Country Report Greece June 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.
• The government will remain pro-EU. It will support the accession to the EU of countries in the western Balkans and conditionally support Turkey's bid.
• The prime minister, Costas Karamanlis, has used his authority to push through a pension reform package, but the weakened position of the government means that these 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.
• A slowdown in domestic demand growth will lead to a considerable improvement in the relative performance of exports and imports.
• 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

• According to a recent opinion poll, ND has 35% support, Pasok has 31.5% and SyRizA has 17.5%. If an election were held today, no single party would command sufficient support to form a government on its own.
• The decision over whether or not to form a pre-electoral coalition has opened a rift in Pasok, with the party leader, George Papandreou, and his supporters in favour of one, but Evangelos Venizelos and his supporters opposed.
• Students have protested against the implementation of university legislation that seeks to reform the rectors' council election process and requires universities to develop budget and business plans.
• The Ministry of Development has implemented reforms to curb alleged profiteering, which has contributed to high inflation in Greece. Measures are being considered to open up closed-shop professions to more competition.
• In an attempt to reinforce tax collection from larger companies listed on the Athens Exchange, the Ministry of Economy and Finance transferred 90 auditors from provincial centres to Athens.
• GDP growth remained at 3.6% in the first quarter of 2008 (it grew by 3.6% in the final quarter of 2007). A strong decline in domestic demand was offset by the positive performance of net exports.