greek economy & markets - issue 14
DESCRIPTION
Regional deals power upTRANSCRIPT
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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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