Country Report Greece July 2008

Outlook for 2008-09

• The New Democracy (ND) government, which has an absolute majority of two seats in parliament, is likely to stay in office over the forecast period. However, it will be weakened by internal dissent and recent resignations.
• There is a risk that an early election will be called if an ND member of parliament (MP) or minister is implicated in investigations relating to the Siemens affair and is removed from the party whip.
• If the opposition Panhellenic Socialist Movement (Pasok) performs poorly in the June 2009 election to the European Parliament, it is possible that the party head, George Papandreou, will face a challenge to his leadership in late 2009.
• The prime minister, Costas Karamanlis, has used his authority to push through a pension reform, but the weakened position of the government means that the implementation of this and other reforms may be delayed.
• The Economist Intelligence Unit expects that the government will miss its targets for reducing the government deficit, although this should stay just below 3% of GDP over the forecast period.
• Consumer and investment growth are likely to slow because of rising debt-servicing costs and a probable slowdown in credit growth.
• The current-account deficit will narrow moderately as consumer, investment and import growth slow and as the surplus in net transfers and services rises.

Monthly review

• In early July a lower court prosecutor filed generic charges against unknown persons for offering and accepting bribes in the Siemens affair. As a result, the case will be assigned to an investigating judge in late 2008.
• Following the admission in late June by a Pasok MP, Theodoros Tsoukatos, that he facilitated the transfer of a campaign donation from Siemens to his party, Mr Papandreou has called for a parliamentary inquiry into the affair.
• Mr Karamanlis is opposed to a parliamentary inquiry, as the ND could lose its slim parliamentary majority if an ND MP or minister was to be implicated.
• Fiscal data for January-April suggests that 2008 budget targets may be missed, with only one-quarter of the revenue target realised in the first third of 2008.
• The Piraeus Port Authority (OLP) has declared China Ocean Shipping Company (Cosco) the preferred bidder in the concession to develop and operate two piers at the Neo Ikonio container terminal.
• Consumer price inflation (according to the EU harmonised index of consumer prices) rose from 4.3% in the first quarter of 2008 to 4.5% in April and 5% in May and June, the highest level in ten years

Source: Country Report