Post by bato2 on Aug 22, 2009 9:47:09 GMT -5
FACTBOX-Greece's five main political and socio-economic risks
By Dina Kyriakidou
ATHENS, Aug 21 (Reuters) - Burdened with the euro zone's second biggest national debt, Greece is struggling to cope with a sharp economic slowdown. A fragile government majority hampers much-needed reforms while a snap election looms.
Here is a description of some of the risks Greece faces:
ELECTION
The scandal-plagued conservative government, which trails the main opposition socialist PASOK party in polls, has been agonising for months over when to call early parliamentary elections. The socialists, themselves burdened with scandals during decades in government, said they will force snap elections in March, when parliament elects a new president.
Investors will be watching closely Prime Minister Costas Karamanlis' annual economic speech on Sept 5, for any indication on his intentions on the snap vote, seen as disruptive during an economic crisis because it is traditionally coupled with government handouts and a freeze in implementing policy.
Opinion polls show PASOK will beat the ruling New Democracy party but not enough votes to form a majority government. Should that happen PASOK says it will repeat elections under a new electoral system virtually securing that it can rule alone. Far-right party LAOS has offered its support to New Democracy, which has so far refused. That view could change.
DEBT
Seen by investors as the euro zone's soft underbelly, Greece has the bloc's second biggest debt as a percentage of GDP after Italy's -- seen at 103.4 percent in 2009. Yield spreads over German bunds hit a record high in February, as risk averse investors fled the euro area's periphery amid the global crisis. Although spreads have now returned to more normal levels, Greece's ballooning debt to cover budget shortfalls remains the economy's most serious risk. [ID:nLAG003658]. Rating agencies Fitch and Moody's have downgraded their outlook on Greek government bond ratings, citing concerns over the impact of the economic downturn on public finances. Standard & Poor's cut Greece's rating to A- in January.
SLOW REFORMS, PRIVATISATIONS
Facing not only street protests but even resistance from within its own ranks, the government has been slow to implement reforms needed to boost competitiveness and trigger growth.
In 2008, an overhaul of the social security system, which experts warned would collapse in 15 years due to an ageing population, fell short of what was necessary. The International Monetary Fund (IMF) has said drastic reforms are needed. Education reform, seen as crucial to making the labour market more competitive, had a similar fate amid violent protests.
The government was more successful with privatisations despite heated protests from labour unions. [ID:nLE900865] It sold a stake in telecom OTE (OTEr.AT) to Deutsche Telekom (DT) (DTEGn.DE) and privatised Olympic Airlines. It is now selling stakes or seeking strategic investors for more state companies and more labour protests are expected.
ECONOMIC RISKS
Tourism and shipping remain Greece's main economic pillars, making it particularly vulnerable to the global downturn. Although shipping has shown signs of recovery, tourism has been especially hurt this year, with industry experts expecting a 10-15 percent decline in revenues. [ID:nLL430314]
Greek banks, although largely safe from the toxic assets that have brought down global giants, are heavily invested in the Balkans and have seen their profit growth wane as the once booming economies of eastern Europe slow down. Main telecoms OTE and other Greek blue chips have also seen profitability drop sharply on Balkan growth woes.
SOCIAL UNREST/VIOLENCE - After Greece's worst riots in decades in December 2008, violence has simmered with frequent gas canister attacks and some bomb attacks. The riots were triggered by the police killing of a teenager and were fanned by high youth unemployment and mistrust in the political system. Business activity froze for weeks during the Christmas holiday period.
Although calm returned, far-leftist and anarchist groups have capitalised on the climate of social unrest to renew attacks on businesses, cars and police, culminating with the assassination of a policeman in his car in June [ID:nLH198842]. Analysts warn that while the roots of the unrest remain, another flare-up could easily be triggered. (Additional reporting by Ingrid Melander and Renee Maltezou, Editing by Matthew Jones)
www.reuters.com/article/latestCrisis/idUSLK236771