Apart from shopping centers, supply in Athens and

Thessaloniki is still predominantly made up of highstreet

and warehouse retail, although other retail formats are

gaining momentum (e.g. retail parks).

The vacancy rate for both highstreet and shopping cen-

ters tends to zero while prime rental rates have been mar-

ginally increased. Currently, rental rates for a space of 200

to 300 m2 in a high-quality shopping center range on aver-

age from 50 to 60 euros per m2, while rents for prime retail

units in highstreet locations vary from 180 to 250 euros

per m2. Yields continue to move downward, fluctuating

between 5.8 and 6.0 percent.

For the next year market prospects depend on the com-

pletion and implementation of new developments, taking

into consideration the increased competition and how the

existing traditional retail markets will be affected. Primari-

ly shopping malls that are either under construction or in

the planning phase are expected to increase the market size

by more than 250,000 m2 of gross leasable area (GLA).

Demand will be maintained at high levels for highstreet and

prime locations. Prime rents will stabilize and yields will

follow a smooth downward trend.

The logistics market displays significant investment

opportunities as was characterized by the lack of modern

facilities. Almost 90 percent of logistics warehouses are

located in the Athens region (Thriasio Plain, Oinofyta,

Mesogeia, Spata). Prime rents for warehouses in Athens

range from 3.50 to 6.50 euros/m2, while rents for refriger-

ating units are approximately 20 percent higher due to

higher specifications. Yields for warehouse and industrial

space are estimated between 8 and 8.5 percent and for

prime new third-party logistics centers between 7 and 7.75

percent.

In 2008 demand for warehouses is expected to remain

strong following mainly the rapid growth of the third-party

logistics (3PL) market. The main characteristic is that

demand for large-scale spaces above 15,000 to 20,000

square meters is also increasing, driven largely by super-

market chains and big boxes. The increased demand for

new high-quality spaces is expected to be partially met by

government initiatives, as the administration has designat-

ed six strategic locations across Greece for the development

of logistics parks and the development of new distribution

centers for the expansion and modernization of the major

Greek ports. Supply will meet demand as long as the major-

ity of new developments are pre-leased. Additionally rents

in prime locations are expected to increase slightly, fol-

lowed by a marginal fall in yields.

Demand in the residential market in 2007 decreased

due to the increased interest rates and the vagueness of the

existing framework regarding the taxes imposed on proper-

ties. The reduction in demand has resulted in the increment

of market stock reducing construction activity. The areas of

Athens that have maintained high levels of demand are

those where the metro now extends to. However residential

prices remain almost stable. The prospects of the residen-

tial market are still uncertain and depend on the settlement

of the new taxation framework. It is expected that while

stock lasts, prices will remain stable with a potential single-

digit percentage increase. In the medium term, zoning

measures need to be taken, otherwise available construc-

tion space will be become scarce and new projects will be

fewer and fewer.

As far as the second-home market is concerned, many

international and Greek investors have shown significant

interest, but issues related to the completion of the nation-

al land registry and city planning have prevented the

implementation of such investment schemes.

Dr AristotelisKarytinos Deputy General Manager,

Head of Eurobank Real Estate

EFG Eurobank Ergasias SAwww.eurobank.gr

39

Real EstateThe increase in competitiveness in the real estate sector is both legitimate and welcome. Soon run-down areas will become the focus of urban regeneration projects.

Residential opportunities in Greece

Greece will claim a larger share of the inter-

national investment map in 2008. The

extroversion of Greek corporations paid off

in 2007 and there are even more positive

messages for the new year. The progress

that was noted also applies to the real estate sector,

where it culminates.

A competitive economy, however, requires bold

reforms. Greece can become highly competitive if it

becomes friendlier toward foreign direct investment,

which will lead to an increase in productivity as well

as employment. In parallel, our neighboring position

with the growing economies of Southeastern Europe

and the development of business activity in the

region — with the participation of numerous Greek

companies — renders the broader Balkan region

highly attractive for investment.

The real estate sector acts as the traditional

engine for the global economy. It would not be out of

place to characterize it as being in fashion, since over

the last few years we have observed efforts from cor-

porations to become active in the sector. The

increase in competitiveness is both legitimate and

welcome.

In fact, further sectoral growth is expected, given

the government's desire to regulate certain urban-

planning issues and to legislate the conditions and

prerequisites for the development and usage of land.

Once this happens it will be possible to immediately

appreciate the relationship between the cost of an

investment and its benefits, and judicial complica-

tions will be minimized.

A particularly important factor for the future of

the real estate market will be the favorable tax

regime. Providing a stable and predictable environ-

ment, in combination with the reduction of tax coef-

ficients, will give a boost to the sector. The law that

was passed by the Greek Parliament in September

2005 for public-private partnerships is now mature

and what remains to happen is the cooperation

between the channels for the optimal utilization of

the public real estate assets, as well as the develop-

ment of modern infrastructure with the provision of

financing, development, management and mainte-

nance.

We will soon observe the following trend in

Greece: Run-down areas will become the focus of

urban regeneration projects. The objective may be to

cover residential needs or in order to allow the devel-

opment of commercial complexes. Athens has a

unique opportunity with the regeneration of the area

of Votanikos. Besides, we may very well be the only

European city where only a few kilometers from the

historical city center there is an area consisting of so

many thousand square meters that lacks basic infra-

structure and is in essence abandoned.

The combined regeneration project will provide a

modern football stadium — a pole of attraction for

thousands of people — a mall of 70,000 sq.m.,

green areas and walking areas, and, most important-

ly, infrastructural work that will service at least five

densely populated municipalities. This project may

serve as a guide for the even better development of

areas that lack the basic infrastructure necessary for

a higher quality of life.

The organized development of coastal residences

will create surplus value for Greece. The country's

coastline equals that of half the circumference of the

African continent. Therefore it is easy to comprehend

the huge potential. Studies have shown that in the

coming years more than 5 million Northern Euro-

peans will relocate to warmer climates, in order to

live there for over six months a year. Under certain

conditions, tourism can contribute almost 30 percent

to GDP. Moreover, investment activity in the tourism

sector is supported by favorable tax incentives and

subsidies.

In conclusion, whether concerning private or cor-

porate investment in real estate assets, any type of

effort at exploitation is governed by rules and occurs

under certain conditions. Making a careful choice,

gathering information regarding the creation of future

value, conditions for building, and usages that are

allowed, as well as the archaeological designation of

a given area, are all areas that need to be examined.

In any case, the investment of private and institu-

tional funds in real estate assets is considered to be

of lower risk compared to other investment assets, as

long as it is realized after carrying out analytical in-

depth research and given the right timing.

Aris VovosCEO

Babis Vovos International

Construction SA www.babisvovos.gr

40

Finance

The Greek financial system in 2008

The Greek financial sector is one of most dynam-

ic and profitable areas of the Greek economy.

Since the late 1980s its performance has been

boosted by a gradual process of liberalization

and a subsequent wave of mergers and acquisi-

tions, which totaled 37 over the period 1995 to 2006.

Greek banks became fewer and larger and, in the last

decade, expanded aggressively into the neighboring

region. Today, Greek financial institutions face a num-

ber of challenges regarding their growth and profitabil-

ity strategy. Some of the open questions are:

– Will there be a new cycle of mergers and acquisi-

tions in the Greek financial sector, which would

lead to larger financial groups that are able to com-

pete more effectively in the region of New Europe?

– What are the consequences of the crisis in the sub-

prime market abroad on the domestic financial

market and the cost of money?

– Are there substantial risks involved in the expansion

in New Europe?

– Will the Greek insurance companies continue their

restructuring and consolidation in order to take

advantage of the enormous growth opportunities in

the life insurance sector?

– Will the domestic stock market strengthen its posi-

tion in the international financial system and

respond adequately to the pressures of the Markets

in Financial Instruments Directive (MiFID)?

– How can the Greek mutual funds regain the trust of

individual investors?

Banking sector

Greek bank groups are the key players in the

domestic financial system, providing a complete spec-

trum of financial services. Commercial banks' assets at

end-2006 amounted to 352 billion euros or 164 per-

cent of GDP. The degree of concentration in the Greek

banking system remains among the highest in the euro-

zone. The five largest banks in Greece held 66.3 per-

cent of total bank assets at the end of 2006, compared

to a corresponding 42.8 percent in the EU-12.

No major events occurred in the domestic financial

market during 2007, while 2008 is expected to bring

new developments concerning the future of Attica Bank

and the Greek Postal Savings Bank. The challenges and

risks that Greek banks face come mainly from the inter-

national market. The spread of the credit crisis which

began in the USA subprime mortgage market and the

growth prospects of New Europe constitute the main

sources of risk as well as opportunity in the short run.

Aftermath of the subprime crisis

The credit crisis, which spread from the subprime

mortgage markets in the US to all international credit

markets, is expected to lead to direct financial institu-

tion losses of approximately $200-$400 billion inter-

nationally. With the exception of the Greek Postal Sav-

ings Bank, the country's banks have no direct exposure

to securitized products that are based on subprime

mortgages or other subprime bank loans and, hence,

are not expected to face any direct losses. The costs for

Greek banks stem indirectly from the higher cost of

capital in the interbank market (Chart 1). Since the out-

break of the crisis in August, liquidity has dried up in

the interbank market. There is a reluctance to lend

funds for longer periods than overnight, as the lack of

information on the exposure of each international finan-

cial institution to derivative securities of low quality

makes banks suspicious of each other. This higher mar-

ginal cost of bank liquidity, coupled with the reluctance

of the European Central Bank (ECB) to cut its interven-

tion rate, will translate into higher lending rates for both

households and businesses in 2008, adding roughly

one percentage point to lending rates throughout the

eurozone. Banks will no longer offer floating rate loans

based on the ECB's intervention rate or on other gov-

ernment short-term bills, but on the higher interbank

rates, which better reflect the credit risk and the real

short-term cost of money. The higher interest rates will

naturally lead to a lower overall expansion of credit.

In addition, some of the higher cost of liquidity is

bound to be absorbed by the banks themselves. Both

factors would ceteris paribus lead to slightly lower prof-

itability.

Greek banks do not face any short-term liquidity

problems, as is the case with many banks in other

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

Gikas A. HardouvelisProfessor, Department of Banking

and Financial Management

University of Piraeus

Chief Economist, EFG Eurobankwww.eurobank.gr

Chart 1.The subprime effect on the interbank marketEurozone: 3-month EURIBOR minus the EONIA overnightrateUSA: 3-month LIBOR minus the Effective Fed Funds rate

41

countries. The average loans-to-deposits ratio in Greece

is not very high, close to 100 percent, suggesting that

the Greek financial system is liquidity-neutral. Further-

more, those banks with a loans-to-deposits ratio above

100 percent have already secured the required liquidi-

ty at least until the end of the first quarter of 2008.

Presently, Greek banks also have the ability to secure

liquidity through the ECB in the repo market using cov-

ered bonds at a lower cost than in the interbank mar-

ket. This is because the Bank of Greece (BoG) recently

allowed the issuing of covered bonds by banks under a

strict legal framework and a set of rules offering extra

protection to investors. Covered bonds use bank assets,

such as mortgages, government bonds etc, as collater-

al and if a loan in the collateral pool defaults, the bank

is obligated to replace it with another healthy loan.

Expansion into New Europe

The presence of Greek banks in the countries of

New Europe has intensified in recent years. They have

strengthened their networks in the region either through

direct acquisitions of banks in countries including

Turkey, Bulgaria, Serbia, Ukraine, Albania and the

Former Yugoslav Republic of Macedonia (FYROM) or

through organic growth in countries such as Poland

(EFG Eurobank) (charts 2 & 3). There is also active

interest in the markets of the Middle East and North

Africa, with Piraeus Bank already having acquired a

small bank in Egypt. The profit targets in those coun-

tries are ambitious but attainable. In the case of EFG

Eurobank, profitability from the international network

appears low compared to the other Greek banks (see

Chart 3), but this is a healthy sign. It is due to the

financing of an aggressive organic growth schedule,

which absorbs most of the gross profitability of the

international network itself.

The increasing dependence on bank profits coming

from abroad suggests that the macroeconomic and

financial risks in New Europe are gaining importance. Yet

2008 is expected to be a year of high growth in the

region with all countries growing above 5 percent and

with their financial sectors expanding at even faster rates.

Developments in the domestic market

Despite its small size, the domestic market is the

one that presently supports the profitability of Greek

banks (Chart 3). Credit expansion to households and

businesses continues to be strong and outperforms the

corresponding expansion in the eurozone. In September

2007, housing loans in Greece increased by twice the

corresponding rate in the eurozone (22.3 percent

against 7.8 percent on an annual basis). Consumer

loans increased by 20.8 percent (4.1 percent in the

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

Chart 3.The contribution to profits according to domestic andinternational activitiesfor the 4 largest Greek banks(3rd quarter 2007)

42

Finance

eurozone) while business loans increased by 12.1 per-

cent (13.4 percent in the eurozone). In the last two

years, there has been an increase in the growth of busi-

ness loans with a simultaneous decrease in the growth

of loans to households (Chart 4). Total loans are expect-

ed to continue increasing in 2008, since the Greek

banking system is mature, although not as much as in

the EU-13. The private sector credit-to-GDP ratio stood

at 87 percent in Greece and 176 percent in EU-13 in

the third quarter of 2007 (not including securitized

loans).

Competition in the Greek domestic market has

intensified significantly, leading to a substantial

decrease in the spreads between lending and deposit

rates. Those spreads are now very close to the eurozone

averages (Chart 5). The rapid credit expansion means

that it is crucial to be vigilant on credit risk. The non-

performing loans to total loans ratio remains higher

than in the eurozone, albeit much improved (2003: 7

percent, 7/2007: 5.1 percent) (see Monetary Policy

Interim Report, Bank of Greece, October 2007).

Insurance companies

The Greek insurance market is still underdevel-

oped and has great prospects for future growth.

Despite an important increase in premium produc-

tion in 2006 — 10.5 percent against 6.7 percent

in the eurozone, overall premium production ranks

very low in Europe: As a percent of GDP, premium

production amounted to 2.03 percent in 2006

compared to 8.16 percent in the eurozone. The

comparative shortfall in the investments compo-

nent of the balance sheet is even larger, despite its

important increase of 11.7 percent in 2006

against 5.8 percent in the eurozone. Insurance

company investments in Greece, as a percentage of

GDP, hardly amount to 1/10 of the corresponding

investments in the eurozone (4.9 percent of GDP in

Greece against 49 percent of GDP in the euro-

zone), raising questions about the efficiency of

management of insurance company assets in the

past (Chart 6).

Over the last few years, there were significant

efforts aiming at higher transparency and reliabili-

ty in the Greek insurance sector. The establishment

of a new public authority at the Ministry of Nation-

al Economy for monitoring the insurance market

constitutes an important first step. There is signifi-

cant consolidation in the sector as well with the

weaker companies being forced to cease operations

or be taken over. The number of insurance compa-

nies operating in the Greek market at the end of

2006 decreased to 90 from 110 in the year 2000.

From the official number of 90, only 77 were in

actual operation (63 Greek and 14 foreign compa-

nies) at end-2006, with most of them operating in

casualty insurance.

The Athens Stock Exchange

Following the price and trading volume boom of

the late 1990s and the crash of 2000, the Greek

stock market has subsequently recovered, follow-

Chart 6.Insurance sector asset investments and revenues from insur-ance premiums (percent GDP)

Chart 4.Loan growth in Greece

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

43

ing the rise of the international markets from 2003

onward. The entry of foreign institutional investors

and the increasing profitability of enterprises were

the main driving forces behind the renewed inter-

est in the market. Since the beginning of 2003, the

general index of the Athens Stock Exchange

(ATHEX) has gone up by 193 percent, and as of

December 12, the year-to-date increase in 2007 is

16.8 percent, outperforming most international

stock markets.

The ATHEX's aggregate price index reached an

all-time high on October 31, 2007, corresponding

to a capitalization of approximately 202 billion

euros (Greek GDP in 2006 was 214 billion), while

at the beginning of December 2007 it was 196 bil-

lion. A main feature of this period is the continu-

ously rising share in the participation of foreign

investors. In October 2007, the share of foreign

investors amounted to 57.2 percent of total capi-

talization and was concentrated mainly in large

and medium-size companies, against a share of

only 36.4 percent in December 2004. The rise in

prices and the influx of foreign investors revived

interest in raising new company capital through the

ATHEX as well. In the first nine months of 2007,

9.1 billion euros were raised through IPOs and

SPOs, a six-year high (2006: 4.1 billion, 2005: 4

billion).

Today, the Greek stock exchange and all Greek

brokerage firms and other related intermediaries

are called upon to adapt successfully to the new

environment to be shaped by the creation of a sin-

gle European market for financial services (MiFID).

The transposition of European directives concern-

ing financial service markets into Greek law opens

the way for investors to gain access to all member

states' markets under a common institutional

framework, thus increasing competition and reduc-

ing transactions costs.

Mutual funds

Greek mutual funds are bleeding. In 2007, just

as in 2006 and earlier, both open-end and closed-

end funds failed to keep pace with the rising stock

market. Open-end fund assets in the first six

months of 2007 decreased to 23.6 billion euros,

from 23.9 billion at the end of 2006 and 35 billion

at the end of 1999. Greek mutual funds represent

an aberration to a positive international environ-

ment for funds (Chart 7). Something is definitely

not right. Perhaps the funds market would reverse

course with the application of long-awaited essen-

tial reforms (tax regime, legal framework for opera-

tion of hedge funds etc).

The same dismal picture holds true for the

assets of closed-end funds, which peaked in 1999

at 4.2 billion euros, but at the beginning of Decem-

ber 2007 were approximately 0.25 billion. Part of

the drop in size is also due to the fact that a num-

ber of active closed-end funds were absorbed by

their parent banks.

Conclusions

Greek financial institutions operate in an

intensely competitive international environment as

spreads between bank lending and deposit rates

are declining and MiFID is about to unleash further

competitive pressures. Yet banks are well organ-

ized and healthy, enjoying high profitability. This is

also evidenced by the fact that the current interna-

tional banking crisis, which originated in the US

subprime mortgage market, has not affected them.

The cost of the crisis is only indirect and minor, as

it works through the higher cost of attracting funds

in the interbank market.

The future of Greek banks depends critically not

only on their success in competing effectively in

the domestic market, but also on the success of

their international expansion, mainly in the coun-

tries of New Europe. These countries are growing

fast and their financial sectors even faster. Thus

Greek banks are posed to do well. Of course, inter-

national expansion requires a careful strategy and

an active monitoring of associated risks.

Other sectors of the Greek financial system,

such as insurance companies or the mutual funds

industry, must resolve a series of deep-rooted prob-

lems and weaknesses, before achieving sustainable

and dynamic growth.

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

44

FinanceThe Greek economy has benefited greatly by becoming extrovert over the last decade or so.SE Europe has become one of the faster-growing regions globally. Greek companies haveinvested successfully in the area, mainly in banking, energy and telecoms.

Positive year for Greek economyahead, but challenges remain

The Greek economy in 2008 is expected to

grow once again at around 4 percent, at

least according to the Ministry of Economy

and Finance. The International Monetary

Fund and the European Union expect the

Greek economy to outpace the average growth of

the EU even though they anticipate the growth rate

to be somewhat lower at 3 percent. Can Greece

beat the growth rates forecast by the IMF for the

fourth year running?

In our view, it can and there are good reasons

for that. Private investment is running at twice the

European average. Private consumption on the

other hand is still growing, supported by a steady

improvement in employment rates, a rise in real

wages, low interest rates and a rapid credit expan-

sion. Although the credit expansion has posted

some phenomenal rates over the last seven years

(mortgages, personal loans, cards etc) compared to

EU averages, it is still low and Greek households

are still underleveraged.

The country's heavy industries, shipping and

tourism, are booming.

Greek shipping, which accounts for around 20

percent of the global fleet, is enjoying the best ever

period in history thanks to Asian trade. Tourism

has also enjoyed above-normal growth rates in the

post-2004 Olympics era.

The Greek economy has benefited greatly by

becoming extrovert over the last decade or so.

Southeastern Europe has become one of the faster-

developing regions globally. Greek companies have

invested successfully in the area, mainly in bank-

ing, energy and telecoms.

The very good prospects of the Greek economy

in 2008 are not without challenges though, both

internal and external.

On the internal front, the government has to

remain focused on fiscal adjustments. So far it has

managed to bring the deficit to GDP from over 7

percent in 2004 below the 3 percent target rate

and it expects to reduce it further to 2.5 percent in

2008.

Structural reforms are necessary, mainly the

reforming of the social security system and the

improvement of the Greek economy's competitive-

ness, which has slipped in the last couple of years.

On the external front, increasing oil prices and

the pickup in inflation rates are dangers that could

have an impact on the Greek economy.

Last but not least, the expected slowdown of

the global economy is going to affect the Greek

economy. After all, Greece is not a closed economy

and the effects of the subprime loans — although

they do not have a direct impact on Greek banking

as there is limited exposure to it — have resulted

in the credit crunch that has dramatically

increased interest rates.

The domestic deposit pool is not sufficient to

fund the credit expansion and as domestic banks

cannot turn to the non-existent debt capital market

or other forms of wholesale funding, they will even-

tually have to charge higher interest rates to the

borrowers.

Turning to global markets, the outlook for 2008

is quite bleak.

The market expects US growth to slow before

rebounding in the second half of 2008. Some see

the risk of a hard landing in the US and the major-

ity of investors have turned risk-averse. There is lit-

tle appetite for risk and there is huge uncertainty

surrounding the financial sector. But what people

tend to forget is that the US dollar has lost 35 per-

cent of its value during the last five years and this

is the most competitive dollar price that most of us

have seen in our working lifetimes. At the same

time, markets have pushed down asset prices

(equity and real estate) in the US.

We believe that the relative value of US assets

will increase investment in the US, which in turn

will lead to the strengthening of the currency to

1.30-1.35 euros by the end of 2008.

Greek stocks will follow the same pattern. We

expect a slow start and then the markets trading

higher in the second half of the year.

Bonds in the US and the eurozone have little

relative value as the recent flight to quality has led

to higher prices / lower yields to the point of no

zero real returns, as yields on 10-year bonds are

close to the inflation rate.

The Asian story is here to stay, irrespective of a

possible near-term correction, therefore we expect

commodities to continue providing good invest-

ment value.

Dinos KamarisHead of Treasury and Capital

Market, HSBC Greecewww.hsbc.gr

FX End 2008EUR/USD 1.3500

GBP/USD 1.8300

USD/JPY 115.00

RATESFED FUNDS 3.50 percent

ECB 3.75 percent

10Y USD YIELD 4.80 percent

10Y EURO YIELD 4.10 percent

Our forecast for 2008 is:

45

InsuranceCurbing the generosity of state pension systems is the task of the day — they will otherwisecollapse under the burdens piled upon them by demographic change.

Reform trends and social security challenges

Demographic changes rarely come without

warning. The aging of the baby boomers

has been on the cards for the last 40

years and the lifespan of the populations

of the most industrialized countries has

been increasing for more than two decades.

But it took time for policymakers to realize that

pay-as-you-go (PAYG) pension systems would not

be able to cope with the demographic challenges

looming on the horizon. In the mid-1990s, howev-

er, the message finally began to sink in and the

reform process was launched. Nevertheless, differ-

ent countries across Europe are proceeding at dif-

ferent speeds. While the new European Union

member countries of Central and Eastern Europe

created new pension systems from scratch after

the collapse of the Council for Mutual Economic

Assistance (COMECON), many Western European

governments are still struggling to find a suitable

design for their pension systems. In the coming

years we will continue to see different degrees of

pension reform among the Western European

states. In this study we look at the Western Euro-

pean pension markets, comprising the EU-15

countries as well as Norway and Switzerland.

Curbing the generosity of state pension systems

is the task of the day — they will otherwise col-

lapse under the burdens piled upon them by demo-

graphic change. Rising numbers of pensioners —

and the baby boomers who have yet to retire —

fewer workers as a consequence of falling

birthrates and increasing life expectancy are all

putting pressure on the pay-as-you-go pension sys-

tems.

Since taxes or social security contributions can-

not rise much further without undermining the

competitiveness of the European economies,

declining benefits are the logical consequence of

demographic developments. This can be achieved

by raising the official pension age and removing

incentives for early retirement on the one hand and

a straightforward reduction in benefit levels on the

other.

Demographic changes are forcing many coun-

tries to abandon their complete reliance on PAYG

financed pensions. Governments are beginning to

realize that state pensions are a risky asset - at

least for those who are still working and trying to

calculate how much they will receive after retire-

ment. Returns in PAYG systems are as volatile as

the rules, determining how entitlements are trans-

lated into actual benefits vary over time. However,

the alternative — funded pensions — is usually

regarded as the riskier way to provide for old age.

Given demographic forecasts, this need not be the

case. Returns from funded schemes may well

exceed those from unfunded ones, and at compa-

rable or lower risk. Unfortunately, a complete sys-

tem change is not possible in most countries as the

time remaining to accumulate the necessary funds

for the baby-boom generation is now too short.

Given that the forces driving returns of funded and

unfunded pension schemes are not perfectly corre-

lated, a mixture of both schemes is the best way to

prepare for the future.

A higher degree of funding in pension provision

means of course that fluctuations on capital mar-

kets affect pensions directly. However, some fears

in this respect are ill-founded. A very common

argument against funding is the so-called asset-

meltdown hypothesis. In short: Asset demand

among baby boomers drives up prices; once they

retire and try to sell their assets, there are not

enough buyers around and asset prices are bound

to collapse.

As simple and clear-cut as this hypothesis

sounds, it is likely to be proven wrong. The argu-

ment concentrates on the demand side while com-

pletely ignoring the supply side. Asset prices will

only inflate if demand outgrows supply. There are

many reasons to believe that demand for capital

will keep on growing. Investments in fast-growing

emerging markets and the need to upgrade pro-

duction lines as labor becomes scarcer in many

developed countries are only two arguments as to

why capital demand will remain high. Furthermore,

the world population is set to keep on growing,

even in developed markets — as the predicted pop-

ulation increase in the USA from 290 million today

to 400 million in 2050 shows. Investments will

need to be well diversified in future, but today

there is no reason to believe that after 2030 asset

markets will collapse for demographic reasons.

It is evident that the increasing importance of

individual and occupational pensions offers huge

opportunities for asset managers and life insurance

companies in Western Europe. More and more

funds will be channeled to these companies, tied to

the hope that their successful management secures

a long and happy retirement. The task for financial

service providers is to meet these expectations and

offer sound asset liability management and a good

investment strategy. These are becoming ever

more important, given rising life expectancy and

lackluster returns on capital markets. A prudent

long-term investment policy and superior invest-

ment concepts can significantly contribute to alle-

viating the pension challenge.

Petros Papanikolaou CEO Allianz Greecewww.allianz.com.gr

46

Insurance

Untapped market full of promise

Greece has a bright economic future.

Compared to more mature European

countries, the Hellenic Republic capital-

izes on continuous superior growth,

skilled human resources, European sup-

port and a lot of unfulfilled social needs.

Financial services definitely have a big role to

play. Experience shows that insurance contribu-

tion to GDP increases more than proportionally

with the revenue per capita. Greece has even

brighter prospects as local consumers are cur-

rently under-insured compared to their EU coun-

terparts: Financial services represent a mere 2

percent of the Greek GDP against 8 percent in

Portugal for average revenue per capita in the

same range.

To foreign professionals, the local insurance

market looks old-fashioned, in volume, in prod-

uct and service range, in pricing techniques, in

business-oriented communication, and in distri-

bution and market-driven field-marketing

approaches. Overall practice looks very tradition-

al, competing mainly on price and commissions,

refraining from entering differentiation and cus-

tomer-oriented evolution.

Big foreign players are hungrily eyeing the

Greek market for its potential and the way they

could capitalize on the experience they have

accumulated in more advanced markets.

They are expected to bring additional value to

both individual and industrial Greek customers, in

segmented and differentiated products and servic-

es, in benefits, in segmented pricing, in servicing,

and in improved end customer share in the value

chain: With the current distribution and manage-

ment costs, the return from his premium is defi-

nitely lower than in most European markets.

International (and certainly some national)

players would love to leverage local insurance

practice, especially newcomers. In reality, they

adopt a somewhat wait-and-see attitude, despite

the huge amount of goodwill they paid to enter

the Greek market.

One main reason for this paradox are some

questionable aspects of the local playing field.

The motor business is quite a good example.

Some (not always very small) consistently

unprofitable companies poison the market with

pricing far below real costs. In other European

countries, their license would be revoked or they

would be put under special administration.

It is true that the Greek insurance watchdog

took measures in the summer of 2007, but only

a limited range. Common practice did not really

change.

According to the last statistical report from

the Greek Insurance Federation, the 2005 com-

bined (including claims, commissions and man-

agement costs but excluding financial profits)

motor insurance ratio ranges around 105 percent

of premiums, in first observation. The same

report shows that first observation claims

increase by no less than 75 percent in the next

five years, bringing losses to unprecedented

heights. No sustainable market can survive with

such figures. No supervisor should accept them,

as such levels of misevaluation of provisions.

Whether such provisions are short or long, their

volatility is way beyond every acceptable profes-

sional practice.

The unique way for said steadily unprofitable

companies to survive is to look for growth at any

price on one end and to differ and minimize

claims payments on the other, further destroying

market and customer value.

The same is true in pensions. Aging is defi-

nitely the major social challenge our societies

and economies are facing. Insurance companies

are at the forefront: The core of their activity

relates precisely to managing risks in the long

term. In this respect, some local insurers have

found, it seems, the philosopher's stone. They

apparently solved an issue which is still at the

research stage in the world's most advanced pen-

sion markets, including the US and the UK.

One needn't be an experienced actuary or

supervisor to wonder how defined annuities can

be offered to a 30-year-old customer, payable in

35 years for probably some 30 years, based on

current mortality tables, underestimating even

current survival expectations. What will it be in

35 years, when the annuity will become payable?

And as if that were not enough, guaranteed

returns exceeding all risk-free historical averages

are the cherry on the cake.

In private, Greek stakeholders acknowledge

the situation. They then refer to economic nation-

alism or political influences. Maybe, maybe not.

No possible protection of steadily unprofitable

local actors, for whatever reason, short-term

political or electoral consideration, can put the

long-term revenue and wealth of Greek society at

risk!

Strict insurance supervision is a prerequisite

for the Greek insurance market to flourish. Lever-

aged by an adequate legal, fiscal and governance

environment, a dynamic and sound insurance

sector will, on a sustainable basis, offer crucial

cooperation in financing our long-term key social

challenges. Public social security systems will

not be enough.

Strong professional supervision, preventing

further companies' explicit or implicit collapse,

will revive the reputation of the industry and

Greek consumers' trust: No one is prepared place

his long-term future in the hands of providers

whose financial and professional reliability is not

solid as a rock: As of today, it still is not the case.

Eric KleijnenManaging Director

AXA Asfalistiki SAwww.alpha-insurance.gr

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

47

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

Insurance market grows whileconverging with European peers

The Greek economy is maintaining its

momentum in a challenging environment,

growing at an annual rate of 4.4 percent on

the back of strong investment spending and

healthy, though weakened, private con-

sumption growth (2.8 percent year-on-year).

Despite the outstanding increase in revenues from

the shipping sector and the achievement of a new

record in tourism arrivals, the current account

deficit reached new highs in the first half of 2007,

rising from 6.6 percent to 7.2 percent of GDP and

reflecting strong cyclical factors related to high

intermediate and capital goods imports and high

oil and primary goods prices. It should be noted

that the subprime crisis did not affect the country's

economy directly, as Greek institutions had little

exposure to subprime loans and derivatives. How-

ever, indirect consequences were not avoided.

Despite the fact that inflation projections

remain unchanged for 2008, expected at around

2.8 percent, development in international markets,

including the substantial increase in oil prices, is

likely to make targets more difficult to achieve.

Looking ahead, the Greek economy is expected

to continue growing above potential, with the main

drivers being private consumption, backed by cuts

in personal income tax rates, solid wage and

employment growth and strong fixed investment,

despite the moderation in residential construction

activity.

The Greek insurance market has to implement

a series of important reforms that will affect it

either directly or indirectly. The most important of

all is the adaptation of the market to the Fifth EU

Motor Insurance Directive, which will be complet-

ed by 2009. According to this directive, which

concerns third-party liability, the limit of compen-

sation per accident for bodily injuries is raised to

2.5 million euros and for material damages to

500,000 euros, starting in July 2009. These lim-

its will be doubled in 2012. These changes com-

bined with the implementation of Solvency II and

the new solvency framework increase the pressure

for major changes. Market dynamics and manage-

ment priorities will change materially. The optimal

size for companies to be successful in the new

environment will be redefined.

More and more insurance companies, mostly

bank subsidiaries, are operating successfully in

bancassurance. This line of business is the major

driver for market growth. As a result, companies

which do not have such operations will steadily

lose market share.

Ninety insurance companies currently operate

in Greece, compared to 114 in 1999.

Seventeen are life companies, 60 non-life and

13 composite. The market is mostly concentrated

among the 10 biggest companies with an 86.3

percent market share in life and the 10 biggest in

non-life with 56.6 percent.

Total insurance premiums for 2006 amounted

to 4.3 billion euros, of which 52.5 percent was in

life and 47.5 percent in non-life.

Despite the considerable growth that the insur-

ance sector has shown over the last seven years

(total insurance premiums for 1999 reached 2.4

billion euros), insurance premiums as a percentage

of GDP come to only 2.2 percent, compared to an

8.3 percent average for the 33 CEA countries

(Communaute Europeenne d'Assurance).

Estimates for macroeconomic developments are

positive, a fact that surely reinforces the prospects

of the insurance market. Δhe sector has the poten-

tial to grow faster than the Greek economy, due to

low penetration compared to other sectors such as

banking. Bancassurance and other retail business-

es are positioned to be the driving forces. The mar-

ket of industrial risks will not grow.

The absence of strong tax incentives for private

insurance in Greece remains a major issue. The

market is lobbying strongly for the abolition of

stamp duty as well as the increase in incentives

which will contribute to market growth. Social

insurance reform in Europe in general and specifi-

cally in Greece is just a matter of time. It is evident

that the new framework should treat the services of

private insurance companies as a key factor.

The new supervisory authority, which will be

fully operational as of January 1 2008, is expected

to be a catalyst for the development of the sector

and the market.

The outlook for the Greek markets remains pos-

itive despite the expected turbulence in global mar-

kets. The Greek insurance sector will most proba-

bly continue its growth and reform, eventually con-

verging with European averages from both the

quantitative and qualitative perspectives.

Doukas Palaiologos President and CEO

Ethniki Insurance www.ethniki-asfalistiki.gr

‘The outlook for the Greekmarkets remains positive despitethe expected turbulence inglobal markets.’

48

Market

Drinks market growing fast

The evolution of the alcohol-free beverages

market in Greece is defined by a number of

factors that concern Greek consumers' habits

and market trends. The most important of

these are:

ñ Technological progress, along with significantly

developed industrial research and development

that increase the scale and variety of qualitative

products, leading to more specialized nutritional

solutions that cover even more nutritional needs;

ñ New working conditions, the rapid pace of living

and long periods away from home on a daily

basis, which lead to the consumption of more

water, juices and refreshments in general;

ñ Today's consumer needs for beverages that offer

something more than simple fruit flavors;

ñ Consumers' shift to well-known brands with valid

certifications regarding their quality.

In addition to the above, we have to take into

consideration the fact that Greece has been one of

the fastest-developing countries in the EU over the

past 10 years. The performance of Greek industry

during 2007 in macroeconomic figures is considered

to be satisfactory. Since the beginning of this year,

the country's financial climate has been positive, a

fact that has resulted in financial growth in general.

In addition, industry investments have followed an

upward trajectory.

In retrospect, the market's course during 2007,

regarding soft drinks, water and juices sectors, has

also been northbound.

The Greek juices market is characterized by its

significant growth perspectives. Regarding con-

sumers' preferences, there is an obvious need for

specialized products, in functional packaging as well

as for enriched juices that contribute to physical

health with nutritional vitamins and minerals.

The soft-drinks market is expected to continue at

a stable pace. Consumers are showing a preference

for established brands that cover their needs for

freshness and enjoyment. As far as bottled water is

concerned, the Greek market, compared to its inter-

national peers, has in recent years shown significant

growth without having exhausted its growth

prospects.

In 2008 we will continue to monitor both the

socioeconomic environment as well as consumer

trends in order to be able to respond fast to any

emerging changes.

The strategic objective of the Coca-Cola Hellenic

Bottling Company (a member of the Coca-Cola Hel-

lenic Group) is to further enhance its key position in

these markets via the launch of innovative products,

responding to continuously evolving consumer needs,

and robust involvement at points of purchase.

In 2007, according to plan, we successfully

launched new products, while continuing to invest in

health and wellness products which, along with light

products, have shown an increase in consumer pen-

etration.

Taking into consideration future market trends,

Coca-Cola HBC has developed innovative products in

soft drinks, juices and water.

In the water category we launched Avra Active,

featuring an ergonomic bottle with a new easy-to-

open sports cap in response to consumers' needs.

Additionally, during 2007 our company

launched:

ñ Coca-Cola Zero, which preserves the authentic

taste without sugar, constituting a case study in

the Greek soft-drinks market;

ñ Amita Motion Energy Bars — biscuit bars with

nine fruits and seven vitamins that meet the daily

diet's continuously increasing requirements for

natural energy in the healthiest way. Having

developed the basic juice product, we created

one innovative snack to launch the company into

the energy bar category.

ñ An Amita Juice range with antioxidants as well as

the Amita Apple and Cinnamon Juice, the first

juice designed to be consumed hot or cold.

According to consumer research, market trends

for the next years will be characterized by intense

competition and growth. Consumers will continue to

seek out qualitative products with functional benefits

as well as attractive packaging at reasonable prices

that reflect their everyday habits, available at the

right sale points and produced by socially responsible

companies.

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

Dimitris I. Vidakis Country General Manager

Coca-Cola Hellenic Bottling

Companywww.coca-cola.gr

50

Telecoms

Telecoms sector on the move

The telecommunications industry and relat-

ed services will continue to comprise a

challenging, innovative and competitive

field of the Greek economy. It is a sector

that needs to be constantly alert and on

the move; thus, despite the market's overall

maturity levels, which may lead to an average

total income of 2-3 percent on an annual basis,

there are still market segments that have a lot of

room to grow rapidly.

Vodafone has identified these, as well as other

broadband services, and has invested and devel-

oped its services with the aim of providing total

integrated communications solutions to its cus-

tomer base. This will result in the emergence of a

single trustworthy total communications provider

capable of fulfilling all customer needs.

Based on the above, Vodafone Greece is

defined as a new and unique total communica-

tions provider. In addition, the company is pro-

ceeding with major investments regarding its net-

work, retail, services and products and, of course,

all necessary broadband infrastructure.

Homezone is a key characteristic of the new

integrated communications era. Over the summer,

Vodafone introduced a total communications solu-

tion (Vodafone Home, Vodafone ADSL Internet,

Vodafone 3in1) to the Greek market in an attempt

to offer maximum quality, state-of-the-art infra-

structure and first-class services to Greek con-

sumers.

This business approach has resulted in an

unexpectedly pleasant consumer reaction,

exceeding all initial company targets; it is esti-

mated that by the end of 2007, more that

100,000 households will be using our services.

This business approach led to an 'unexpectedly'

pleasant consumers' reaction, exceeding any ini-

tial company targets; there is an estimate that by

the end of 2007, more that 100,000 households

will be using our service.

Vodafone Greece's strategic goal is to become

even more actively involved in offering broadband

services to consumers and, at the same time, con-

tributing in speeding up the services infrastruc-

ture. This will help to minimize the huge gap

which currently exists between Greece and the

average European indicators and thus lead to

greater and faster development.

Through the new service Vodafone live!Inter-

net Plus, the Internet is now accessible literally at

the touch of a button and users can experience

the real Internet world at anytime of the day with

the new Vodafone live! handset. Furthermore,

Vodafone is placing emphasis on Mobile Plus,

which will provide integrated mobile/PC Internet,

leading IP services and VAP complete home solu-

tions. Under this framework, consumers will be

able to increase the services available on their

mobile phone, which will become an integral part

of their daily lifestyle activities and interactions.

We, in Vodafone, believe that the stronger our

competitors, the better we become, exceeding our

own targets.

The telecoms industry is a very intense and

competitive environment and will continue to be

so in terms of pricing and services offered. We

respect our competitors, whoever they may be,

and we are in favor of a 'fair yet intense' rivalry

with the customer being the end-winner.

Vodafone Greece will maintain its focus on lis-

tening to customer needs and addressing those

needs in the best possible way by exploiting both

the Group's innovative approach as well as local

know-how and expertise.

This business model is aimed at a long-lasting

relationship with Vodafone's customer base,

enhancing existing clientele and offering first-

class products and services. We are very opti-

mistic about the future and we reckon that there

are many unexplored fields that are just waiting

for a new Columbus.

However, in order to maintain this pleasant

position, the framework under which you need to

operate must be able to support this approach.

Our contribution is clear since sector competitive-

ness has been questionable for the last five years

and is expected to continue to shrink. Prices have

fallen by almost 15 percent per annum.

There is a standard price reduction every year

against a services quality and investments

increase. Greece, among others, is also faced with

four major difficulties which hinder market com-

petiveness: a) Inflation is on the rise along with

the cost of living and, therefore, there is consumer

expenditure is reduced; b) indirect taxing is

increasing; c) the public sector and its overall

bureaucratic approach, as well as reluctance in

applying the law; and d) the public sector's

unwillingness to utilize the services offered by the

telecoms market (i.e. broadband, mobile services

etc) in order to facilitate the relationship between

the citizen and the state. These four points should

be viewed as an opportunity since the existing

relationship between companies and local com-

munities is not the desired one and is holding

back the upgrading of citizens' living standards

and lifestyles.

Greece is faced with four major difficulties that are hindering market competiveness; these are: high inflation, indirect tax increases, bureaucracy and the public sector’sunwillingness to utilize telecom services.

Babis MazarakisChief Operating Officer of Vodafonewww.vodafone.gr

51

Telecoms

Telecom industry being transformed

When talking about the tele-

coms environment in

Greece today, one thing is

more than evident: the

mass use of mobile teleph-

ony. Ever since the beginning of the

1990s — when WIND, under the

brand name Telestet, was the first

company granted a GSM license and

the first to introduce mobile services

to the Greek market — mobile

telephony has experienced enormous

development. Now its penetration in

the country is approximately 110

percent compared to almost 85 per-

cent in other member states of the

European Union.

These figures — nominal, of

course, and one should provide room

for a degree of inactivity — neverthe-

less indicate that mobile products and

services have enhanced and facilitated

the lives of citizens and have brought

social and economic benefits to indi-

viduals and businesses. Does this

mean that the mobile market in Greece

has reached its peak and is already

saturated? Up to a point, yes. Surely

just about anyone who could own a

mobile phone already has one. Howev-

er, I strongly believe that there is still a

lot of potential in the increase of

mobile usage that will drive medium-

to long-term growth in the sector. This

is the reason why all competent

authorities should endeavor to leverage

the economic interest that the mobile

industry represents for society.

During the last decade, mobile

telephony has become a basic means

of diffusion and use of new technolo-

gies and today it plays a vital role in

the development of the Information

Society in Greece. This, along with

the gradual penetration of broadband

services, opens up immense possibil-

ities in the telecommunications sec-

tor as a whole. Let us not forget that

in some countries (mainly Scandi-

navia) mobile phones tend to substi-

tute the traditional means of commu-

nication like the fixed-line phone and

have somehow become a portable

computer. In that sense, I see the

vertical disposal of services, includ-

ing constant, mobile telephony and

broadband Internet, as another, new

perspective for the coming years. By

providing high-speed, mobile Internet

access, these technologies open up a

landscape where users can communi-

cate, read, listen, watch and work as

they wish, wherever they wish, using

mobile services personalized to their

interests and even their physical

location.

Today the sector is at a turning

point, as third-generation (3G) appli-

cations gradually increase in usage,

and this is definitely something that

will grow significantly in the next

years. Although voice services contin-

ue to represent the bigger percentage

of total sales for the companies, the

driving force in the sector will very

probably be the launch of advanced

value-added services based on the

possibilities of 3G technology. There-

fore, considerable investments in

new infrastructure for the expansion

of 3G networks and generally wire-

less technologies such as WiMax

must be made so as to cover a wider

area of the country and that is a must

for all Greek providers if they want to

remain competitive.

Moreover, consumers' growing

appetite for double, triple or even

quad play services under the same

provider indicates a trend for conver-

gence that big enterprises seem to be

adopting. Customers seem to prefer

to have all their communication serv-

ices (fixed line phone, mobile, broad-

band internet and gradually TV serv-

ices) from the same provider and to

deal with only one company for their

communication needs. Some years

ago the telecommunications industry

in Greece was dominated by the Hel-

lenic Telecommunications Organiza-

tion (OTE). The major characteristic

since market liberalization is the

great number of companies that pro-

vide telecommunications services.

Especially at the beginning, this

number seemed and truly was dispro-

portional to the potential number of

customers each company could have.

However, companies need to make

huge investments in order to meet

the market's needs and expectations

and to also keep up with technologi-

cal evolution. This implies consider-

able costs for those who wish to gain

a share of the market and remain

competitive and I believe that pro-

gressively a lot of small providers will

face difficulties in surviving.

Mergers and acquisitions among

small telecom enterprises will remain

the main trend in the telecommuni-

cations market, not only in Greece

but also in other countries, because

this will be the only way to fulfill the

advanced customers' needs as well

as exploit the economies of scale that

such synergies can offer. Also consid-

er that in 2006 the value of mergers

and acquisitions in the telecommuni-

cations sector reached almost 3 tril-

lion euros and this year the figure is

equally high. The case of Greece is

certainly a distinctive one since we

have witnessed major business

agreements like the takeover of Ger-

manos by Cosmote, the cooperation

of HOL and Vodafone, and last but

not least the buyout of our company

by Weather Investments last Febru-

ary, which by the way is considered

one of the biggest deals in the

telecommunications sector world-

wide. WIND Hellas also purchased

the minority stake in Tellas which

was previously owned by the Public

Power Corporation. This acquisition

has furthered WIND's commitment to

deliver Greek consumers integrated

telecommunications services, intro-

ducing them to a new era of con-

verged technologies and becoming

the leader in the Greek telecommuni-

cations market.

It is clear that the industry is

undergoing transformation, but what

about the consumer? The figures

reveal that consumers are eager to

benefit from liberalized converged

services. Today LLU connections

(fixed lines fully liberalized) are con-

tinuing to increase rapidly, shaking

OTE's position in the market. More

than 2,000 new broadband connec-

tions are being made and analysts

forecast that by the end of the year

the penetration of broadband services

will reach 9 percent. If we take into

consideration that broadband pene-

tration on the EU level averaged more

than 20 percent, it is clear that the

Greek market still has great potential

for growth.

The new landscape also indicates

a special need for the independent

regulatory body of our country, NTC,

to safeguard the new regulatory

framework and accelerate the

process of opening up the sector to

competition. Intense competition will

certainly work in favor of the con-

sumer, thus increasing the demand

of new telecommunications services.

In this environment, WIND Hellas is

favorably positioned to offer integrat-

ed telecommunications services,

namely mobile telephony, fixed

telephony, broadband Internet and

also video on demand.

The mobile telephone sector is at a turning point, with the driving force in the sector probably being the launch of advanced value-added services based on the possibilities of 3G technology.

George TsaprounisCorporate Communication

Executive Director of WINDwww.wind.com.gr

52

TelecomsThe Greek telecoms market is experiencing a long-awaited boom in broadband. This trend is expected to peak in the coming months thanks to a mix of favorablesocioeconomic and sector indicators.

Broadband market marching up the growth path

The Greek telecoms sector has continued to

expand over the last months driven mainly by

the unprecedented growth in the broadband

market. Broadband lines in fact have now

reached 1 million, more than doubling the fig-

ure of one year ago (488,000 lines). This growth was

triggered by the great reduction in ADSL prices along-

side the spectacular improvement in connection

speeds. Competition from alternative fixed operators

has fueled these market dynamics to a large extent.

Alternative operators are investing significant amounts

of money, partially financed by the government's pro-

gram for the Information Society, in infrastructure and

advertising to stimulate the broadband take-up.

Nevertheless, with household penetration of just

above 8 percent at the end of September 2007, Greece

is still at the bottom of the European league of broad-

band connections. This means that there is still plenty

of room for growth ahead so that the country can con-

verge with the EU-27 penetration average of 18 per-

cent. The future prospects are so good that most ana-

lysts and government institutions agree that such con-

vergence may now take place sooner than expected —

most probably by the end of 2009, with 2008 being

the peak year for net additions of broadband lines.

The Greek economy is healthy with declining unem-

ployment rates and GDP growing significantly faster

than in the other EU-15 countries. GDP growth is like-

ly to end up at 4 percent for 2007, a level which will

be maintained in 2008 according to the Greek budget

for 2008 tabled in Parliament. Overall, telecoms serv-

ices should be among the main stimuli and at the same

time beneficiaries of domestic GDP growth.

The government and its Ministry of Transport and

Communications are firmly committed to reducing the

digital gap with the rest of Europe and have announced

financing programs to accelerate broadband penetra-

tion. Such programs include subsidies for the develop-

ment of broadband infrastructure throughout the coun-

try and the promotion of broadband use.

Regulation, in particular that relating to local loop

unbundling (LLU), is finally fully in place, and the

National Regulatory Authority (EETT) is diligently mon-

itoring its effective implementation in the market. Addi-

tional regulation to stimulate competition is currently

under examination, the most important being the EC-

sponsored separation of the Hellenic Communications

Organization (OTE)'s network arm from its retail servic-

es arm. If implemented, it is likely to bring further trans-

parency to the LLU process and increased competition

at the retail level.

Most alternative fixed operators have already

secured the financing required to make significant

investments for the next two to three years on network

roll-out, capacity enhancement and the development of

new applications such as IPTV (Internet Protocol Tele-

vision). These investments will enlarge the market,

making fast Internet connections available to a growing

number of potential customers, households and busi-

nesses.

Personal computer and Internet penetration, still

among the lowest in Europe, are growing rapidly, ben-

efiting, among others, from government programs

bringing PCs and connectivity to primary and second-

ary schools. Internet applications such as file down-

loading, social networking and video sharing sites,

WebTV and online gaming are booming, especially

among youngsters, and require a very fast connection

to work effectively.

Greek businesses are increasingly adopting data-

intensive applications including electronic commerce,

virtual private networks (VPNs), virtual hosting, virtual

remote services, video conferencing, video surveillance

etc. All these applications will continue to drive

demand for bandwidth and, as a result, fast Internet

connections.

In summary, the Greek telecoms market is finally

experiencing the long-awaited boom in broadband. This

trend is expected to peak in the coming months thanks

to a mix of favorable socioeconomic and sectoral indi-

cators. This is very good news for the Greek economy.

As repeatedly stated by Greek Prime Minister Costas

Karamanlis, the future economic growth of the country

is directly linked to the advent of the digital and infor-

mation society.

Ruggero GramaticaManaging Director

On Telecoms SA www.ontelecoms.com

54

Economic growth, regional expansion, corporate

actions, restructuring and earnings growth have all

been key drivers of shares performance during

2007. As far as 2008 is concerned, we think that

it will not be another bull year for Greek equities

because of increasing long-term rates and risks of a credit

crunch. Neither will it be a bear year due to the defensive

characteristics of the Greek market and the region. We

believe that 2008 will be the year for attractively valued

companies, with resilient business models, earnings quali-

ty and defensive characteristics. Sector-wise we present

our view below:

BanksDuring 2007 Greek banks enjoyed a growing mar-

ket for credit products; however competition in the sec-

tor has been intensifying these, as new players

appeared or some existing banks have become more

competitive. We are positive on the banking sector due

to the fact that Greece and the broader region are expe-

riencing a solid macroeconomic environment;

economies are growing fast and credit expansion in

most of the countries is impressive. Following this,

most Greek banks have expanded their business in the

region, establishing significant footholds and, having

acquired significant experience in banking domestical-

ly, are applying their respective business models in

these foreign markets. In the coming year we expect

enhanced business volumes, and increasing bottom-

line contributions from the foreign operations. In addi-

tion to this, many Greek and Cypriot banks are main-

taining high levels of liquidity, a fact that would give

them a significant competitive advantage should the

credit turmoil persist throughout 2008. On the other

hand, the financial sector worldwide has been experi-

encing significant difficulties that have led to poor

share price performance. Although the Greek financial

sector has no direct exposure to the credit issues faced

by others, should this turmoil continue far into 2008,

then possibly we could see the problem spill over to

Greek and Cypriot financial institutions. Finally, risks in

the global macroeconomic environment are increasing

and should the significant global growth slowdown sce-

nario materialize, difficulties faced by the largest

economies could also affect macros in the region. All in

all we think that the main catalysts will be M&A activ-

ity and any further divesting of state-owned banks.

TelecomsBroadband growth in the domestic market (that lags at

least 20 percentage points in country penetration vs EU

averages) makes the Greek telecom market looking promis-

ing. Furthermore, the consumer trend toward bundled

usage tariffs and the uptake in unbundling of local

exchanges enhance the view that sector development has

taken its way. However, the aggressive market share gains

by mobile operators may jeopardize the broadband growth

outlook for sole fixed-line providers, while the regulatory

pressure to bring wholesale rates further down may spur

competitive pricing pressure for facility-based operators.

Bearing all this in mind we conclude that the catalysts

which will mainly affect the sector are the following: a)

industry consolidation among alternative players (yet out-

right exits are unlikely at this stage as market growth is

likely to nourish laggards over the next two to three years);

and b) accelerated positive contribution by regional activi-

ties for the Hellenic Telecommunications Organization

(OTE) Group coupled with possible government stake dis-

posal/strategic investor interest. It is worth noting that dur-

ing 2007 the shares price performance was positively sus-

tained by Marfin Investment Group (MIG)'s build-up posi-

tion in OTE and Cosmote's minority buyout by OTE. On cor-

porate terms, the key catalyst in 2007 was the launch of

fixed/mobile converged offers by Vodafone and Wind/Tellas.

For 2008 the telecom share price catalysts are a) the

evolution of domestic fixed market in customer churn and

migration toward LLU mobile players, b) the potential

appearance of a strategic investor for OTE, coupled with

the active role of MIG in management decision-making, c)

the further evolution of Romtelecom, d) the evolution of

Forthnet's market share in ADSL/LLU customers, and e)

circa 50 store openings of Forthnet.

GamingThe Greek gaming sector appears highly attractive since

growth — in terms of revenues — is continuous (CAGR

1998-2006: 16.2 percent) while domestic sales per capi-

ta are the highest within Europe. No matter if the Greek

gaming sector is inelastic to economic slowdown, the sec-

tor relies heavily on the state's stance toward gambling,

which could change following recent trends in the EU.

During 2007, the sector was influenced by the signing

of the contractual agreement between Europe's biggest bet-

ting firm OPAP and Greek lottery systems provider Intralot

regarding the procurement of terminals by the first, the

appointment of Christos Hadjiemmanuil as new president

and CEO of OPAP, the uptake by Intralot of new projects

(South Korea, Russia, South Africa, Australia) and the

grant of operation licenses in Italy and Madrid.

The coming year looks again positive mainly for the fol-

lowing reasons: a) Euro Cup play, b) the announcement of

OPAP's business plan, c) the possible launching of the

game KINO on ships, d) the approval of new games by the

Greek state (e.g. VLT), e) in-house risk management of Sto-

ichima by OPAP, and f) further market penetration by

Intralot despite the fact that US lotteries privatizations look

highly improbable for 2008.

Consumer Goods - RetailConsolidation activity, consumer consumption, credit

and regional expansion, positive demographics from immi-

Markets

National P&K Securities

National P&K Securities

2008 Sectoral Overview

55

grants and currency movements influenced the sector's performance

to a great extent during 2007. No matter the market's maturity, the

enhancement of competition and the negative demographics from the

Greeks, the retail - consumer goods sector has potential. Key per-

formance drivers are still the macroeconomic environment in Greece

and SE Europe, consumption trends along with regional expansion

and M&A activity.

IndustrialsDuring 2007 industrial sector companies intensified their

efforts in further expanding their business in the fast-growing

Balkan regions and establishing distribution networks in South-

east Europe. However, high commodity prices hurt demand for

some products (especially copper products) and affected fabrica-

tion margins, negatively impacting margins, and significantly

increasing working capital and financing needs. In addition, the

prevalence of substitute products, especially for copper products,

still represents a threat to revenue.

All in all, we are positive about the sector since the antici-

pated lower commodity prices will have a positive impact on

margins, working capital and financing needs. At the same time,

international demand for bauxite will continue (S&B Industrial

Minerals), while further capacity additions are expected to

increase volume and profitability (Viohalco Group).

UtilitiesUtilities in Greece exhibited a solid performance during 2007

mainly due to monopoly power; water utilities maintain exclusive

water and sewage rights in Greece and the Public Power Corporation

(PPC) maintains the electricity monopoly despite the market deregu-

lation on July 1, 2007 along with the strong and sustainable elec-

tricity demand that we expect in Greece in the future.

Also the management is making important efforts to bring about

significant changes, especially in the improvement of operation

expenses containment (PPC); we mention the low generation cost

due to exclusive access to lignite, despite the poor quality and car-

bon dioxide (CO2) emissions. At last water utilities have presented

strong balance sheets, relatively lean and efficient operations and,

following the annual tariff increases that are already approved, there

is a satisfactory capital expenditures (CapEx) plan ahead. However,

increasing commodity prices, government interference and the slow

regulatory change in Europe and in Greece are negatively influencing

the sector's performance. For 2008 we expect that restructuring

opportunities and cost cutting will be the main performance drivers

along with the tariff increases.

EnergyThe volatile and negative environment, evident from the weak US

dollar, relatively unchanged refining margins year-on-year and

decreasing trading activity due to oil prices increased volatility and

lower demand influenced the sector's performance to a great extent

during 2007. On the investment positives we highlight the limited

domestic competition due to high entry barriers to foreign competi-

tors. In addition, solid financials with low leverage, tight CapEx dis-

cipline, ongoing cost containment, operational expenditure (OPEX)

restructuring (Hellenic Petroleum) and CapEx rationalization, all aim

at tangible benefits such as maximizing profits — an investor-friend-

ly policy evident from the high dividend payout (Motor Oil). Howev-

er, sporadic government interference and the potential shutdown of

a hydrocracker unit pose a risk to cash flows (Motor Oil). For 2008

the energy share price catalysts could be the volatility of the global

environment (Med cracking refining margins, dollar/euro, oil prices in

2008), weather and speculation for further MOH placement.

TransportIndustry consolidation and last year's vessel disposals are likely

to boost utilization rates and load factors in the Adriatic Sea, offset-

ting a sluggish top line at the operating profitability level. In addition,

further rationalization in debt structures through refinancing are

expected to lead to overall lower interest expenses in the coming

quarters. All in all the domestic market is estimated to continue to

drive growth in top line and margins due to superior utilizations. In

contrast, rising fuel costs and competition set key barriers in margin

expansion, while potential refleeting (possible in the case of Minoan

Lines) may stress debt capacity on balance sheets. The realization of

economies of scale and synergies with competitors in common mar-

kets remain the major catalysts in 2008 following the public offer of

MIG for the Attica/Blue Star shares, which may lead to owner struc-

ture change. Regarding ports and particularly the Piraeus Port

Authority the privatization prospects following the completion of the

new container terminal are expected to act as positive share catalysts

in the coming year along with a potential stake reduction/ placement

by the Greek state.

RESThe high wind load factors that Greece enjoys combined with

strong incentives, such as feed-in tariffs and power purchase

agreements, positively affected the renewable energy sources

(RES) sector's performance during this year. However, wind lev-

els may vary from year to year and good spots for wind park

installation become fewer due to high investor interest. More-

over, there are high CapEx needs and the timely supply of wind

generators is not guaranteed as demand is reaching higher lev-

els. Bureaucracy and litigation issues as well as local communi-

ty unrest in some cases significantly delay the licensing and

installation of the RES parks, although new laws aim to reduce

bureaucracy. The year 2008 will prove whether bigger expecta-

tions for the sector are justified and whether huge investment

projects are feasible.

Food & BeveragesIn this sector 2008 is expected to be another competitive and

fruitful year (in corporate and industrial terms). Competition is

expected to be further enhanced with smaller brands winning market

share and consolidation among supermarkets to become evident. Key

performance drivers for the coming year are the increase in con-

sumption and the increase in market share through (further) pene-

tration in (existing and) new markets. The restructuring of operations,

the utilization of assets, product innovation and input costs are also

among the catalysts that will affect shares performance.

56

SecuritiesVolatility is expected to continue in 2008. The majority of banks and companies do notseem affected by the defaults in the US subprime sector but there will be some side effects.

Market challenges for 2008

With year-end approaching, we are left to

ponder whether the aging Greek bull

market can generate enough stamina to

defy the odds yet again and continue

powering on. Indeed, the General Index

has risen on a yearly basis. Nevertheless, the recent

wave of defaults in the US subprime mortgage sector

that sent shock waves through Wall Street has

inevitably increased the pressure on European mar-

kets, including Greece. Moreover, the US market for

leveraged loans is unlikely to undergo a sustained

recovery anytime soon, considering that 20 percent

subprime mortgages issued between 2005 and 2006

are projected to fail, according to a December 2006

study by the Center for Responsible Lending, a non-

partisan research and policy organization.

Oil prices, in turn, hit record highs this year,

while predictions suggest that oil prices will exceed

$100 a barrel in the not-too-distant future. The same

applies to most commodities (i.e. copper, silver, gold,

cotton, corn), which experienced large price increas-

es during the past year. The continuous rise in oil and

commodity prices will fuel inflationary phenomena in

the eurozone and weigh on the companies' cost side.

One could argue that the negative effect of high oil

prices is partly offset by the weakness of the dollar

against the euro, as oil imports are US dollar-denom-

inated. Nevertheless, EU products have overall

become more expensive and, hence, less attractive to

customers.

Moving on, the world's biggest central banks

have stepped in to relieve fears of a credit market

crunch, pumping billions of euros into volatile mar-

kets in an effort to boost liquidity. The rising worries

about difficulties in the US subprime mortgage mar-

ket have left banks uneasy regarding interbank lend-

ing. As the US economy continues to be fragile and

expectations on future corporate earnings are low,

the US Fed might further trim its interest rates next

year to boost liquidity and protect the US economy

from a further slowdown. The European Central

Bank, on the other hand, is unlikely to raise its inter-

est rates, due to the strength of the euro against the

dollar.

Looking therefore at the Greek market's prospects

for 2008, there is inevitably the risk related to the

rather unfavorable macroenvironment. What's cer-

tain is that we do not expect the volatility in stock

exchanges to ease. On the contrary, we are likely to

see further turbulence in capital markets internation-

ally. Many houses and funds have not yet disclosed

the losses related to the US credit market crunch to

the full extent. On the upside, the majority of Greek

banks and companies do not appear affected by the

defaults in the US subprime sector. Note, though,

that as the crisis becomes deeper, we will inevitably

see some side effects in the Athens Exchange. For-

eign investors, who hold more than 50 percent of

Greek stocks, might decide to cash in some juicy

capital gains if the picture in the US becomes uglier

and the declining stock prices continue to affect the

total value of their investment portfolios.

The question now is whether the Greek market

can minimize the effect of the US subprime crisis,

surpass the negative macro-backdrop and continue

its upward trend for the sixth consecutive year. The

answer can be found in the fundamental dynamics of

the Greek market, the growth potential of local com-

panies, their market positioning, and, most impor-

tantly, their expansion overseas. The majority of

Greek banks and a multitude of other companies

have already expanded their operations abroad,

mainly in the Balkans and in Southeastern Europe.

The aforementioned regions are characterized by

high growth prospects (GDP growth exceeds 5 per-

cent per annum) and favorable market conditions

(i.e. underdeveloped financial activities). Greek com-

panies have thus created a new source of revenue

stream that is expected to accelerate in the future. At

the same time, they have strengthened their position

in the globalized business environment and hedged

themselves against the gradual deceleration of the

Greek economy.

Alexandros BillisPresident of Euroxx Securitieswww.euroxx.gr

57

SecuritiesOn the domestic scene, the economic agenda in 2008 will be centered on marketderegulation and social security reforms.

Foreign funds keeping an eye on Greece

The year 2007 saw many fluctuations in the

market along with increased activity in

buyouts and mergers and the collapse of

the subprime market in the United States.

These two factors worked in different ways,

contributing to sentiment and trends in all devel-

oped markets.

Particularly, the subprime loans crisis was a

catalyst for a series of developments that had a

direct consequence on policies adopted by central

banks and risk assessment in every category of

securities that are linked to leveraging.

During 2007, growth rates were close to 4 per-

cent and businesses maintained profitability at

very high levels (above 28 percent) for the fourth

straight year with solid inflows from Eastern

Europe and the Balkans. At the same time, capital

raised reached 9 billion euros to fund buyouts or

new corporate plans. The participation of foreign

investors exceeded 52 percent and turnover vol-

ume rose with daily volumes reaching 450 million

euros.

The year 2008 is starting off after the sorting

out of high-risk subprime loans internationally, a

reassessment of leveraging as a financial tool, new

rules and an institutional framework for the proce-

dures of financial groups (MIFID) and other deli-

cate currency and energy balances.

The agenda of the American economy is expect-

ed to change due to election results (November 4,

2008) while the application of Basel II will lead to

international pressure for larger financial groups

that will be able to withstand the test of the new

banking legislation.

Additionally, the trend and need to find new

technology that is friendly to the environment is

expected to stir more intense investor interest in

ecological investments whether they relate to ener-

gy sufficiency, waste management or recycling.

Activity regarding legal changes and regulations

from institutional regulators (European Union,

international conditions etc) has already con-

tributed to an important market with major gains

and increased presence from leading companies

that attempt to differentiate their activities.

On the domestic scene, the economic agenda

for yet another year will be centered on market

deregulation (power market, transport infrastruc-

ture etc) and social security reforms.

Additionally, a series of privatizations are

expected to attract investor interest, such as the

extension of the Attiki Odos highway, the listing of

the Public Gas Corporation of Greece (DEPA) on

the Athens bourse, the sale of a stake in Athens

International Airport. Other developments with a

smaller impact, such as the operation of the alter-

native market on the Athens bourse, licensing casi-

nos, speeding up energy projects and the utiliza-

tion of state real estate assets are also likely to

have an impact on different economic fields.

Company profitability in the next financial peri-

od will not enjoy the same tax benefit from a reduc-

tion in tax rates as in previous years. However,

consolidated balance sheets have increased

inflows from developing countries, offsetting any

lack of growth domestically.

Bank sector revenues from New Europe amount

to 20 to 25 percent of income and many network

investments will have been completely recovered

by 2008. A similar situation exists with commer-

cial companies while the consequences from the

slowdown of the housing market in the US only

relates to isolated cases. For 2008, we estimate

that profitability growth rates will be in double dig-

its between 12 to 14 percent.

Regarding merger activity, we expect talks to

pick up in a series of different fields with a main

emphasis on the domestic economic scene.

Social security reforms can operate as a cata-

lyst for takeovers in banking and low profit margins

in telecommunications leave open the possibility of

a consolidation among alternative carriers.

A similar situation exists with ferry operators

where a cycle of buyout activity is in process and

increased oil costs are putting pressure on mar-

gins. There are still large amounts of liquidity on

company balance sheets in the retail trade sector

which can potentially be used for buyouts in or out

of Greece.

In conclusion, we expect a differentiation of

company returns next year with a positive impact

for the market due to the increased weight of the

fields mentioned in the formation of indices and

domestic economic activity. The combination of

strong corporate growth rates and the Greek econ-

omy's stability we believe will continue to draw for-

eign investment capital, further improving partici-

pation of foreign institutional investors.

Manos HatzidakisHead of Investment Strategy

Pegasus Securitieswww.pegsec.gr

‘The trend and need to find newtechnology that is friendly to theenvironment is expected to stirmore intense investor interest inecological investments.’

58

SecuritiesCompared to other markets, investment confidence is expected to become more concretefrom the second quarter of the year, due to positive economic and political developments.

Strong growth gives Greek market an edge

In 2008 the Greek capital market is expected to

be affected by turbulence in major foreign capi-

tal markets that had already started by the end

of 2007 and relates to the mortgage markets in

the US. In this respect, the Greek market will be

sensitive to increasing lending costs that may follow

rising risks in the mortgage markets. These costs are

expected to lower corporate profitability in the euro-

zone in 2008, including Greece, but the overall effect

will not result in overall negative corporate profit

growth for companies listed on the Athens Exchange.

Nevertheless, the pricing of these higher lending risks

in major EU economies and the US is expected to

result in increasing price volatility during the first

quarter of the year in the Greek capital market, in

line with other capital markets.

Compared to other markets, investment confi-

dence is expected to become more concrete in the

Greek market from the second quarter of the year

onward, due to the following positive economic,

financial and political developments.

First, the Greek economy is expected to grow

quickly. Greek GDP growth is expected to exceed 3.5

percent not only in 2007 but also during 2008 and

2009, due to the ‘Olympic effect.' The Olympic effect

refers to an expected 2 percent annual GDP growth

premium that small countries have, compared to

similar countries, for each of the following five years

after they have hosted the Olympic Games.

Second, the government has shown determina-

tion to privatize major state-owned companies,

something that is expected to maintain, if not

enhance, the interest of foreign investors. Foreign

investors already have 50 percent of the funds in

Athens Exchange-listed companies.

Third, the growth of corporate profits is expected

to exceed 30 percent in fiscal year 2007 and 17 per-

cent per annum in FY 2008 and FY 2009, something

that gives the Greek market an edge as far as con-

tinuing interest is concerned.

During the first half of the year interest is expect-

ed to be stronger in utilities and banks, for different

reasons.

Utilities are expected to continue to see more pri-

vatizations while also being favored by the govern-

ment's decisiveness to raise bills, especially in elec-

tricity and water. If higher utility bills do materialize,

this will result in an immense increase in corporate

profits, profit prospects and the overall value of these

companies. The willingness of the government to pro-

ceed to further privatization of these companies will

also boost investor confidence in these companies

and the market in general.

While privatizations and pricing policy favor utili-

ties, banks are favored by merger trends and sus-

tainable profit growth. Bank merger trends in major

capital markets, increasing the presence of foreign

banks in Greece and the high growth prospects of the

Greek bank sector may encourage new mergers.

While profit growth from domestic activities tends to

be lower for Greek banks, it is coupled with strong

double-digit profit growth from international opera-

tions, mainly in the Balkan area. Nevertheless, the

profit growth of these institutions is expected to be

considerably lower in FY 2008 compared to that of

FY 2007.

Diminishing profit growth for banks in 2008 will

somewhat limit the ability of these companies to

appreciate by the second quarter of 2008 and will

eventually force investment funds to switch their

main interest to other sectors. If market conditions in

major capital markets are relatively stable by the sec-

ond half of the year, something possible — while

unknown for the moment — the switching of invest-

ment funds to other, but not financial, sectors could

eventually tend to an appreciation not only of large-

caps, which is now the case, but also of mid-caps

and small-caps, enabling the enlargement of the

investment base at the end of the year. Under the

conservative scenario, share price increases will be

modest, resulting in just an incremental appreciation

of the Athens Exchange Index.

Konstantinos Vergos PhD

Head of Research

Cyclos Securities SAwww.cyclos.gr

59

International trade relations

Optimism on Greek-Chinese ties

Since 1978, the Chinese economy

has been in a constant process of

liberation, displaying an annual

average growth rate in the region

of 10.1 percent over the last 15

years. Financial forecasts for 2008 indi-

cate an increase of some 11.3 percent.

The Chinese currency has strengthened

against the dollar since mid-August

2007, but it has weakened against the

euro, hitting Europe's competitiveness.

Europe's pressure on China with its con-

stant demand for faster revaluation of

the yuan has begun to bring the first

results restricting China's trade surplus

against Europe's at 26.28 billion US dol-

lars in November from $27.5 billion in

October. However, Europe's trade deficit

remains high compared with China's,

whereas Greece's trade deficit with

China remains high despite the decrease

of the gap compared to 2006. According

to Greek economists' financial forecasts,

it seems that China's exports to Greece

will continue to increase, but at relative-

ly lower rate in comparison to 2007, a

year in which there has been an increase

of approximately 30 percent compared

with 2006.

Therefore, efforts must be mostly

directed at increasing Greek exports

(promotion of agricultural exports, tourist

influx etc) to China with a simultaneous

improvement in the exported product

range in order to restrain the yawning

trade deficit at the expense of our coun-

try. A great part of the trade deficit is

counterbalanced by the returns of the

Hellenic merchant marine, which plays

a great role in the transport of goods to

and from China as well as international-

ly. At the same time, Greek shipowners

are building new vessels of great value in

Chinese shipyards.

As the gate to the Middle East, Asia

and China in the dynamically devel-

oped area of Southeastern Europe, as

well as the rest of the European conti-

nent, Greece can contribute to and

organize the development of financial

cooperations and business transactions

between China and Europe. It offers the

territory and the passageways for Chi-

nese products to Europe and vice versa.

This possibility helps to maintain a

mutual interest in promoting joint pro-

grams to interconnect Greek and Chi-

nese ports, and the Chinese interest for

investments in Greek ports is evident.

The development margins for Greek-

Chinese business and investment coop-

erations and the increase of Greek

exports are immense. As regards fur-

ther improvement of industrial coopera-

tion, and in particular regarding small

and middle-scale businesses, there are

significant margins as well.

Moreover, for Chinese visitors, the

main drawing points of Greece are its

history, civilization, natural environment

and high-quality infrastructure, which

have the potential to be profitably

exploited given the fact that Chinese

tourists destined for the EU number

more than 22 million people, although

the Greek share continues to remain rel-

atively low. If 5 percent of those 22 mil-

lion Chinese tourists visited our country

for the purpose of congresses or science

tourism or history, there would be a

steep increase of 25-30 percent on the

total annual tourist exchange pouring

into Greece with simultaneous benefits

to all branches of the home market.

With the contribution of direct flights

between Athens and Beijing in 2008,

we expect to see more cooperation

between both countries as well as an

increase in Chinese tourists. Further-

more, 2008 is the year of the Olympic

Games in China as well as the Cultural

Year of Greece in China. Because of this,

bilateral political and cultural relations

are enhanced and the efforts of the

Greek government are directed toward

attracting Chinese investments and

achieving profitable cooperations. The

results of all this work and the rap-

prochement of China as a trade partner

are expected to emerge early in 2008.

The Hellenic-Chinese Chamber and

all the relevant official bodies must aim

at expanding Greek-Chinese business

cooperation with the target of decreasing

the huge trade deficit and exploiting all

the relative advantages of our country's

geostrategic position.

Constantine N.YannidisPresident of the Hellenic-Chinese

Chamber

www.chinese-chamber.gr

Trade boost with Britain for 2008

Modern commerce, no matter what market or country

it originates from, is a highly sophisticated and tech-

nical arena. The British Hellenic Chamber of Com-

merce (BHCC) was founded in Athens in 1945 and

was ostensibly created to evolve and cultivate two-

way Greek-British trade, trade-related services and investment

in our two great nations.

Times have changed, and our Chamber has endeavored to

stay ahead of the game. It is now recognized as a serious com-

mercial partner that not only is in keeping with those original

objectives but also assists its members with a more global

approach to commercial expansion. The BHCC is an inde-

pendent organization, free from political influence and, more

importantly, it is run by its members, for its members. The

Chamber is an autonomous, non-profit organization, relying

upon income from membership fees, sponsorship and organ-

ized events.

Britain and Greece have long enjoyed a close relationship

and strong commercial ties. Greece is an import destination for

UK exports totaling GBP 1.5 billion in 2006. The UK is

Greece's third-largest export market, totaling GBP 660 million

in 2006. Greece mainly imports road vehicles, medicinal prod-

ucts and beverages from the UK and the UK mainly imports

electrical machinery and appliances, vegetables, fruit and also

medicinal products from Greece.

The export and import figures are more or less the same

this year and the Chamber sees it as its duty to increase the

amount of business between the two countries.

For this reason in 2008 the BHCC is embarking on the

most ambitious project in its history — the organization of ‘2

Nations,' to celebrate the special relationship that exists

between Greece and Britain. In 2008 we will be promoting

Britain and British products in Greece and in 2009, Greece

and Greek products in the UK. In this way we hope to raise not

only the profile of both Greece and Britain but increase trade.

We are also organizing, for the sixth consecutive year in

February, our annual conference in London ‘Greece — Your

Strategic Partner in Southeast Europe: Investment Prospects &

Business Opportunities.' This event has become an annual

forum of bilateral communication between the two countries.

We aim not only to promote Greece as the regional economic

center in the wider region of the East Mediterranean, but also

showcase British expertise and steer Greek officials and com-

panies toward the UK market. The conference looks to provide

clarity and bring together business people and politicians to

explain their views and visions.

The Chamber views itself as a tool to be used by business-

people. We have created a framework and it is now up to pro-

gressive business people to use this framework not only for the

benefit of themselves but also to increase trade figures.

Harilaos GoritsasBHCC Presidentwww.bhcc.gr

60

International trade relations

USA looks toward Greece

During the 18th Annual Conference, ‘The Hour

of the Greek Economy,' organized recently by

the American-Hellenic Chamber of Com-

merce (AMCHAM) it became apparent that

Greece is taking radical steps toward the lib-

eralization of its economy. More specifically it was

established that:

– International observers are tremendously encour-

aged by the developments in the Greek economy

over the past three years, particularly by Greece's

dual achievements of reducing deficit and expand-

ing growth.

– There is a rapid development in the country's infra-

structure and more specifically in transportation,

communications and energy. Greece has secured a

place on the world energy map having being devel-

oped into an important energy center, a develop-

ment which affects its geopolitical role positively.

– Greek banks play an important role as mechanisms

of development of the economy. Also, the Athens

Stock Exchange is introducing attractive new prod-

ucts and developing international synergies.

– The government seems to expedite procedures for

the privatization of the Greek ports that play an

important role in the development of the economy.

– Greece is making successful efforts to put its fiscal

house in order by taking the necessary fiscal steps

at the perfect time: when the global marketplace's

interest in competitive markets and sound invest-

ment is at an unprecedented high level. It is vital

for Greece to become more tax competitive, thus

becoming an attractive corporate location.

Further, it was established that the USA is looking

toward Greece more than at any time in the past. The

technology cooperation agreement between the Greek

government and the Microsoft Corporation is testimo-

ny to this attitude. Microsoft's agreement with Greece

provides significant discounts for the Greek govern-

ment to purchase and utilize Microsoft products and

will also create a joint technology innovation center in

Greece that will support both academia and the efforts

of private software companies that will receive help in

the development of new and innovative software solu-

tions.

The USA recognized Greece's increasing regional

and global economic role when it revived the Econom-

ic and Commercial Cooperation Council (ECCC) in

March of this year. The ECCC brought high-level offi-

cials to Greece from the departments of State and Com-

merce, as well as from the US Agency for International

Development. In the meeting, the full range of eco-

nomic and commercial ties between the two countries

was discussed and we are hopeful that we will hold the

next meeting of the ECCC in 2008 in Washington.

There are, however, still several sector-specific

challenges in increasing US private investment in

Greece:

– Public hospital debt: Greece has a history of accu-

mulating large pharmaceutical debts and then

negotiating a lump sum discounted settlement with

suppliers years later. Additionally, public hospitals

are owed considerable sums of money by the state-

owned social insurance funds, which inhibits their

ability to pay bills on time. New legislation will be

required to rectify the situation.

– Government procurement: US firms seeking to

supply government procurement orders in Greece

are hampered by unnecessarily lengthy administra-

tive and legal challenges. Certain procedures,

although designed to improve transparency,

appear to have the opposite effect. US companies

do not face the same pre-qualification obstacles in

participating in procurement in other EU member

states. A possible solution to the problem is to

identify and adopt best practices in use by other

member states, as there may be other, less oner-

ous ways of implementing EU procurement

requirements, which are designed to increase com-

petition.

– IP rights: There is a need for immediate interven-

tion in order to stop illegal trade that, among oth-

ers, deprives the state of revenues, threatens the

existence and reputation of branded products, and

contributes to the international defamation of the

country. The further reinforcement of the protec-

tion of intellectual property rights by means of pre-

ventive as well as repressive measures should be

one of the priorities of the Greek government.

– Transparency: In relation to the increase of com-

petitiveness of the Greek economy it is important

for the government to secure transparency at all

levels of the state mechanism in combination with

the fight against corruption through the objectivity

of procedures and the electronic government.

AMCHAM will contribute positively to the general

effort for the increase of competitiveness and extrover-

sion of the Greek economy. More specifically it will

support the reactivation of ECCC between Greece and

USA and act as a catalyst between the two govern-

ments so that actions toward the implementation of

this cooperation are planned and materialized.

Finally, in cooperation with the ministries of Econ-

omy, Development, Tourist Development and Foreign

Affairs, and also with the Athens Chamber of Com-

merce & Industry, the Investment Support Bureau

(ELKE) and the Export Promotion Agency (OPE),

AMCHAM will undertake targeted actions in the USA

commencing in spring 2008.

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

Yanos GramatidisPresident of the American-

Hellenic Chamber of Commercewww.amcham.gr

61

Themes

A new era in credit management

Basell II: The adoption of the new

regulatory framework, which is

scheduled for 2008, is designed

to change the way banking insti-

tutions manage risk and calcu-

late capital requirements. The distinction

into credit, market and operational risk is

fundamental. Traditionally, the credit

portfolio has accounted for most of the

assets of a bank's balance sheet and nat-

urally attracted greater attention.

Under Basel II, banking institutions

are required to choose one of three

approaches for managing credit risk:

Standardized. The credit portfolio of

the bank is assessed using external cred-

it ratings derived by external credit

assessment institutions (ECAIs, such as

Fitch, Moody's and S&P). The credit

assessments are then grouped into risk

buckets through a mapping process and

each group is assigned to a specific risk

weight. This approach requires mini-

mum effort for implementation of the

new rules at the cost of higher capital

requirements as shown from the exam-

ple below.

Foundation IRB. Regulatory capital

is calculated using a set of equations

that are mainly driven by three compo-

nents: the probability of default (PD),

the loss given default (LGD) and the

exposure at default (EAD). Regulators

provide the banks with fixed values for

LGD and EAD and the banks are

required to calculate the probability of

default using an internal credit default

evaluation model.

Credit default evaluation models are

developed using techniques that vary

according to data availability and the

special characteristics of the credit

portfolio (e.g. retail, corporate or asset

finance). However, the steps for the

development of those models are com-

mon: Data collection is the first step in

credit risk model development. Since

the quality of the input will determine

to a great extent the quality of the out-

put, data collection is essential. Typi-

cally data requirements include popula-

tion characteristics such as financial

ratios or commercial data for compa-

nies and demographic data for con-

sumers as well as default data for all

customers based on historical transac-

tional behavior.

The next step is the estimation of

model parameters through an optimiza-

tion process. Once the parameters are

estimated, the model's performance

must be assessed. A successful credit

evaluation model must display high dis-

criminatory power, i.e. be able to distin-

guish the ‘good' customers from the

‘bad' ones. On top of that, the predic-

tions of the probability of default must

be close to the actual default rates of the

credit portfolio.

These two crucial model attributes

are tested using a set of statistical tests

such as the binomial and the chi-square

tests for the predicted probabilities of

defaults and the accuracy ratio and the

Kolmogorov-Smirnov tests for the dis-

criminatory power1.

Advanced IRB. In addition to esti-

mating the probability of default,

advanced IRB requires the internal esti-

mation of loss given default and exposure

at default. Due to high demand for accu-

rate historical data as well as model

implementation, only top-tier banks

worldwide have currently adopted the

advanced IRB approach. However, this is

expected to change in the coming years,

as more and more banks get familiar with

the new regulatory requirements.

Regulatory capital requirements:

Basel II aims at the convergence

between regulatory and economic

capital. In this attempt, the new

framework differentiates borrowers

according to their risk profile and

reduces capital charges for low-risk

borrowers while increasing capital

charges for high-risk borrowers. The

regulatory capital changes brought by

the new accord are highlighted by the

following case study — Table 1.

Under Basel I, regulatory capital for

the credit portfolio was calculated as

8 percent of the full value (100 per-

cent) of the risky asset with few

exemptions for OECD-sovereigns and

mortgage-backed loans. In monetary

terms, for every 1,000 euros of cred-

it, the bank's capital requirement was

80 euros independent of the borrow-

ers creditworthiness.

Under the new accord, capital calcu-

lations for the credit portfolio will distin-

guish borrowers based on their risk pro-

file. Banks that choose the standardized

approach could use the 9-point rating

scale of Fitch/S&P. For the top rating

class AAA, the calculation of capital

charges uses only 20 percent of the

asset (loan) value. Therefore, for every

1,000 euros of credit, the bank's capital

requirement is 8 percent of 20 percent

of the value (200 euros), which is equal

to 16 euros. If however the bank had

chosen the IRB approach, the capital

requirement for the top rating class

would have been even lower and equal

to 3 euros since it is calculated as 8 per-

cent of 3.89 percent (the risk weight for

the top rating found using the formulas

with the three credit risk components:

PD, LGD and EAD) of the asset value.

Savings on capital requirements for

low-risk borrowers can be substantial

not only between the Basel I and II

frameworks but also between the alter-

native approaches that banks can adopt,

i.e. standardized versus IRB.

In the end, the capital requirements

for a bank will depend on the distribution

of the credit portfolio in terms of risk. In

the simplistic case of an evenly distrib-

uted credit portfolio (equal borrowers for

each rating class), the IRB approach pro-

duces the lowest capital requirements,

followed by the standardized approach

and the Basel I framework.

1Basel Committee on Banking Supervision (February 2005), Studies on the Validation of Internal Rating Systems, Working Paper No.14

Dr PanagiotisAvramidisProfessor of credit risk

management & statistics

American College of Greece

Graduate Schoolwww.acg.gr

Fitch/S&P 9 Exposure Value Risk Weights Capital Requirements (euros)

Point Rating Scale (euros) Basel IStandar- Foundation

Basel IStandar- Foundation

dized IRB dized IRB

AAA 1,000 100% 20% 3.89% 80 16 3

AA 1,000 100% 20% 10.02% 80 16 8

A 1,000 100% 50% 17.50% 80 40 14

BBB 1,000 100% 100% 29.19% 80 80 23

BB 1,000 100% 100% 45.83% 80 80 37

B 1,000 150% 150% 67.91% 80 120 54

CCC 1,000 100% 150% 99.63% 80 120 80

CC 1,000 100% 150% 152.27% 80 120 122

C 1,000 100% 150% 230.23% 80 120 184

Total 9,000 720 712 525

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

A new year with a new home for our national treasures.

We talked about it a lot. Many disagreed. Some were in

doubt. But we finally achieved it. On the crossroads of

Makrigianni and Aeropagitou lies today a museum wor-

thy of our history, a museum with unique architecture,

in harmony with the surrounding environment, strong

enough to safeguard our national heritage from the per-

ils of time.

In the New Acropolis Museum visitors can admire the

sculptures of the Parthenon having the actual

Parthenon in the background and view authentic mas-

terpieces which adorned the Sacred Rock of the Acrop-

olis in the different periods of time. It is a museum

among the greatest which will become an international

magnet for millions of people from all around the world

launching a new era in the cultural life of our capital.

After 2,500 years the favourite ladies of the nation, the

Caryatids, have found a new place that suits their beau-

ty. Well, at least five of them. The sixth one, we are still

waiting for her to return from her long trip abroad.

History finds a new home

Images by

Harry van Versendaal