08GreekEconomy&Markets

Regional dealspower up

Banks lean on emergingopportunities

Brighter picture for renewable energy

Visitors Roadshow hitsNew York

14th issue - July 2008

(3%*)

4

Economy

Athens bourse leads first roadshow to New York(pages 6-7)

New Europe growth rates remain robust (pages 9-13)

Are the euro bulls in control?(pages 26-27)

Greek Economy & Markets 08A publication of the “Agora Ideon” forum.

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uted along with the International Herald Tribune

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pers in Greece, Cyprus and Albania. The content

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the editorial departments of the IHT.

Contents

14th issue - July 2008

Cover

Major energy transit hub (page 15)

takes shape

Regional deals offer (pages 16-17)

solutions to new energy challenges

Prospects, pitfalls of energy (page 18-19)

steps in S. E. Europe

Banks make mark (page 20-23)

in Southeastern Europe

EditorialThe credit crisis and the slowdown of the world economy

has created a new economic reality that has forced compa-

nies to reassess their plans in comparison with only a short

period earlier. Multinationals are each responding in their

own way, with some cutting staff numbers and others sell-

ing off assets, in order to survive the tougher environment.

Others remain focused on their original plans, pushing ahead

with long term strategies. At a time where banks are on the

back foot, Bank of Cyprus surprised the markets by announc-

ing one of the largest deals to take place in the local banking

sector recently by acquiring Russia’s ninth largest lender,

based on network size. The move will give the bank access to

one of the fastest growing markets in the world helping it

prepare for the day after -- the credit crisis -- scenario. None

of Greece’s banks are present in Russia and the Bank of Cyprus

deal is a move certain to open the way for them to follow. It

is a carefully weighed move that is expected to boost the

bank’s bottom line figures but will also bring closer together

Russian businesses with their Greek-Cypriot peers.

The branching out of Greek companies into markets closer

to home, in the Balkans and south eastern Europe, has also

been continuing at a solid pace. The energy business is the

hot sector right now with news of agreements, such as the

construction of power plants, taking place almost every

week. One of the largest, and perhaps most important was

Hellenic Petroleum hooking up with Italy’s Edison. Their

plans to become Greece’s second largest power company

will contribute to what could shape up to be a very compet-

itive energy landscape. With the number of companies

interested Greece’s energy market growing, hopefully the

sector will evolve into something similar to telecommunica-

tions, where prices are constantly driven down due to grow-

ing competition.

However, industry sources point to the country’s legislative

framework as letting them down, particularly when it

comes to renewable energy sources. Regulations are cur-

rently unclear and often overlapping, harming the sector’s

prospects.

Energy is also building bridges between Greece and Turkey.

Development Minister Christos Folias recently returned

from a trip to Turkey with an agreement involving Turkey

exporting power to Greece. News that also provided relief

to those at the Public Power Corporation that see the power

system struggle under the enormous demand placed on it

during the hotter months.

Stelios Bouras

5

Greece’s consumer price index rose by an annual pace of 4.9 percent inJune, unchanged from the previous month, as a reduction in fresh fruitprices helped offset rising energy costs. Ministry sources say theyexpect the figure to rise to 5.0-5.1 percent in July. Building activity inApril rose 16.5 percent, versus a drop of 51 percent in March, accordingto figures from the Finance Ministry. Greece's real estate marketaccounts for about 23 to 25 percent of the country's annual grossdomestic product (GDP). The producer price index rose in May to 10.5percent from 8.9 percent in April.

Period Value

Consumer Price Index (CPI)1 June 08/June 07 4.9

Harmonized Index of Consumer Prices (HICP)1 June 08/June 07 4.9

Producer Price Index in Industry1 May 08/May 07 10.5

Industrial Production Index (excluding construction)3 May 08/May 07 -6.6

Turnover Index in Retail Trade1 April 08/April 07 6.6

Gross Domestic Product (provisional data)1 Q1 2008 3.6

Unemployment Rate2 Q1 2008 8.3

Population (2001 Census)4 2001 10,964.020

Building Activity3 April 08/April 07 16.5

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

Latest Statistical Data

The profile of the Greek economy

Facts & figures

6

Economy

Athens bourse leads firstroadshow to New York

Twelve of Greece’s leading listed companies traveled with the Athens Stock Exchange to New York on a roadshow where they met with 65 institutional investors in more than 130 meetings.

Piraeus Bank recently participated

in the Greek Equity Conference which

was held in New York and organised

by the Hellenic Exchanges. During

this event which took place on 30

June – 1st July ’08, Piraeus Bank had

the opportunity to meet with 20 insti-

tutional investors, who were interest-

ed in learning more about the recent

developments in Piraeus Bank, as

most of them knew very well the com-

pany. The main topics were related to

funding issues, gathering retail

deposits, liquidity and capital adequa-

cy, as well as the outlook of the macro

environment in the region.

At the end of March 2008, the

Group’s total assets reached 48.5

bn, euros the branch network exceed-

ed 780 units, while net profit

amounted to 138.5 mn euros in

Q1’08. Piraeus Bank maintains a

high level of liquidity, a fact that is

giving a significant competitive

advantage should the credit turmoil

persist throughout 2008. Piraeus

Bank’s Management focused on

strengthening capital adequacy by

concluding a successful capital

increase of 1.35 billion euros in

September 2007, increasing its capi-

tal base position with total capital at

3.3 bn euros and CAD ratio at 11%.

Approximately 80% of Piraeus

Bank’s activities are from Greece, while

20% are in 9 other countries, present-

ing a large diversification of internation-

al operations. In particular, aside from

Greece, in which Piraeus Bank is the

fourth largest financial institution, the

bank is present in Bulgaria through

Piraeus Bank Bulgaria, in Romania

through Piraeus Bank Romania, in

Albania through Tirana Bank, in Serbia

through Piraeus Bank Beograd, in

Ukraine through Piraeus Bank ICB, in

Cyprus through Piraeus Bank Cyprus,

in Egypt through Piraeus Bank Egypt,

in the USA through Marathon Bank and

in London with a branch.

After the recent credit turmoil, the

global market is experiencing signifi-

cant changes with volatile conditions

affecting the stock markets worldwide.

In such times, the investors’ commu-

nity is calling for a high level of trans-

parency and consistency in communi-

cating and disclosing information that

stakeholders need to know. This is

even more important in the case of

companies where institutional

investors hold large stakes in their

share capital. In Piraeus Bank foreign

institutional investors hold 37% of its

share capital and Greek institutional

investors another 11%. The Investor

Relations Division of Piraeus Bank

regards as of paramount importance

the provision of systematic and sym-

metrical information on the progress of

Group through the following means:

■■ communicating and responding to

investors’ queries on a daily basis

■■ organising corporate road shows

and one-on-one meetings. In

2007, investor relations meet-

ings were held with more than

450 institutional investors. In

particular:

Twelve of the leading companies listed in

Athens Stock Exchange, traveled to New

York to participate in a roadshow, which

was organized from the Athens Stock

Exchange in co-operation with Citigroup,

on June 30th and July 1st 2008. In particular, the

National Bank of Greece, Alpha Bank, EFG

Eurobank, the Bank of Cyprus, Piraeus Bank, the

Hellenic Post Bank, Motoroil, Mitilineos Holdings,

Intralot, Hellenic Technodomiki, OPAP and Coca

Cola HB, responded to the invitation of the Presi-

dent of Athens Stock Exchange Spyros I. Kapralos,

to present their companies to institutional

investors.

The 28 representatives of these companies dis-

cussed with 65 institutional investors in more

than 130 meetings. Increasingly interesting is the

fact that although the current organization is the

first to be held in New York and organized from

the Athens Stock Exchange, there was an immedi-

ate and special interest of the institutional

investors to meet the companies which constitute

a fundamental part of the Greek economy.

The companies, on the other hand, had the

chance to present their strategy and enterprising

activity to a great deal of institutional investors

who are interested in the Greek market and the

particular companies, in a difficult time concern-

ing the stock market. The president of the Greek

Stock Exchange, during a dinner he gave in honor

of the participants, he also stated that: “After suc-

ceeding in organizing roadshow each year in Lon-

don, we decided to come to New York to do some-

thing respective to that. I feel especially satisfied

for the response of our biggest companies to our

invitation to open the capital market to American

investors. I wish this year’s roadshow to be estab-

lished and that we all are here every year to pres-

ent Greek enterprises to the international financial

market.

PIRAEUS BANK S.A.

7

ELLAKTOR, in order to convey to the interna-

tional investment community, its scope of activi-

ties, its business plan and future growth

prospects is regularly participating in interna-

tional investor roadshows both in Europe and the

U.S.

In this context, we were very pleased to par-

ticipate in the First Annual Greek Roadshow

organized in New York on June 30th and July 1st

2008 by the Athens Exchange in cooperation

with Citigroup.

It was the third successful event organized by

the Athens Exchange in the last three years and

some of the large caps of the Athens Exchange

had the opportunity to present their investment

cases to several institutional investors.

Originally involved in Construction, where the

Group has been active for over 50 years, the

ELLAKTOR Group of companies is today the

leader in Greek Construction and Concessions

and has a strong portfolio in Energy, Environ-

ment and Real Estate Development. With more

than 5,000 employees and activities in 8 coun-

tries, with consolidated turnover approaching 1

billion euros (914.7 million euros for 2007), high

profitability (2007 net earnings after taxes and

minority rights reached 130 million euros),

strong capital base and capitalization of 1.43

billion euros, (as of 30 June 2008), the Group is

placed among the most powerful entrepreneurial

forces of the country.

The Group is also expanding its construction

activities in foreign countries, the primary

regions being Southeastern Europe and the Mid-

dle East, with a major part of the backlog of its

projects originating from those areas.

Moreover, in the interest of maximizing

shareholder value and providing more opportuni-

ties for its employees, the Group is taking steps

to expand in other strategic sectors with strong

synergies to the Construction sector.

This can be seen by its participation in major

concession projects that are under way in Greece

and abroad, which create significant construc-

tion activity and offer higher return on invested

capital.

Furthermore, taking advantage of the new

conditions that are being created in the Euro-

pean and subsequently the Greek market, due to

the increasing sensitivity in environmental

issues, the Group is expanding into the Renew-

able Energy Sources and Waste Management

sectors, in which it already has significant know-

how and expertise, strategically aiming at sectors

presenting major future development prospects.

ELLAKTOR in its effort to materialize all the

above mentioned prospects, cooperates with

major foreign companies and international finan-

cial institutions. Hence, it is also a priority to

attract future investors, find access to interna-

tional funds and enhance its shareholders list by

adding foreign investors.

For that to occur, one of the main gateways

is the participation on a regular basis to road-

shows, usually coordinated by large institutions

(investment banks or international brokers) -

involved in the sell side.

Finally, in order to reap the benefits of glob-

alization and show the extrovert image of our

enterprise substantial gain has been entertained

from the exposure that is offered to the

ELLAKTOR group through these roadshows,

where there is a great deal of detailed informa-

tion provided to the analysts and fund managers,

which in turn are a substantial source of infor-

mation exchange and better understanding of the

international market requirements.

ELLAKTOR

Andreas StefanidesCFO

INTRALOT, the leading supplier of integrated gaming and transaction processing systems,

innovative game content and sports betting management to state-licensed gaming organiza-

tions worldwide, participated in the two-day Athens Exchange New York Greek Roadshow that

was held on June 30th and July 1st in the US. The event was organized by the Athens

Exchange and Citigroup and a selection of twelve major large cap Greek companies were invit-

ed to participate. As with previous roadshows organized by the Athens Exchange in London,

this one was also very well planned and provided participating companies the opportunity to

meet with world class investors and also to exchange opinions and ideas with other major

Greek companies.

The roadshow was a good opportunity to meet with major US investors at a time during

which INTRALOT’s presence is growing rapidly in the US market, since currently 6 US State

lotteries have chosen INTRALOT to be their technology supplier. The company has therefore

managed to double its presence in the highly demanding US market during the past 6 months.

In addition, it was a good time to communicate the Company’s global expansion strategy,

potential growth opportunities and to outline the fact that the gaming sector is quite immune

to the global economic slowdown and deterioration of consumer spending, two issues that

seem to be of major concern amongst the global investment community lately. Finally, the

feedback from such high caliber investors both on INTRALOT and the general situation taking

place currently in global capital markets was highly appreciated.

We would like to thank the Athens Exchange and Citigroup for their kind invitation to this

important event and we are looking forward in participating in similar events both in the US

and elsewhere.

INTRALOT

Elias AthanasiouInvestor Relations & Finincial Analysis Director

ñ in Greece, almost 150 meetings

took place

ñ corporate road shows were

organised in Europe, USA and

Asia with 310 meetings with

institutional investors

■■ maintaining and updating the Bank’s

relevant website section including

financial data, press releases,

detailed results press releases.

Concluding, Piraeus Bank recog-

nizes that the need for an integrated

shareholders’ engagement approach

redefines the role of investor relations

and its ability to display excellent

dedicated communication.

George Poulopoulos, Assistant General Manager

Tourist arrivals in Greece the first six months of the year - via the

country’s main airports - rose 3 percent over the same period last

year, despite expectations by many of an annual drop in 2008

numbers. The number of Russian tourists jumped 35 percent on an

annual basis while 15 percent more Bulgarians and Chinese have so far

decided to visit Greece. Tourism Minister Aris Spiliotopoulos pointed

out at a recent press conference that the number of cruise ships

expected to visit Greece this year is expected to double last year’s

figures.

The government is currently putting together a series of measures

aimed at helping the tourism sector – one of the country’s largest

industries – to continue growing in the 2009 season.

The steps were discussed at a recent meeting of Prime Minister Costas

Karamanlis, Tourism Minister Aris Spiliotopoulos and Economy and

Finance Minister Giorgos Alogoskoufis. The Tourism Ministry is aiming

to improve infrastructure in the sector, including marinas, according

to senior government sources.

There will also be an increase in the funds allocated to promoting

Greece abroad, particularly in markets from which Greece has

traditionally attracted visitors, such as Britain and Germany.

Senior government officials said they are optimistic about the course

of the season over the next two months after the positive start

to the year.

The global economic slowdown and appreciating euro is seen as

keeping a lid on the growth of tourist numbers this year. According to

some industry sources, the sector, which drew 17 million visitors to

the country last year, is expected to see a 5 percent drop in arrivals in

2008 with many travelers opting for cheaper holidays in neighboring

destinations such as Turkey.

Tourist arrivals in Greece the first six months of the year - via the

country’s main airports - rose 3 percent over the same period last

year, despite expectations by many of an annual drop in 2008

numbers. The number of Russian tourists jumped 35 percent on an

annual basis while 15 percent more Bulgarians and Chinese have so far

decided to visit Greece. Tourism Minister Aris Spiliotopoulos pointed

out at a recent press conference that the number of cruise ships

expected to visit Greece this year is expected to double last year’s

figures.

The government is currently putting together a series of measures

aimed at helping the tourism sector – one of the country’s largest

industries – to continue growing in the 2009 season.

The steps were discussed at a recent meeting of Prime Minister Costas

Karamanlis, Tourism Minister Aris Spiliotopoulos and Economy and

Finance Minister Giorgos Alogoskoufis. The Tourism Ministry is aiming

to improve infrastructure in the sector, including marinas, according

to senior government sources.

There will also be an increase in the funds allocated to promoting

Greece abroad, particularly in markets from which Greece has

traditionally attracted visitors, such as Britain and Germany.

Senior government officials said they are optimistic about the course

of the season over the next two months after the positive start

to the year.

The global economic slowdown and appreciating euro is seen as

keeping a lid on the growth of tourist numbers this year. According to

some industry sources, the sector, which drew 17 million visitors to

the country last year, is expected to see a 5 percent drop in arrivals in

2008 with many travelers opting for cheaper holidays in neighboring

destinations such as Turkey.

8

Facts & figures

Tourism numbers rise in first half

*

It was at the end of 2003 that the three

founders of IMC were thinking about the market

potential of their PhDs, and ways in which

research can have a commercial value and a

real life impact. In September 2004, the three

friends and team mates in University, Panos Georgo-

lios, 25, Konstantinos Kafentzis 26 and George

Papavassiliou 28, founded IMC Ltd.

The team’s training and expertise was in

Knowledge Management and Research, a field rel-

atively unknown in Greece, but rapidly developing

abroad.

“What we had was profound experience and

proper software and methodological tools to han-

dle information, content and knowledge assets,

both explicit and tacit ones. Through our software

and services, an organization can access, organize

and share its content and knowledge so as to

improve its customer services, built a more effi-

cient internal structure, improve its personnel

training, and eventually increase its market poten-

tial. In other words, we knew how to help private

and public enterprises turn their knowledge into a

competitive advantage.

We had great confidence in our software and

in our work and were thriving with passion to

make our research a real life project. As so many

other young entrepreneurs and PhDs in Europe

and the US, we dreamt of an opportunity to suc-

ceed in our venture”.

During our PhD candidate period we were

working with Empolis which is a part of Arvato, a

Bertelsman owned company. They are one of the

most successful and competitive groups in the

global knowledge market, with hundreds of spe-

cialised engineers. We shared know how in tech-

nologies and therefore decided to discuss our

plans with them. There were not only encourag-

ing, but decided to fully embrace our idea and

offer us a special agreement for cooperation

between Empolis and IMC. This has been a pow-

erful competitive advantage ever since.

Our biggest initial worry was whether there

would be a market in Greece for this innovative

kind of IT services. We knew developments would

reach Greece, we knew that knowledge manage-

ment was becoming a real issue in today’s world.

What we did not know was: how soon would this

happen in Greece?

We began by working in typical software proj-

ects and general IT services in order to fund our

new business and create a start-up capital.

Soon after we started up IMC, we realized that

selling Knowledge Management Technologies

entailed “educating” the Greek market and our

potential clients in its strengths, potential, impor-

tance and nature. Therefore, it was a matter of

survival for IMC to become a real partner, a con-

sultant to our clients, since we were opening up to

them an entirely new technology world.

It required, lots of long nights over our PCs,

lots of brainstorming sessions over coffee and lots

of agony to generate business. It all paid off how-

ever.

The first fiscal year, IMC generated revenues a

little less than 200,000 euros. Before the comple-

tion of its 4th fiscal year, IMC has a growth rate of

760%, employs 35 highly educated people spe-

cialized in Knowledge Management, gained an

ISO certification and has spread its activities all

over Greece. It has founded IMC Aegean SA in

Mitilini (together with Mr A.Tzortzakakis, 30 a

PhD candidate of Aegean University), has offices

in Thessaloniki and Central Greece (Trikala) and

brings in another member. Mr Manos 29, PhD

candidate, University of Macedonia, holds and

important management role and heads IMC’s

Northern Greece and Balkan ventures.

Our motto is: entrepreneuring in a world of

knowledge. We believe that there are no frontiers

within Greece or outside. We want to remain com-

mitted to producing fresh ideas and keeping up

the pace of R&D. With excellent know-how, inter-

esting and successful projects, research that has

market potential and close cooperation with inno-

vative people and companies in Europe and the

USA. This is the business model IMC believes in.

The next milestone for us is bringing Knowl-

edge Management into everyday life and func-

tions.

The importance of the Chamber of Commerce

Young Entrepreneur Award for 2007: to Panos

Georgolios, CEO of IMC.

This award proved to us, a team of young

PHDs straight out of University, that the condi-

tions are fertile for young engineers to move for-

ward and try to make their own small contribution

to the Greek market of innovation. Greece can be

a hostile environment at times for entrepreneur-

ship and innovation, especially among young post

graduates. This should not stand on the way of try-

ing your best. At 25, 30 or even 35, one cannot

be judged in “black and white” terms of success or

failure. Innovation after all, always entails a risk.

Entrepreneuring based on emerging knowledge is

the only way forward. Keep trying, keep learning,

keep investing in knowledge. I hope this award

can channel a lot of positive energy to other young

scientists, like us, that are full of energy and

dreams to create. There are a lot of excellent

young Greek scientists out there, who do not dare

to proceed from the University to a new venture as

they are put off from the reality they experience.

To all of them I would like to say: trust your cre-

ativity, your imagination, your research, and

insist, move on… to knowledge and technological

excellence. Whatever the outcome, it is worth the

effort!

With a commitment to producing fresh ideas and keeping up the pace of research anddevelopment, IMC takes the Chamber of Commerce Young Entrepreneur Award for 2007.

Entrepreneuring in a world of knowledge

Panagiotis Petros GeorgoliosPresident and CEO of IMCwww.imc.com.gr

9

10

Economy

The Eurobank EFG Division of Research &

Forecasting published its latest issue of “New

Europe Quarterly Economic Review”. The

publication includes an in depth analysis of

the latest macroeconomic, banking sector,

and financial market developments in the countries

of New Europe. Professor Gikas Hardouvelis, EFG

Group Chief Economist and Director of Research,

oversees the publication. The authors of the publi-

cation are Mr. Ioannis Gkionis, Research Economist

and team coordinator, Mrs. Kanellopoulou Stella,

Research Economist, and Mrs. Panagiota Chioti,

Junior Economic Analyst.

According to the analysis, real GDP growth rates

in the economies of New Europe are robust, yet they

are expected to decelerate marginally, to more sus-

tainable levels in 2008. EU convergence prospects

of these countries are still bright. The baseline sce-

nario provides for a partial negative impact from the

global slowdown on the economies of New Europe,

though less significant than on advanced economies.

The economies of Ukraine and Poland are better

positioned to cushion the consequences of a global

slowdown.

It is likely that Southeastern Europe countries

such as Bulgaria, Romania, Serbia and Turkey will

withstand pressures, and not witness any hard-land-

ing or sharp growth rate deceleration. The commod-

ity and oil prices ongoing rally keeps inflationary

Baseline scenario for economies of New Europe provides for partial negative impact from global slowdown but less significant than on advanced economies.

New Europe growth Figure 1

Figure 2

11

pressures up. Price increases are expected to have a

negative impact on private consumption growth, at

least through mid-2008. In addition, producers’

price hikes signal that rising second round inflation-

ary pressures are in the pipeline. This is the case

especially with Turkey and Romania.

Macroeconomic risks have deteriorated signifi-

cantly. Δhe current account deficits as a percentage

of GDP in Bulgaria, Romania and Serbia have bal-

looned. On the contrary, current account deficits in

Ukraine, Turkey and Poland stand at relatively low

levels. The international financial markets crisis has

shed light on the issue of financing current account

deficits. The net FDI inflows cover to a great extent

the shortfalls in Bulgaria, Poland and Ukraine. Nev-

ertheless, FDI inflows have slowed down significant-

ly in Romania and Serbia. (Figure 1)

Credit expansion remained strong throughout

2007 (Figure 2). Nevertheless, we expect a slight

deceleration in credit growth, albeit from high levels.

This picture reflects the increase in the cost of refi-

nancing of external debt, as it is depicted in the

increased sovereign debt spreads and the increased

domestic interest rates, which are a reflection of the

monetary policy tightening (Figure 3). Additionally,

liquidity risk in the banking sectors has increased

significantly. Ukraine and Romania are in the most

vulnerable liquidity position as they have the highest

Loans to Deposits ratios. (Figure 4)

rates remain robust Figure 3

Figure 4

12

Economy

BulgariaBulgaria

The economic growth in Bulgaria maintained its

strong pace in 2007. The GDP growth rate

stood at 6.2% yoy against 6.3% yoy in 2006.

The main economic driver is investment which

reached 37% of GDP. However, the current account

deficit increased beyond any expectations to 21.4%

of GDP in 2007, while the gross external debt

reached 97% of GDP. Both figures stand at their

highest level since the 1996-97 crisis. However,

the coverage of the current account deficit by net

FDI inflows remains at a high level. The rise in food

prices classified Bulgaria as the country with the

highest inflation in the EU, which reached 14.2%

yoy in March. Inflationary pressures are also fuelled

by high credit growth and a rise in disposable

income which originates from high wage growth and

a reduction in the income tax rate to 10%.

On the banking sector, the September 2007

increase in the required minimum reserves from 8%

to 12% had no apparent impact on credit expan-

sion. Credit growth accelerated rapidly to 65.9%

yoy in 2007, against 23.9% yoy in 2006, with

mortgage loans recording the biggest rise, by

67.4%. The latter was due to an increase in real

estate prices by roughly 30%.

RomaniaRomania

The macroeconomic stability in

Romania is threatened. Eco-

nomic growth slowed to 6%

yoy while the current account

deficit widened to 13.9% of GDP.

Romania risks losing its borderline

investment grade were the deteri-

oration in macroeconomic envi-

ronment to continue. The minority

government follows an expansive

consumption oriented fiscal poli-

cy, which leads to strong growth

in real wages and to a rise in pri-

vate consumption. The strong

demand, combined with the

inability of the domestic economy

to provide adequate supply,

results in inflationary pressures

and a widening of the current

account deficit.

FDI inflows financed only 42%

of the current account deficit in

2007. The depreciation of RON

since last July and the rise in food

and oil prices coupled with the

strong wage growth resulted in an

increase of consumer prices by

8.6% yoy in March. Likewise, the

Central bank had no choice but to

raise interest rates in an attempt

to curb inflationary pressures. The

intervention rate went up by

275bp to 9.75%.

13

SerbiaSerbia

The unilateral declaration of Kosovo independ-

ence caused the collapse of the short-lived

coalition government in Serbia. Political uncer-

tainty jeopardizes economic stability, causing stress

in local financial markets and the currency. The real

GDP growth of 7.5% yoy in 2007 was the highest

reading in the post-Milosevic era, despite the nega-

tive impact of the summer drought, the new credit

restrictions and the rise in inflation. However, GDP

growth is expected to decelerate to 6% yoy in 2008.

The current account deficit skyrocketed to 16.1% of

GDP in 2007 from 11.5% in 2006. Net FDI inflows

financed only 30% of the current account deficit in

2007. This is a worrying signal regarding the cur-

rent account financing sustainability. The interest

rate hike of 500bp is not enough to curb inflation-

ary pressures. Consumer prices grew by 14.3% yoy

in March, against 4.2% yoy a year earlier.

The Serbian banking sector recorded a strong

asset growth of 32% yoy in 2007, a rate which is

likely underestimated by official data. The imple-

mentation of NBS restrictive measures in late 2007

had limited success in curbing credit expansion.

New measures will probably be in place during

2008.

TurkeyTurkey

The lawsuit filed by the Chief State prosecu-

tor to close down the ruling party threatens

to throw Turkey into a new round of politi-

cal instability. In early April, Standard and

Poor’s revised its outlook on Turkey’s sovereign

ratings to negative. The 32% upward revision in

GDP data doesn’t alter the picture of a slowing

economy. This slowdown originates from mone-

tary policy tightening and political instability in

2007. Real GDP decelerated to 4.5% yoy in

2007, from a revised 6.9% yoy in 2006. The

current account deficit declined to 5.7% of

revised GDP in 2007, from 6.1% in 2006 as a

result of weaker domestic demand. Inflation has

made a dynamic come back. Consumer prices

reached 9.2% yoy in March. Second round

effects are likely to prevent consumer prices

from decelerating in the coming months, deter-

ring the Central Bank from further monetary

easing. Hence, economic growth is expected to

decelerate to around 4% yoy in 2008.

The long-term prospects of the domestic

financial sector remain positive but in the

short-term, banks face increased funding

costs. Credit expansion stabilized at 30%

yoy in the late months of 2007, down from

46.1% yoy in 2006. Mortgage loans are

expected to pick up given the new Mortgage

Law and as consumer loans growth moder-

ates. Liquidity risk in domestic banking has

increased lately. The loans to deposits ratio

in local currency stood at 91.3%, whereas in

FX at 57.5%.

14

Economy

UkraineUkraine

Ukraine was the top growth per-

former in New Europe in 2007.

GDP grew by 7.6% yoy on the

back of surging domestic demand and

a favourable external environment that

boosts exports. Ratified WTO member-

ship is expected to provide a positive

catalyst to economic growth. Tensions

between the main coalition partners

threaten to lead the country to a new

round of political turbulence and

potentially to new elections. The cur-

rent account deficit increased to 3.7%

of GDP in 2007 due to rising imported

gas prices. However, the current

account deficit is financed by net FDI

inflows. The main concern of the econ-

omy is inflation which soared to

26.2% yoy in March, the highest level

since 2000. This increase led the Cen-

tral Bank to raise interest rates to 12%

at the end of April. In an attempt to

contain inflation, the Central Bank

allowed the local currency to fluctuate

on a wider band against USD.

PolandPoland

Last October’s national elec-

tions in Poland brought in

office a new investor-

friendly coalition government.

However, the new government

has a parliamentary majority,

which cannot override a presi-

dential veto, hence raising the

level of political risk. The

strong investment activity led

GDP to grow at 6.5% yoy in

2007. At the same time, the

current account deficit jumped

to 3.8% of GDP. However, net

FDI inflows financed the 91%

of the current account deficit in

2007. Consumer prices rallied

to 4.1% in March. In an

attempt to curb inflation, the

Central Bank raised, for a third

time in a row, the reference

interest rate to 5.75% in

March. Monetary policy tight-

ening resulted in a strong

appreciation of the zloty.

Despite Poland meeting both

fiscal Maastricht criteria, it now

fails to fulfil the inflation criteri-

on. The increase in unit labour

costs, combined with food

price inflation, signal that the

monetary policy tightening

cycle has not ended.

15

Over the last few years Greece has developed

an ambitious and dynamic international

energy policy that aspires to promote region-

al stability via the enhancement of bilateral

and multilateral energy interdependencies.

The development of an integrated gas and electrici-

ty market in South Eastern Europe, as required by

the Energy Community Treaty, can facilitate the

region’s economic progress and political stabiliza-

tion. Greece has always championed the Energy

Community Charter Goals via the Athens Process

and has hosted the establishment of the Energy

Community Organization, which was signed in

Athens in 2005. It is important to note that the

Energy Community has constituted an important

precursor for the integration of candidate member-

states in the European Union, as it has been the

case with Romania and Bulgaria, and functions as

an umbrella organization that overviews the devel-

opment of regional interconnections in the gas and

electricity sectors.

Within this context, the recent Greek-Turkish

Power Exchange Agreement signed during my visit

to Turkey on July 2 constitutes an important mile-

stone. The agreement that will remain in effect for

two years provides for the import of 200 MW of elec-

tricity from Greece during its peak summer period

from July to September and the subsequent export

of 150 MW of electricity from Greece to Turkey dur-

ing its respective peak winter months from Novem-

ber to February. This recent agreement would have

been impossible without the completion of the 400

KV Nea Santa-Babaeski power line that connected

the two electricity systems earlier in 2007. This lat-

est Agreement signed with Turkey attests to the new

dynamic of regional cooperation via enhanced ener-

gy interdependence.

Greece has taken significant steps towards

becoming a major energy transit hub. This is clearly

illustrated by three major projects:

■ With regard to the Interconnector Turkey Greece

Italy (ITGI Project), the Greek-Turkish Intercon-

nector has been operating since November

2007. The completion of the extension of this

gas link to Italy by the end of 2012, via the com-

pletion of the Greek-Italy Interconnector (main-

land and offshore section), entailing the expan-

sion of the Greek gas network from Central

Macedonia to Epirus, will further amplify our

country’s pre-eminence as a critical energy hub.

The ITGI will be transporting gas – about 11,6

bcm annually from Azerbaijan to Europe via

Greece and therefore illustrates the role that we

can assume as a Major Transit Hub. Moreover,

this project promotes the policy of diversification

of sources and routes which is the cornerstone of

the EU’s energy security policy.

■ The Agreement for the South Stream gas pipeline

project which was signed on the 29th April 2008

in Moscow between Greece and Russia is of sig-

nificance since it a project which also enhances

the security of Europe’s supplies from a tradi-

tional source. Moreover the fact that it will

bypass Ukraine means it is a project which

serves to diversify the traditional routing of gas

from Russia to Europe. The South Stream proj-

ect will allow us to receive natural gas from Rus-

sia and deliver it to Europe. The Greek section of

the pipeline will be constructed for the purposes

of transit to Europe as well as providing supplies

of natural gas to the Greek domestic market.

■ The Burgas-Alexandroupoli oil pipe line has a

capacity of up to 50 million tons of crude petrol

a year so as to improve the flow of oil. While the

vision for its construction dates back to 1993,

this Government has taken the necessary steps

to take this project forward, notably with the

signing of the Agreement amongst the Govern-

ments of the Russian Federation, the Republic of

Bulgaria and the Hellenic Republic in March

2007 and with the signing of the Shareholders

Agreement which establishes the international

company which includes the Greek Government

with a 1% stake in January 2008. This project,

once completed, will, by bypassing the congest-

ed Bosphorus Straits help alleviate traffic and

reduce the likelihood of oil spill accidents in the

Straits.

■ These project show the leading role that Greece

has undertaken in promoting a dynamic interna-

tional energy policy. Greek policy does not mere-

ly consist of the construction of western-bound

oil and gas pipelines. It aims to accelerate the

emergence of a truly liberalised and integrated

electricity market not only in Greece but also

throughout Southeastern Europe via a strong yet

equal regulatory environment.

The above projects conform to the long term

strategy of Greece which is to contribute to the ener-

gy security of Europe. This is being achieved by pro-

moting the diversification of our energy sources. It

means diversity in energy supplier and diversity in

energy transport, distribution and import routes.

Integrated gas and electricity market contributes to region’s economic progress as Greece develops ambitious energy policy.

Major energy transit hub takes shape

Christos FoliasMinister of Developmentwww.ypan.gr

Cover

16

Cover

Regional deals offer solutionsto new energy challenges

The deregulation of the power market is drawing investor interest in a sector which is promising high growth rates and improved profit margins.

Some of the country’s largest companies and

the Greek government have been busily

striking up deals with foreign partners in the

region in a bid to meet the challenges of the

changing energy landscape.

The domestic market, drawing a growing

amount of investment activity, is tipped to be

one of the country’s fastest growing sectors as

changes to the regulatory framework promise

improved profit margins.

Rising electricity demand levels have also

forced the government to seek help from its

neighbours as soaring demand in the summer

exposes the system’s shortcomings.

Domestic companies are tapping the techni-

cal know how offered by European power com-

panies, such as Italy’s Edison and Spain’s Ende-

sa, in exchange for local expertise on vital

domestic issues, such as government bureaucra-

cy and licensing procedures.

Hellenic Petroleum (ELPE), the country’s

largest petrol refinery, was the latest company

to team up with a foreign partner in order to

boost its existing presence on the market.

It announced a joint venture with Edison

aimed at developing a 1,500-2,000 MW energy

portfolio in five years as part of plans to become

Greece’s second largest power company after

Public Power Corporation (PPC). ELPE and Edi-

son, Italy’s second largest electricity producer

and gas distributor, will each hold 50 percent of

the yet-to-be-named joint venture that will pur-

sue investments in the broader energy sector.

“The new company will be a holding group

that will develop renewable energy sources, nat-

ural gas production and trade electrical energy

in the Balkans and elsewhere,” according to

ELPE President Efthymios Christodoulou.

ELPE will contribute its 390 MW energy

plant in Thessaloniki to the joint venture while

Edison will hand over its 65 percent stake in

central Greece’s Thisvi power plant, planned for

completion by 2010. The holding company will

also receive a 55-million-euro payment from

Edison to balance the respective asset contribu-

tions and control a 75 percent stake in a ther-

mal power generation subsidiary. The deal is

subject to approval by regulatory authorities.

Edison also stressed the importance of the

deal as it includes Athens in its strategic plans

for the region.

“For the first time we are signing a 50-50

joint venture in a country of strategic importance

for our development,” said Umberto Quadrino,

Edison’s chief executive officer. “We see Greece

as a base for the Balkans. We will jointly seek

opportunities to grow,” he added.

According to sources, the joint venture will

announce after summer plans to enter the retail

market segment, offering power to households.

Sources say that Quadrino, and senior ELPE

officials have met with Development Minister

Christos Folias and announced their intentions

to tap the retail sector.

Rising demandDespite adverse international conditions and

a slowing global economy, which is also weigh-

ing on Greek economic growth, the power indus-

try remains an attractive investment option.

It is also one of the few sectors in Greece

that is currently drawing strong interest from for-

eign investors. Greece’s electricity demand grew

by 50 percent in the last decade, according to

the US Energy Department. The nation needs to

increase capacity by another 50 percent, or

6,000 MW, to guarantee supply through 2015,

according to the energy regulatory authority.

Recent price hikes to power bills have helped

widen electricity profit margins. As of this

month, electricity bills went up by 7 percent for

homeowners and 10 percent for businesses in

the third price hike in the last 12 months.

The initial market segment to be targeted by

the new entrants is expected to be households

that consume more than 4,000 kilowatts annu-

ally and commercial customers such as factory

plants – sectors of the market which saw the

smallest price hikes this month, as PPC realizes

that they will be the easiest to lose to the com-

petition.

PPC is 51 percent-owned by the state and its

prices are set by the government.

Market sources, however, point out that fur-

ther changes to the sector are needed. Changes

such as hooking up the electricity grid system on

the country’s islands with mainland Greece and

updating the network used by PPC will make the

17

sector more attractive and cost efficient.

Requiring PPC to providing more information

on household bills, listing its costs versus com-

petitor’s costs is seen as another step the gov-

ernment can take to open up the market.

Another joint venture with an eye on the

retail segment is Endesa Hellas which is prepar-

ing to launch its own household operations in

the fall, according to sources.

Spain’s Endesa has entered the local market

by teaming up with Greek metals and engineer-

ing group Mytilineos and plans to build its third

power station in Greece by 2010. It plans to

build two more coal-fired plants, aiming at a 16

percent share of the total produced energy in

Greece by 2015.

Further steps on the energy front include

Italy’s Enel. Enel SpA’s Enelco division, the

Greek unit of Italy’s largest utility, has signed a

contract to build a gas-fired power station in

Greece, the first of three planned by grid opera-

tor DESMIE.

Enelco, whose shareholders also include

Russia’s OAO Gazprom and Greece’s Copelouzos

Group, will build and operate a 447-megawatt

plant.

The facility is expected to begin commercial

operations in 27 months. The power station will

sell electricity to the wholesale market at partly

guaranteed prices as Greece opens up its energy

industry to boost competition and reduce its

dependence on oil. Enelco, 75 percent-owned

by Enel, won the contract in February.

Bridges builtRising demand every summer – the year’s

peak period – stretches the power system to its

limit, forcing the government to import electrici-

ty from neighboring countries such as Turkey

and Bulgaria.

Turkey has agreed to supply Greece with up

to 200 megawatts of electricity this summer as

part of a two-year energy exchange agreement

between the two neighbors.

The deal, signed in Istanbul by Development

Minister Christos Folias and his Turkish counter-

part Mehmet Hilmi Guler earlier this month, pro-

vides for Greece importing power during summer

months and exporting it back to Turkey in the

winter.

“With this method, the needs of the systems

in both countries will be met,” the Greek Devel-

opment Ministry said.

Greece’s electricity network has hooked up

with five of the country’s neighbors in recent

years to help meet rising demand for power. Dur-

ing the warm summer months, Greece imports

electricity from Italy, Bulgaria and the Former

Yugoslav Republic of Macedonia (FYROM) and is

a power exporter, mainly to Albania, when

demand on the domestic grid drops.

The threat of a power blackout in Greece is

common during summer as rising demand often

pushes the system to its limits. During the last

few weeks – even though the country did not

experience excessively high temperatures –

demand remained high at over 10,000 MW,

levels only seen during heat waves last year.

The National Power Strategy Council had

warned the government in April that the country

was likely to suffer energy shortages until 2010

due to demand exceeding supply.

Greece and Turkey started exchanging elec-

tricity last year but on a limited scale. The

power link connects Nea Santa in northeastern

Greece’s Thrace with Babaeski in Turkey.

The energy sector has brought the countries

closer together for the second time. “This deal is

proof that there is very great potential for the

countries to work together,” according to the

Greek Development Minister.

It is the second energy agreement concluded

between Greece and Turkey after the launch of

a pipeline between the two neighbors that trans-

ports natural gas from the Caspian region to

Western Europe. The pipeline with then go onto

to Italy, via an undersea link, in order to trans-

port natural gas to the rest of Europe.

Stelios Bouras

18

CoverA glance at a map showing the various pipelines is enough to set matters within a realisticframework: if Greece plays its cards right it will evolve into an important regional transit hub.

Prospects, pitfalls of energysteps in S. E. Europe

The recent Greek-Russian handshake on the

South Stream project, in combination with

the Burgas-Alexandroupoli pipeline and the

Interconnector Turkey-Greece-Italy (ITGI)

natural gas pipeline, will, if brought to

fruition, establish Greece as an important link in

the West’s supply chain to Caspian hydrocarbons.

Now firmly on the energy map, Athens is enhanc-

ing its geopolitical standing and its voice and role

in energy affairs, while also guaranteeing to a sig-

nificant degree its own energy security and that of

the wider region (in the sense that any crisis

allowed to bear on energy delivery would be felt by

European consumers, who will be the end users of

the oil and natural gas transiting Greece). But a

quick glance at a map of the region showing the

various pipelines carrying energy from east to west

is enough to set matters within a realistic frame-

work: if Greece plays its cards right it will evolve

into an important regional transit hub.

The ITGI, Nabucco and South Stream natu-

ral gas projects – as well as the existing Blue

Stream – impact broader developments in the

Balkans, but are categorized by many as sup-

plementary, given that beyond carrying gas

from different sources, the quantities of gas

have been secured by different companies (e.g.,

ITGI and South Stream by the Italian Edison

and ENI, respectively).

However, given the political support and

consequent involvement of the U.S. and Russia,

as well as the fact that their target markets and

the quantities they will be moving are more or

less the same, they will be for the most part

competitive. The scolding the Greek govern-

ment came in for from the State Department’s

Matthew Bryza was no mere coincidence, and

neither are the efforts to accelerate construction

of the projects in question so as to beat the

competition into western markets.

In this escalating energy crisis, Russia has

clear comparative advantages, while the U.S.

has serious strategic problems, including:

■ overestimation of Azerbaijan’s potential;

■ the international isolation – for which the

U.S. is responsible in the main – of an ener-

gy-rich Iran that could, under the right cir-

cumstances, compete with Russia;

■ Iraq’s inability – due to the geopolitical fluid-

ity brought on by the U.S. invasion – to

deliver its vast energy reserves to western

markets;

■ The agreements signed recently by Moscow

with Kazakhstan and Turkmenistan, which

will increase Russian control over the natu-

ral gas exports of these two Central Asian

states.

Keeping Greece’s options openGreece – irrespective of its contractual obli-

gations – thus has no choice but to bear in mind

the objective energy realities that make Russia,

rather than Azerbaijan, the more pragmatic

choice for adequate supply of energy, at least

for the time being.

At the same time, Athens has to avoid

becoming dependent on Moscow in terms of

absolute numbers. Any reckoning by which

Greece might reduce its dependence on Russia

in the coming years presumes the ITGI’s oper-

ation at full capacity – an eventuality by no

means certain given the current state of affairs

and the need to secure quantities of energy to

cover the increasing needs of the domestic

market.

Greece, like other transit states, obviously

doesn’t want to identify with one or the other of

the power poles (U.S., Russia). And this is

because it wants to keep its options open,

securing supplies from various sources. What-

ever the case, the energy plans we are referring

to (apart from Blue Stream, which is already

operating, if not at full capacity) won’t go into

operation before 2012 in some cases, and

2014-2016 in others – and these are best-case

scenarios.

It is no exaggeration to claim that for transit

countries, given the relatively limited economic

gains for transit states (these rise only in the

case of re-sale or the securing of special

accommodations – low prices – for domestic

markets), the basic objective is to upgrade their

geopolitical role and strengthen their negotiat-

ing clout on broader issues beyond energy (e.g.,

the Greek government sends a message of

insubordination to the U.S., which it perceives

as not having supported Athens on any major

national issue in recent years).

So it is easy to see why vigilance is impera-

tive to the part of the Greek government, with

the salient areas of interest having problems

with the projects and potential economic gains.

Specifically, while Burgas-Alexandroupoli

seems to be moving towards implementation,

despite delays, the other two projects have

some structural problems that have to be

resolved. Given that the ITGI is slated to carry

Azeri natural gas, the potential for which has

Dr. Constantinos FilisHead of Russia & Eurasia Centre,

Institute of International Relations

And Senior Member of St Antony’s

College, Oxford University

19

been overestimated, it is unlikely that it will

operate at full capacity even when the Greek-

Italian section has been completed. This means

that it will carry smaller quantities and be less

competitive than other projects. South Stream

is a high-cost, high-risk project.

Regardless of Russia’s intention to move

ahead with it in order to gain a negotiating

advantage over other transit states, such as

Ukraine, it is by no means certain that – fol-

lowing financial and technical studies – this

project will prove viable from end to end, much

less commercially alluring.

We can reasonably expect the huge con-

struction cost (over 10 billion euros) to be

passed on to those who consume the natural

gas from this pipeline. Beyond that, we should

bear in mind that although Russia is the most

realistic Nat gas supply solution at this time (in

terms of production) if, as some forecasts have

it, Moscow does fail to attract new investments

over the next several years to help fund explo-

ration for new Nat gas fields, its production

potential will fall. In this context, it is under-

standable why Moscow is expediting natural

gas sales agreements – thus optimizing its mar-

ket share - and why we will see in the foresee-

able future a dramatic rise in Nat gas prices on

the Russian market, curtailing domestic con-

sumption.

Further concern arises from the fact that

although Moscow has the quantities necessary

to supply the global market, in this particular

case it seems to be moving in the direction of

making geopolitical gains without taking into

account the economic cost. And this is why it is

vacillating even now concerning the participa-

tion of certain states (e.g., Serbia). The fact

that the Kremlin decided – in a reversal of ini-

tial plans – to incorporate Belgrade into the

northern branch, rerouting the pipeline, points

to the vastness of the political dimension of the

South Stream project.

Moreover, the involvement of a number of

states in this project will probably bring about

delays if and when details and requirements

concerning their participation need to be ham-

mered out. Strong political will from govern-

ments speeds things up, but when the negotia-

tions pass on to the companies involved, the

process takes on another dynamic.

Finally, with regard to Greek participation in

the South Stream, it has not yet been disclosed

whether the pipeline that passes through Greek

territory will run parallel to the 670-km Egnatia

motorway or merely transit a chunk of Komoti-

ni just large enough for Russia to secure

Greece’s commitment not to seek expansion of

its energy supplies elsewhere. Greece’s partici-

pation would take on a substantial and strategic

perspective only if the southern branch of the

South Stream pipeline were to transit a signifi-

cant portion of northern Greece.

Summing upThere is no questioning the fact that Greek

energy diplomacy has made great strides in

recent years, but the successes remain princi-

pally on paper or under construction. To further

consolidate its interests – and those of the EU,

in the final analysis – Athens will have to redou-

ble and redirect its efforts, seeking its own part-

nerships with energy-producing countries

beyond the Russian-Western fray.

The current clash between Washington and

Moscow, which is taking place against an ener-

gy backdrop, is not Cold-War in nature. Never-

theless, the two sides do have conflicting inter-

ests; interests that they promote and, in some

cases, impose – rather indelicately at times.

Let’s hope that the conflict between these two

poles of power (one, the strongest pole, the

other, up and coming) in the international sys-

tem won’t have collateral casualties.

This article is an abridged version

of an Opinion Piece Paper that

was published by SEESOX,

Oxford University in July 2008

20

Cover

Banks make mark in Southeastern Europe

Greek lenders are extending their reach in the fast growing region as they position themselves for the long term.

In recent years, Greek banks have proceeded with

their most ambitious business expansion beyond

their national borders, turning the Southeastern

European region into a… Greek affair. With a branch

network of over 3,000 - a figure which increases by

the day- Greek banks cover, today, a vast region expand-

ing northward of Russia and Poland, eastward of Turkey

and up to Egypt, including all our neighboring Balkan

countries. And their ambitions do not stop there: in the

past months Pireus Bank, Alpha Bank, Cyprus Bank and

Marfin PB have all taken over banks in the wide Ukrain-

ian market.

Despite the steep deterioration of conditions caused

by the credit crunch, the banks managed to emerge

unfazed in the first trimester of 2008, presenting strong

activity growth and further increase in their profitability.

Retail sector growth, meaning consumer and housing

credit, was for a consecutive period the basis for further

growth of banks during the first trimester of 2008, but

international activity was in fact the factor which made

the real difference.

It is indicative that 42% of the National Bank’s profits

came from Finansbank in Turkey (30%) and the SE

Europe (12%), with loans rising by 43% in Turkey, 65%

in SE Europe and 21% in Greece. Eurobank EFG achieved

a fivefold increase of profit from SE Europe, while loans

abroad more than doubled compared to the 21% increase

rate in Greece. Alpha Bank presented a similar course,

with profits increasing by 74% abroad compared to an

8.3% increase rate in Greece, while loans abroad

increased by 80%. Activity abroad also gave a large push

to the Pireus Group which achieved a 106% increase of

loans abroad while profits increased by 217%.

The future for Greek banks is set abroad but that does

not mean that there will not be any turbulences. After

many years of strong growth, the credit crisis has creat-

ed concerns regarding the financial state of the region’s

countries.

Furthermore, the image of the Balkans, financial

problems apart, from a political point of view does not

seem as idyllic as it did one year ago. Serbia is in a rift

with Europe regarding the Kosovo issue, a process which

might delay the European course of the country and with

it the development of its economy. The relations between

Greece - FYROM are at their lowest point of the past

years, while Turkey and its fragile internal situation is a

cause of great concern.

Problems, delays and difficulties will certainly occur

but as bank officials point out the historic expansion of

the banks into SE Europe needs to be judged in the

course of time rather than in the short-term.

Yiannis Papadoyiannis

”

“21

South Eastern Europe is a region that is

expected to grow faster than the rest of

Europe in the years to come. Already,

during the last five years the standard of

living has converged significantly to the

Euro Area average: The Bulgarian one rose from

27% in 2002 to 35% in 2007, the Romanian

from 28% to 35%, the Serbian from 26% to

31%, and the Turkish from 32% to 39%. The

countries have low public debt, small fiscal

deficits, follow prudent monetary policies and

aggressive structural reform policies. According

to the latest report by the World Bank, in 2007

the region tops every other region in the globe in

terms of the number of structural reforms that

were implemented, although in the Ease of

Doing Business rankings among 178 countries,

Bulgaria ranks 46th, Romania 48th, Turkey

57th and Serbia 86th. While these ranking

reveal that SEE countries still have work to do,

it is interesting to note that Greece ranks worse

than all of them, holding the 100th spot.

The prospect of joining EU or EMU acts as an

anchor and disciplining device to policy making.

Countries are forced to gradually adopt the EU

acqui, i.e. to establish a transparent legal sys-

tem, import the EU regulatory framework, allow

a level playing field in business operations and

competition, allow free cross-border movement

of capital and labor, minimize corruption, follow

low inflation policies and prudent fiscal policies

that would not be influenced by the political

cycle. This is a long process, which forces coun-

tries to adopt policies that increase competitive-

ness and productivity. Foreign investors are

quite aware of the lower risk involved in a future

EU or EMU membership and flock into these

countries. In fact, during the last five years, the

SEE region has attracted more FDI inflows as a

% of GDP than the rest of Central Eastern

Europe or any other developing region. This is

expected to continue. Fast growth rates are

expected to continue as well.

The question today is whether the two nega-

tive global shocks, the oil price rise and the

financial crisis, would exacerbate imbalances

and dent the positive growth momentum.

Indeed, these shocks have already left their

imprints in financial asset prices: Sovereign

spreads, which measure the amount of extra

aggregate credit risk investors perceive in the

country relative to the US, have risen signifi-

cantly, from 0.5% in June 2007, before the cri-

sis, to 2% today (July 2008) in Bulgaria, from

0.3% to 1.4% in Romania, from 1.5% to 3% in

Serbia and from 1.9% to 4% in Turkey. Similar-

ly, stock markets have declined, with the loss in

US dollar terms in the last 12 months (to early

July 2008) amounting to 13% in Bulgaria, 37%

in Romania, 20% in Serbia and 27% in Turkey.

Yet, I think financial markets may have overre-

acted, discounting too heavily the short-run

stress relative to the more favorable long-run

trajectory in economic activity and profitability.

In most countries, overheating of their economy

was a major concern prior to the global shocks,

with labor shortages creating bottlenecks. Now,

the rising inflation and the higher interest rates

force a reduction in real incomes and consump-

tion, which may take part of the pressure off and

lead to a softer landing of the economies. On the

other hand, the rising inflation aggravates wage

demands and may lead to an upward wage-price

spiral that threatens to affect inflationary expec-

tations and become a more permanent feature.

Of course, the circumstances differ by country,

making it hard to generalize.

Eurobank EFG Group

Gikas A. HardouvelisProfessor, Department of Banking

& Financial management,

University of Piraeus,

& Chief Economist, Eurobank EFG Group

”

“F

ollowing the collapse of communism, the

countries of South Eastern Europe started

reintegrating along traditional economic

and business lines which go back in his-

tory for 3,000 years. Greek corporates

expanded in the region to the north of Greece to

take advantage of emerging growth opportuni-

ties. All this took place in a discontinuous insti-

tutional setting as these countries were shed-

ding their central planning models in favour of

new and vibrant free-market economies.

Greek banks have been always astute in

turning challenges into opportunities. They were

among the first to enter the region adopting a

“follow the customer” policy to service primarily

the Greek corporate risk which they were famil-

iar with back in Greece. Then, followed a period

of learning by doing in an environment of finan-

cial and political instability which set the stage

for the rapid expansion in the last five years as

the region moved inadvertently towards the

European family. Romania and Bulgaria joined

the European Union in 2007 while all the other

Balkan countries are in some form of an

arrangement, including Serbia, to eventually

join the European Union over the next decade.

So, the region politically and economically has

become much more stable than ever before. In

the process, 3,000 Greek corporates are cur-

rently doing business in South Eastern Europe

having invested around Euro 12 billion. Among

them, Greek banks occupy a prominent position

with almost one fourth of total banking assets in

their hands and more than 2,000 branches with

close to 30,000 employees already in place. If

one considers the logistics of integrating all

these operations in the group structure of the

mother company, then indeed Greek banks have

outdone themselves in building in a relatively

short period a credible platform to support prof-

itability in the longer term.

And indeed, the prospects are bright. As

measured by the loan to GDP ratio, financial

penetration in these countries currently stand

roughly at about one third of that in Greece, fol-

lowing a period of very rapid credit expansion in

this decade. So, the opportunities for Greek

banks are huge as income growth fuels demand

for financial services and increasingly more and

more sophisticated banking products, mutual

funds, insurance products, pension plans etc.

More specifically, opportunities abound for

banks in these countries to finance the long -

awaited economic and social infrastructure-

buildup (highways, bridges, terminals, ports,

energy, telecommunications, transportation,

hotels, schools, hospitals). Funds from the Euro-

pean Union are becoming available for co-

financing infrastructure (especially in Romania

and Bulgaria) while foreign direct investment

private inflows (with some of it of Greek origin)

support investment in all major sectors of these

economies.

Challenges, however, still exist. Greek banks

operate in an environment where inflation and

current account deficits, if left unchecked, can

jeopardize growth prospects in these countries.

This type of environment is not of course alien

to Greek banks. Similar macroeconomic stabili-

ty issues were encountered in pre-Eurozone-

entry Greece. Greek banks not only survived two

devaluations in the 1990s but prospered there-

after. Although the possibility is remote that the

exchange rate regimes in these countries will

come unstuck, Greek banks are well equipped to

face these type of challenges and do know well

how to operate in such an environment.

Alpha Bank

Michael MassourakisGroup Chief Economist, Alpha Bank

22

Cover

“A

s it is well known, the S.E. Europe soci-

eties and economies, had to undergo a

painful transition from the centrally

planned economy to a free market one,

during 1990’s and 2000’s.

For Romania and Bulgaria, transition is over

and this was confirmed by their E.U. accession

on the 01/01/2007. In most ex-Yugoslav

Republics, although economic transition is more

or less completed, certain political issues are

still pending.

In Albania, the transformation of the country

in terms of economic development and political

stability, compared to the chaotic 1990’s, is

impressive.

Greek banks were among the first to estab-

lish a presence in S.E.E. countries in transition,

already from the early 1990’s, particularly in

Bulgaria and Romania. Very quickly they were

involved in all operations of commercial bank-

ing, leasing, factoring, brokerage and insurance

business.

They actively supported the development of

capital markets, in the region and assisted in the

creation of links between Athens Stock

Exchange and its counterparts in the region.

Characteristic of their activity in the local capi-

tal markets is that in Bulgaria, some of the

largest privatizations through the stock

exchange have been realized, thanks to sub-

sidiaries of Greek Banks.

Initially, due to uncertainties and gaps in the

institutional framework, Greek Financial Institu-

tions were servicing mostly Greek and interna-

tional clientele. Nevertheless, from the end of

nineties and after, due to the stabilization of the

economy, the part of the local firms and individ-

uals in their overall portfolio rose spectacularly.

This should be ascribed to the following factors:

■ The considerable expansion of Greek banks

presence, related either to the acquisition of

local institutions mainly via privatization, or

to organic growth

■ The setting up of groups of specialized servic-

es firms around the main banking institution

■ The restructuring of the local economies, due

to the overwhelming privatization, the re-

launching and rationalization of the entrepre-

neurial activities, as well as the good

prospects for many of the local companies

■ The massive crediting of households mostly

via mortgage and consumer loans and the

overall development of retail banking.

As a result of their dynamic expansion, Greek

banks now possess more than 25% of total

banking assets in Bulgaria, Albania and Serbia,

30% in FYROM and 15% in Romania. Thanks to

recent acquisitions, they have created a consid-

erable presence in Turkey as well.

Southeastern Europe, as the whole Eastern

Europe, most probably will continue to show

high growth rates and any way higher than those

of the Western part of the continent. Of course,

developments in the economy of the region are

subject to many factors. Real Estate, tourism

and various forms of services may play less

important role in the years to come, while ener-

gy, infrastructure projects, agriculture and spe-

cialized industries may prove the real locomotive

of the economy.

The countries of the region must also cope

with two major problems: a) Current account

deficit, which in the case of Bulgaria was for

2007, approx. 20% of the GDP and for Roma-

nia 14% of the GDP and b) high inflation rates.

Although large external deficits, until now

were compensated by foreign direct invest-

ments, the crisis in the world economy may

affect this process. Nevertheless, it is expected

that inflows of European Funds, will have a ben-

eficial effect particularly for the economies of

the 2 new member states (Bulgaria, Roma-

nia). On the other hand, inflation creates

problems for these countries entry into

the euro zone.

Greek banks, in the develop-

ment of their activities in the

region, must face a more

complex situation than

before. Their local presence and know-how, as

well their international connections and net-

works, thanks to their parent banks (e.g.

Emporiki having links with Credit Agricole

structures in 70 countries) may prove a

valuable tool for their further expansion

and contribution in the development

of the local economies.

Christos KatsanisHead of International Activities Development

Unit, Emporiki Bank

23

Emporiki Bank

”

24

Cover

Bank of Cyprus steps into Russia

In one the biggest deals to take place recently in the local lending sector, Bank of Cyprus is increasing its exposure in the fast growing Russian market.

As the credit crisis worsens and international

economic conditions become more difficult,

Bank of Cyprus responded by sticking to its

guns and expanding into one of the world’s

fastest growing economies, Russia.

The bank has signed a deal to buy an 80 per-

cent stake in Russia’s Uniastrum Bank for 371

million euros, the country’s ninth-largest lender,

broadening its international presence.

“Uniastrum Bank will significantly strengthen

our footprint in our targeted markets,” said Bank

of Cyprus CEO Andreas Eliades. “It adds a highly

promising international dimension and diversifica-

tion to our already extensive presence in Cyprus

and Greece and our expanding operations in

Ukraine and Romania.”

The bank expects the acquisition to be con-

cluded in the fourth quarter of 2008, after regula-

tory approval from Greece and Russia.

The purchase price corresponds to 3.1 times

book value, including a capital increase of $50

million which will be made upon completion of the

takeover. Bank of Cyprus said the purchase will be

financed through existing capital.

Analysts described the acquisition as being a

positive move for the Cypriot bank, saying that it

is inline with its policy to expand abroad. “The

price to book value they paid is lower than other

acquisitions to take place in Russia,” said an ana-

lyst who declined to be named.

Apart from Cyprus and Greece, the bank is

present in the United Kingdom, Australia and

Romania. Its previous major acquisition was the

buyout of a 97 percent stake in Ukrainian bank

AvtoZAZBank earlier this year.

The Russian deal is expected to increase profit

from the first year of investment in 2009, and pro-

vide a 10 percent return on investment in 2010.

Uniastrum was created in 1994 and is the

ninth-largest in Russia in terms of its branch net-

work. It will continue to operate independently of

the existing Bank of Cyprus network in Russia,

which started full banking operations in 2007.

“This acquisition is a landmark in Bank of

Cyprus Group’s history as well as an important

time for Cyprus and the Greek world in general.

This is the first acquisition of a big Russian bank-

ing institution by a banking institution operating in

Greece,” said the Chairman of the Board of Direc-

tors of the Bank of Cyprus Group, Mr Theodoros

Aristodemou.

“This acquisition apart from the benefits that

will bring to our organization and our share-

holders, it will bring closer the Greek and the

Russian world. Bank of Cyprus continues its

strategic development with solid steps in the

new rapidly growing markets,” he added.

Ties between Greece, Cyprus and Russia have

been growing recently in different fields, particu-

larly in energy. A number of Greek banks have

expressed interest in expanding into the Russian

market but have mostly settled with expanding

into south eastern Europe.

Uniastrum Bank is a universal commercial bank

founded in 1994 with a strong presence in Moscow

and in another 41 regions of Russia. Uniastrum

Bank is headquartered in Moscow and has the 9th

largest distribution network in Russia, consisting of

222 branches and sub-offices, the majority of

which have been opened over the last few years.

The Bank employs approximately 4,300

employees. Uniastrum has a retail focused portfo-

lio and offers an extensive retails product set and

has a high brand recognition. It is ranked 15th by

mortgage loans and 33rd by retail loans. It has a

good deposit gathering capability and is ranked

13th by retail deposits. At 31 December 2007,

the bank’s total assets amounted to 1,401mn

euros, net customer loans to 932mn euros and

customer deposits to 1,067mn euros and the

bank’s loans to deposits ratio stood at a healthy

ratio of 87%.

Stelios Bouras

25

News

By its ruling 764/08 issued on 18 July

2008, the State Council rejected an envi-

ronmental organisation's petition for dis-

continuation of works, allowing construc-

tion of the ENDESA HELLAS 430 MW

combined cycle Power Station in Agios

Nikolaos (Viotia) to proceed.

METKA S.A., the contractor for the

project, has already taken delivery of the

key equipment, including the General Elec-

tric jet turbines, and makes every effort to

ensure completion of the Station's con-

struction as soon as possible within 2009.

This Plant is the second large-scale Power

Plant of ENDESA HELLAS. The company's

first station was the 334 MW Combined

Heat and Power (CHP) Plant, one of the

largest of its kind in Europe, now already in

commissioning and generating Heat

(steam), which is used in the production

process of the Aluminium of Greece plant,

and Electricity, which is contributed to the

country's National Power System.

During the month of July, this CHP

Plant has supported successfully the effort

made by the Hellenic Transmission Net-

work Operator (HTSO) to prevent power

cuts in businesses and households due to

severe capacity shortages in the Greek

Electricity System.

ENDESA HELLAS is a joint company

established by ENDESA, the Spain-based

energy giant, and the Greek Energy, Metals

and Engineering MYTILINEOS Group. The

company's activities are deployed in

Greece and in neighbouring countries and

focus on electrical power generation from

thermal and renewable sources. The com-

pany recently acquired from the Danish

firm DONG4 four (4) wind parks with a

total capacity of 18.6 MW, in a move that

brought its total power generation capacity

from wind and hydroelectric stations

already in operation up to 45 MW, with yet

another 800 MW of capacity at various

licensing stages.

The joint company aims for its produc-

tion capacity to exceed 2000 MW by the

year 2012, through a mix of power plants

utilising natural gas as well as renewable

sources. The successful and smooth imple-

mentation of this first phase of the ambi-

tious investment plans of ENDESA

HELLAS, carried out in full respect of the

local communities where the company's

activities are based and utilising the friend-

liest possible technologies for the environ-

ment (natural gas and renewable energy

sources), will make a major contribution

towards stabilising Greece's Electrical

Power Balance and reducing CO2 pollutant

emissions.

Green light for power plant

Agreement between Athens Medical Centre SA and

AXA, GROUPAMA PHOENIX, GENERALI LIFE, LAVIE

ASSURANCE and AGROTIKI INSURANCE companies,

Athens Medical Group announces the successful com-

pletion of the first round of negotiations with large insur-

ance companies.

Athens Medical Group has strategically selected AXA,

GROUPAMA PHOENIX, GENERALI LIFE, LAVIE

ASSURANCE and AGROTIKI INSURANCE companies and

executed long term, strategic agreements with them aim-

ing at improving the services offered to their insured cus-

tomer base.

These agreements relate to the direct settlement of the

customer medical bills between the above insurance com-

panies and the hospital units of Athens Medical Group

(Athens Medical Maroussi Clinic, Paedriatric Clinic, Inter-

balkan Medical Center, Paleo Faliro Clinic, Psychiko clinic,

Peristeri Clinic, Dafni Clinic and Iasis Piraeus Clinic).

It is worth mentioning that these agreements, universal

in nature (including all hospital units of the Group), are the

first ones to be executed by Athens Medical Group follow-

ing the break up of the collective agreement of the Athens

Medical Group with the Greek Insurance Companies Union

in July 2002.

Medical talk with insurers

HELLENIC PETROLEUM (ELPE). announces today the

acquisition (subject to the approval of the relevant competition

authorities) of 100% of Opet Aygaz Bulgaria EAD (?OAB?),

which operates a network of 17, newly-built petrol stations,

located in/around major Bulgarian cities, where demand growth

is strong. Moreover, OAB owns 3 strategically located fuel

depots (including one in Sofia) and several plots of land ear-

marked for petrol station development. In addition to its retail

marketing activities, OAB enjoys a strong position in the local

wholesale market for LPG due to its well-developed logistics

network.

As part of the Group’s strategy to further grow its down-

stream portfolio in South East Europe, this acquisition further

strengthens the position of HELLENIC PETROLEUM in the

region’s fast-growing oil products markets. Following the acqui-

sition of OAB and the recent acquisition of 7 petrol stations from

Tempo, EKO Bulgaria’s retail network has increased by 47%,

counting 75 petrol stations. Equally important, the location and

size of the logistics assets of OAB create significant opportuni-

ties in the supply of the local market.

According to Michael Myrianthis, Director General of Inter-

national Activities of HELLENIC PETROLEUM, this transaction

significantly expands our footprint in one of the largest and most

attractive markets of South East Europe, thus further bolstering

the Group’s downstream activities in the wider region.

HELLENIC PETROLEUM was advised in the transaction by

EFG Istanbul Securities.

Founded in 1958, HELLENIC PETROLEUM is one of the

leading energy groups in South East Europe, with activities

spanning over 10 countries in the region and across the energy

value chain. In 2007, Group net earnings amounted to euros

351 million, on total revenues of 8.8 billion. Its shares are list-

ed on the Athens Exchange (ATHEX: ELPE), and has a market

capitalisation of about euros 3.1 billion.

Bulgarian deal for ELPE

EconomyAs the market wrestles with fear and uncertainty regarding the global economy, the euro posts new life time highs against the dollar.

Are the euro bulls in control?

So far, this month is all action! The Euro has post-

ed new lifetime highs against the dollar above

1.60, the oil has reached 147.30 and the US

economy took another hit from two major financial

companies who had problems with liquidity. Excit-

ing stuff!

This month’s two main events were the ECB’s rate

decision and the non-farm payroll data from the US. The

very fact that we had these two releases at the same time

made trading conditions difficult and choppy and trading

was seen all across the board. The EUR/USD reached

new weekly highs of 1.5910 just minutes before the pay-

roll data hit; however the -62000 job positions figure did-

n’t have a negative impact for the dollar, as most traders

feared the number was set to come out far worse. When

Mr. Trichet started his speech, the EUR/USD dived more

than 100 points in a few minutes, as the bank failed to

deliver more hopes for rate hikes, and Trichet’s comments

were clear that for now they will stay unchanged. The

combination of a not so bad NFP number, together with

a negative Trichet, made the euro very weak against the

dollar which gave those dollar bulls even more of an

excuse to buy the greenback against all other currencies.

However, the dollar bull’s joy was short lived when it

continued its recent slide against the euro, with the pair

easily breaking 1.60 and posting a new record high of

1.6040. What caused this dollar weakness? Well, what

else! It’s the same old story: speculators had a field day

trying to hunt stops above 1.59 after the news broke late

on Friday that Fannie Mae and Freddie Mac were in seri-

ous trouble due to the credit crisis, so the dollar suffered

big losses against the euro and other currencies. The fact

remained that although news were negative for the green-

back, the move from 1.5750 to 1.5950 was overdone

and the reason for this was not because all of a sudden

traders realized that US economy is in slowdown, but

because of stop hunting. The big players took the oppor-

tunity to go long the euro, from 1.5750 and extending to

move towards 1.60. When the market opened on Sun-

day, we saw another wave of selling in the dollar until

1.5970, but the move was not enough to continue

towards 1.60. It was clear from this morning news both

the FED and the US government wants to calm the mar-

kets and pass the message that whenever a bank or a

credit institution is in trouble, “SUPER FED” will come to

the rescue. Paulson’s message last Thursday in his testi-

mony in front of the House of Representatives was clear:

bug banks and institutions MUST be allowed to fail! And

on that note, stocks plummeted and dollar was sold off.

Come on Monday morning and all of a sudden everything

is hunky dory again. Paulson and the FED decided to take

action concerning Fannie Mae and Freddie Mac and

therefore stocks and the dollar were up on the news.

We can see so far this month the market is full of

fear and uncertainty regarding the global economy, and

currencies reflect this by moving erratically. The fact that

DOW JONES broke the important psychological level of

11000 and posted a new monthly low, only to reverse

the move completely in a few days and move above

11400, shows just what a difficult environment the

market currently is. We also saw the oil falling more than

9 dollars a day towards 130. The reason for all these

moves is one thing and one thing only: the market is

directionless and confused; therefore any moves are

choppy and motionless.

Last week we had some important data coming out

from the Euro zone, with German ZEW printing yet anoth-

er bad number and making it clear that it’s not only the

GBP/USD Long Term view

This GBP/USD monthly chart displays our long

term view of the pair, with cycles and classical

chart analysis both visible. As in our EUR/USD

long term cycle analysis, we can clearly see two

approximate cycles; the first being a four year

series separating the major lows and the second

being sixteen years, which separates the important

lows of 1985 and 2001. The four and eight year

cycles follow the predicted path and give a clear

indication for the next major low set for the end of

2009 and the first months of 2010.

We see the 2007 highs as a ceiling which will

not be surpassed for some time. Combining the

technical picture with cyclical analysis, we can see

prices are approaching the trend-line formed by

the 2002 and 2006 lows. Any downward move

should be limited to this trend-line, which means

Lena ManousaridesMarket Analyst Fxgreecewww.fxgreece.gr

George Antonakos Head of Fxgreece's Market

Analysis Departmentwww.fxgreece.gr

26

27

US economy which suffers. Trichet and his pals are still

hawkish when it comes to inflation and are signaling

another rate hike, which keeps the euro at high levels,

however more economic data out of Europe this week

could reverse recent euro gains. Let’s not forget the Euro-

pean currency is close to record highs against the dollar

and the Japanese yen and it was made clear last week

that European officials don’t like the euro so strong. Many

analysts predict the EUR/USD may reach 1.65 or even

1.70 in the coming months! However, things are not so

simple as the European economy starts to show signs of

slowdown in the industrial sector and with its currency so

high, it will put pressure on the exports between countries.

Let’s not forget the latest economic data for the trade bal-

ance came out worse than expected, the same with the

factory orders too.The euro bulls are in control at the

moment, but any economic data out of the euro zone will

certainly play a role in its direction for the next few days.

The German IFO is to be announced this week and if the

number comes lower than previous months, we could see

a dent in the Euros strength. The fact that it is hovering

near 1.60 is not to be taking lightly, as negative com-

ments for the appreciation of the single currency may arise

once again. One thing is certain, whatever happens in the

next few days, dollar bulls have a long way to go before

any sustainable strength can be found and the fact the

markets are still in negative sentiment towards the US cur-

rency don’t make things any easier for the greenback. It is

crystal clear the global economic problems are affecting

Greece too. The latest economic data shows the GDP is

lower than firstly estimated and inflation is soaring once

again, as last month we had a record high of 4.9%. At the

moment inflation is one of the most important problems

the Greek economy is facing and the recorded oil and food

prices are definitely weighting on the economy. Let’s see

what the rest of the month will bring us and how the mar-

kets will be affected by everyday economic events. Will

the euro be finally corrected from those high levels, or will

we see yet another record high above 1.6050? Only time

and data will tell!

any extended move to the 1.9100 area, or possi-

bly a tiny amount lower, will give a good buying

opportunity in the medium term.

From these levels and from the base of

1.9300-9400, we see the pound appreciate ver-

sus the dollar, reaching the levels of 2.0100 or

2.0350-400 but not any higher. The second half

of 2009 should see the GBP/USD fall sharply,

breaking the 1.9000 level and even targeting

1.7000 -which is a very strong long term support!

If this support is tested along the timeline as the

cycles imply, it will be followed by an upward

move which could lead to the area of 1.9000-

9300, creating a large H&S formation -the first leg

of the right shoulder.

From 1.9000-9300 the levels of 1.7000 will

be tested again.

Euro is testing all time highs once again...

Euro printed a new all

time high in July against the

dollar , but it didn’t manage

to make a clear break above

1.6020 showing that the

sideways consolidation from

1.5300 to 1.6000 still dom-

inates.

From a technical point of

view, last week’s high at

1.6040 leaves the double

top scenario open -visible in

the weekly chart– and if

prices remain below that

level we could see the

retracement to reach 1.5600

even 1.5350-5400 area.

As we mentioned in last

month’s analysis, we see

great potential for further

dollar weakness later this

year and in the beginning of

2009 and for the euro to rise

against the dollar at the lev-

els of 1.6700-50. We

believe that until the end of

the summer, the fluctuations

will probably remain

between 1.5300 and

1.6000 (allows 70-80 pips

as a false break).

We are ready to change

our view about the consoli-

dation, if we see a clear and

sustained break of 1.6020-

40, something that could

lead to our basic targets

sooner than anticipated.

If the 1.6040 highs

marked the top for the short

term horizon, retracements

will remain below 1.5950-

70 and the area of 1.5800

should be broken down-

wards.

In this case, the area of

1.5550-5600 will be the

next target which is a very

strong support. Below that

level the base of 1.5300-

5400 is going to be tested.

As we can see in the weekly chart the long term trend of the euro is clearly

bullish. Last week’s high at 1.6040 lead to a weekly close below 1.5900 together

with a small reversal candle, giving indications of a double top. If this is the cor-

rect interpretation of the chart, euro is going to test the trendline that joins the

2007 and 2008 lows at 1.5600 area.

In the daily chart of EUR/USD we can see the sideways movement of

the last three months. Notice that despite the reversal candle that is

formed, the short term trend from the 1.5300 lows is still bullish. A

daily close below 1.5800 will open the road for the 1.5600 support…

28

Energy

The use of renewable energy sources (RES)

has become a global environmental impera-

tive, while it also presents an attractive

investment opportunity. Greece is seeking to

step up the development of RES and exploit

the rich dynamic offered by the favorable climatic

conditions of the country. Strong incentives and

investor interest have created a positive outlook for

the sector, but further efforts will have to be made in

order to meet the targets set by the European Union.

Renewable energy sources have been gaining

momentum on an international level. The use of

RES is imperative if we are to meet growing

energy needs as well as address the problem of

global warming. Annual growth in RES power

stations mainly wind-generated (30%) and pho-

tovoltaic (60%) over the past decade has been

impressive. Not including large hydroelectric

power, investment in new RES totaled $55 bil-

lion in 2006, with the level of RES generation

capacity amounting to 207 GW. Overall, RES

contributed 3.4% to global electricity generation

in 2006.

While RES have grown at an impressive pace

on the global level, they are still far from realiz-

ing their full potential in Greece. Not counting

the large-hydroelectric plants in the country,

RES power installations comprise 7% of total

domestic electric power capacity and contribute

just 4% to domestic electricity generation. How-

ever, growth in RES power plants in recent years

has presented a brighter picture. For instance,

excluding large-hydro, which account for three

quarters of total RES installations, RES power

plants in Greece had a power production capac-

ity of 1,048 MW at the end of 2007, compared

with just 71 MW in 1997.

The main RES growth driver to date has been

wind farms, the main RES generating technolo-

gy in Greece, at 21% (or 85% of RES, excluding

large-hydro). The predominance of wind power

is unsurprising, since this is the cheapest form

of RES power generation, thanks to more mature

technology relative to other RES. On the other

hand, photovoltaic power capacity in 2007

accounted for just 0.2% of RES power plants in

Greece (and roughly 1 per cent of the corre-

sponding capacity of wind farms), since high

installation costs and lack of a clear regulatory

framework have deterred investors from entering

the specific market. Other RES in Greece are

comprised mainly of small hydroelectric plants

(3.5%) and biomass (1%).

While there has been an upward trend in

RES in Greece, they are still relatively underde-

veloped. By way of comparison, in Spain (a

Mediterranean country with similar climatic con-

ditions) RES power plants comprise 20% of the

total power capacity of the country, compared

with just 7% in Greece.

However, we believe that the outlook is good,

as a number of significant factors will contribute

to further growth in RES, including:

(i) EU targets: According to the Kyoto Protocol on reduction

of fuel emissions, targets have been set for every

EU member state regarding the percentage of

domestic electricity consumption that should be

covered by RES by the year 2010. For Greece,

this level is 20.1% of total consumption, while

by 2020 this figure should increase to 29%.

(ii) The growing demand for electricity

According to our estimates, demand for elec-

tricity in Greece will grow in the years ahead to

over 80,000 GWh by 2020, from 53,750 GWh

in 2007. Similar growth is forecast for peak

demand, which is expected to top 16,000 MW

in 2020, from 10,600 MW in 2007. According-

ly, on the demand side, no investment obstacle

is forecast for RES.

(iii) Anticipated increase in the cost of fossil fuels

After 2013, energy producers will be obliged

to purchase CO2 emissions rights at a price

that, according to EU estimates, will range from

25 euros to 50 euros per ton of CO2 emitted

during power production. Consequently, the cost

of producing energy with conventional fossil

fuels will increase substantially, making it

imperative to change the mix in electricity pro-

duction so as to reduce the use of fossil fuels

and increase the role played by alternative forms

of energy.

While renewable energy sources (RES) have grown at an impressive pace on the global level,they are still far from realizing their full potential in Greece.

Investment opportunity in

Paul Mylonas Chief Economist & Chief

of Strategy for NBG Group

29

(iv) Favorable legal framework Given the situation described above, the gov-

ernment has made changes to the institutional

framework regarding energy production so as to

make RES more attractive to investors. Indeed,

favorable legislative changes such as generous

subsidies and guaranteed high selling prices for

electricity produced by RES are encouraging

many investors to enter the sector, as reflected

by the numerous applications for wind farm per-

mits and photovoltaic power plants received by

the Energy Regulator.

These factors, combined with the ideal cli-

matic conditions in Greece (abundant wind

potential and high sun exposure) guarantee good

returns for investments in RES. This positive

outlook is reflected in the current financial per-

formance of companies operating wind farms.

The segment displays strong growth in turnover

(around 50% per year over the past five years)

and high profit margins. Accordingly, the finan-

cial position of the segment looks healthy and is

expected to pursue a growth path in the coming

years - although some degree of uncertainty can-

not be discounted. We estimate that the conver-

gence of returns on funds invested in RES with

the European average (with operating profit

margins close to 50%), as well as the expected

growth in wind farm power production, will lead

to a pre-tax ROE of around 30% in 2020, com-

pared with 15% in 2006.

In the meantime, photovoltaic systems consti-

tute an emerging market that is benefiting from

current circumstances. Our estimates indicate

that the internal rate of return on investments in

photovoltaic systems will range from 14% to 23%

annually for the next two decades, while it pres-

ents high elasticity in the event of likely changes

in the various parameters (energy prices, location

of power plant and scale of investment), thereby

making it essential to plan the initial stages of the

investment very carefully. Furthermore, we find

that the legal framework favors small-scale

investments, while higher returns can be expect-

ed from locations in southern Greece and the

islands where the sun shines strongest.

While there is a will and a way to achieve

better exploitation of RES in Greece compared

with the past, there are nevertheless a number

of factors that, on the practical level, are putting

brakes on development. These include:

(i) the complex and time-consuming process to

obtain a permit,

(ii) the lack of a land-planning framework for the

country, which makes it likely that legal

action may be taken against the granting of

permits, and

(iii) the dependence of power stations on suppli-

ers and the availability of equipment and raw

materials.

According to our survey, which takes into

account both favorable and unfavorable factors

regarding the development of RES in Greece, as

well as the experience of Germany and Spain in

this sector, the penetration of RES into the ener-

gy market by 2020 should be substantially high-

er than it is today, although it is unlikely that the

EU targets will have been achieved.

As Greece has technically exploitable wind

power of around 11,000-14,000 MW, it is likely

that power production from wind farms could be

around 12,000 GWh by 2020 (with a generating

capacity of around 5,000 MW), thereby covering

15% of the total energy consumption in Greece.

The problem with the growing share of wind

farms in electricity production is the likelihood

that these power plants will not be able to meet

needs at peak hours of demand, since these hours

are usually the times when there is little wind.

However, in the long term the problem may be

overcome since it is possible that wind-generated

power can be stored using the new technology of

hybrid hydroelectric / pumped hydro designs.

Applications for photovoltaic power plant

permits numbered more than 7,900 at the

beginning of the year (corresponding to generat-

ing capacity of 3,750 MW). Our survey suggests

that by 2020 electricity generated by photo-

voltaic schemes will exceed 900 GWh, meeting

1.1% of total domestic electricity consumption.

Overall, we estimate that by 2020 annual

energy production by means of RES (excluding

hydroelectricity, whose capacity is expected to

increase only marginally) will amount to around

15,000 GWh, or 17% of domestic electricity

generation.

renewable energy sources

30

Themes

Prime Minister Costas Karamanlis recently

met with members of the Stavros Niarchos

Foundation Board of Directors: Andreas Dra-

copoulos, Philip Niarchos, Spyros Niarchos

and the Project’s architect Renzo Piano who,

along with his partner- Giorgio Bianchi (Renzo Piano

μuilding Workshop, www.rpbw.com) has undertak-

en the design of the Stavros Niarchos Foundation

Cultural Center (SNFCC), at the Faliron Delta area.

During their visit, the Prime Minister was

informed of the Project’s progress and its preliminary

study www.SNFoundation.org/SNFCC, while they all

discussed the ideas of the famous architect, regard-

ing the Center’s development.

As it was highlighted, the Park will be of major

importance to the residents and it will also serve as

a flagship for the visitors, covering an area of more

than 150,000 sq. meters. As regards to the prem-

ises of the National Library of Greece and of the

Greek National Opera, they will also function as

landmarks, depicting the Foundation’s social and

environmental awareness/sensitization. Renzo

Piano’s vision for the Project, is also the creation of

green and environmentally friendly facilities (a typi-

cal characteristic of his works). The architect aims

to “take advantage” of our country’s abundant nat-

ural light, to cover a great extend of interior spaces;

moreover, according to the initial design attached,

the water presence will also be dominant at the

Center, as well as the connection to the waterfront

and the sea.

Mr. Andreas Dracopoulos, member of the

Stavros Niarchos Foundation Board of Directors,

stated the following: “…we are optimistic on our

Project - the Stavros Niarchos Foundation Cul-

tural Center (SNFCC) and its development, which

will include the Educational and Cultural Park

(almost equal in size to the National Gardens in

downtown Athens) and the new premises of the

National Library of Greece and the Greek Nation-

al Opera; we are also excited that the projects of

the world renowned architect that we have

selected, Renzo Piano, combine the applied

green philosophy and functionality, along with

high aesthetics.

The Stavros Niarchos Foundation Cultural Center

(SNFCC) aims to become an important “destination”

in our country, a new dynamic educational venue, a

site of cultural evolution offering multiple activities,

with the advancement of new technologies. The new

premises for the National Library and the National

Opera of Greece, will further advance education and

the love for the arts, not only in the hearts of its local

residents but for the visitors, as well. The Educa-

tional and Cultural Park, will become a lively green

area – accessible to the general public (and to peo-

ple with special needs). Its development will further

enhance the vital “people and nature” relationship in

a crowded city. Apart from the mere fact that it will

be a “breath of fresh air”, it will also function as a

venue for various educational and cultural activities

and programs, working in parallel to the National

Library of Greece and the Greek National Opera.

Today, we informed the Prime Minister of

Greece, Costas Karamanlis -whom we would like to

thank for his ongoing personal interest and for the

state’s responsiveness and cooperation- on the Pro-

ject and the preliminary study’s progress.

We have already started all necessary proce-

dures and talks with the applicable organizations,

towards the execution of the contractual agree-

ment of our grant, including the terms for con-

struction and equipment. Renzo Piano’s detailed

plans are expected to be presented before the end

of the year”.

The park will be of major importance to residents and it will also serve as a flagship forvisitors, covering an area of more than 150,000 sq. meters

Centre to house National Opera