GreeceCOUNTRY REPORT By: Sanah kanchwala Royal wings

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Map of Greece

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Table of contents Key facts--------------------------------------------------------------------Market overview----------------------------------------------------------2010 debt crisis------------------------------------------------------------Analysis of economic scenario------------------------------------------Investment sectors--------------------------------------------------------Climate of investment and trade---------------------------------------Marketing product and sevices ----------------------------------------Business travel---------

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Key factsTable 2: Greece - key facts Country and capital Full name Capital city Government Government type Head of state Head of government Population Currency GDP per capita Internet domain Demographic details Life expectancy 79.3 years (total population) 76.8 years (men) 82 years (women) Ethnic composition Greek (94%), Albania (4%) Other foreign citizens (2%) Major religions (2001 census) Greek Orthodox (98%) Muslim (1.3%), Others (0.7%) Country area Languages 131,957 sq km Greek (99%) English, French (1%) Exports Imports Food and beverages, manufactured goods, petroleum products, chemicals, textiles Machinery, transport equipment, fuels, chemicals Democratic President Karolos Papoulias Prime Minister Kostas Karamanlis 11,305,118 Euro $32,000 .gr The Hellenic Republic Athens

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Market overviewMacroeconomic perspective

OverviewThe economy of Greece is the 27th largest in the world by nominal gross domestic product (GDP) and the 34th largest at purchasing power parity (PPP), according to data by the World Bank for the year 2009. Per capita, it is ranked 24th by nominal GDP and 23rd at PPP according to the 2009 data.

A developed country with the 22nd highest human development and quality of life indices in the world, Greece is a member of the European Union, the Euro zone, the OECD, the World Trade Organization and the Black Sea Economic Cooperation Organization. The public sector accounts for about 40% of GDP. The service sector contributes 78.5% of total GDP, industry 17.6% and agriculture 4%. Greece is the 31st most globalized country in the world and is classified as a high-income economy. Greece has emerged as one of the fastest growing economies in the EU. Since the mid 1990s, it has recorded strong GDP growth, significantly outperforming EU averages. From 199799, real GDP growth averaged around 3.5% per year, which went up to 4.2% during 200007. Financial sector liberalization and low interest rates encouraged a rapid expansion in consumer credit, which led to a spurt in consumer demand. Large scale investments, along with consumer demand, have been responsible for this growth. Because of this recent economic success, the gap in real per capita income between Greece and the EU-15 has narrowed significantly. However, the Greek economy, like the rest of the EU nations, received a setback in 2008; GDP growth plummeted to 2.9% in 2008, from 4% in 2007. Industrial growth had slowed and the market capitalization of the Athens, after reaching a high of $265 billion in 2007, contracted by 65% in 2008 following the financial crisis. To fight the current economic downturn and support small and medium-sized enterprises (SMEs), the government has introduced measures such as state guarantees and interest rate subsidies. Furthermore, the government has also proposed tax cuts for tourism enterprises. However, deteriorating public finance and rising external debt has been putting additional pressure on it. Moreover, there are serious imbalances that pose a threat: the external current account has been widening, which has made the situation regarding the balance of payments extremely adverse for the economy; rigidities in the product and labor market have contributed to the persistence of the inflation differential with the Eurozone.

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The evolution of the Greek economy during the 19th century (a period that transformed a large part of the world due to the Industrial revolution) has been little researched. Recent research examines the gradual development of industry and further development of shipping in a predominantly agricultural economy, calculating an average rate of per capita GDP growth between 1833 and 1911 that was only slightly lower than that of the other Western European nations. Greece faced economic hardships and defaulted on its loans in 1826, 1843, 1860 and 1893.]Other studies support this view, providing comparative measures of standard of living. The per capita income (in purchasing power terms) of Greece was 65% that of France in 1850, 56% in 1890, 62% in 1938, 75% in 1980, 90% in 2007, 96.4% in 2008, 97.9% in 2009 and larger than countries such as South Korea, Italy, and Israel. The country's post-World War II development has largely been connected with the so-called Greek economic miracle. In 2004, Euro stat, the statistical arm of the European Commission, after an audit performed by the New Democracy government, revealed that the budgetary statistics on the basis of which Greece joined the European monetary union (budget deficit was one of four key criteria for entry), had been massively under-reported by the previous Greek government (mostly by not recording a large share of military expenses - although it was claimed that the differences were due to accounting practices, i.e., recording expenses when material was received rather than when ordered). However, even according to the revised budget deficit numbers calculated according to the methodology in force at the time of Greece's application for entry into the Euro zone, the criteria for entry had been met. Official Euro stat calculation according to the current methodology is still pending for the 1999 budget deficit (entry application reference year). Economic reforms and growth

The Greek economyGreece is a developed country, with a high standard of living and "very high" Human Development Index, ranking 22nd in the world in 2010,[17] and 22nd on The Economist's 2005 worldwide quality-of-life index. According to Eurostat data, GDP per inhabitant in purchasing power standards (PPS) stood at 95 per cent of the EU average in 2008.[18] Greece's main industries are tourism, shipping, industrial products, food and tobacco processing, textiles, chemicals, metal products, mining and petroleum. Greece's GDP growth has also, as an average, since the early 1990s been higher than the EU average. However, the Greek economy also faces significant problems, including rising unemployment levels, inefficient bureaucracy, tax evasion and corruption. In 2009, Greece had the EU's second lowest Index of Economic Freedom (after Poland), ranking 81st in the world. The country suffers from high levels of political and economic corruption and low global competitiveness compared to its EU partners. Although remaining above the euro area average, economic growth turned negative in 2009 for the first time since 1993. An indication of the trend of over-lending in recent years is the fact that the ratio of loans to savings exceeded 100% during the first half of the year.

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By the end of 2009, the Greek economy (based on data revised on November 15, 2010 in part due to reclassification of expenses) faced the highest budget deficit and government debt to GDP ratios in the EU. The 2009 budget deficit stood at 15.4% of GDP. This, and rising debt levels (127% of GDP in 2009) led to rising borrowing costs, resulting in a severe economic crisis. Greece has been accused of trying to cover up the extent of its massive budget deficit in the wake of the global financial crisis. This resulted from the massive revision of the 2009 budget deficit forecast by the new Socialist government elected in October 2009, from "6-8%" (estimated by the previous government) to 12.7% (later revised to 15.4%). This revision (which, as claimed by members of the previous government, at least in part reflected the Socialists' failure to control tax collection during their first months in office) has seriously undermined Greece's credibility leading to higher borrowing costs for Greece. The Greek labor force totals 5.05 million, and on average work the second most hours per year amongst OECD countries, after South Korea. The Groningen Growth & Development Centre has published a poll revealing that between 1995 and 2005, Greece was the country whose workers worked the most hours/year among European nations; Greeks worked an average of 1,900 hours per year, followed by the Spanish (average of 1,800 hours/year)

Analysis through IS-LM ModelAs the Government Debt is increasing, Government Spending is increasing which in turn, increasing the amount of demand for goods at each individual interest rate. An increase in government spending by the national government shifts the IS curve to the right. This raises the equilibrium interest rate and national income, as shown in the graph above. The equilibrium level of national income in the IS-LM diagram is referred to as aggregate demand. Thus the model indicates one of the major criticisms of deficit spending as a way to stimulate the economy: rising interest rates lead to crowding out i.e., discouragement of private fixed investment, which in turn may hurt long-term growth of the supply. Thus crowding-out results in reduction in private consumption or investment because of an increase in government spending. If the government spending is not accompanied by a tax increase, government borrowing to finance the increased government spending would increase interest rates, leading to a reduction in private investment. Further, if government deficits are spent on productive public investment (e.g., infrastructure or public health) that directly and eventually raises potential output, although not necessarily as much as the lost private investment might have. The extent of any crowding out depends on the shape of the LM curve. A shift in the IS curve along a relatively flat LM curve can increase output substantially with little change in the interest rate. Thus as the interest rate are rising hence Greek 10-year bond yields spread increased to 400 basis points in January 2010, which was at the time a record high. High bond spreads indicate declining investor confidence in the Greek economy. Despite increasing nervousness surrounding Greeces economy, the Greek government was able to successfully sell 8 billion in bonds at the end of January 2010, 5 billion at the end of March 2010, and 1.56 billion in midApril 2010, albeit at high interest rates.

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2010 debt crisisIn the first weeks of 2010, there was renewed anxiety about excessive national debt. Some politicians, notably Angela Merkel, have sought to attribute some of the blame for the crisis to hedge funds and other "speculators" stating that "institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere".[30] On 23 April 2010, the Greek government requested that the EU/IMF bailout package (made of relatively high-interest loans) be activated. The IMF had said it was "prepared to move expeditiously on this request". The initial size of the loan package was 45 billion ($61 billion) and its first installment covered 8.5 billion of Greek bonds that became due for repayment. On 27 April 2010, the Greek debt rating was decreased to BB+ (a 'junk' status) by Standard & Poor's amidst fears of default by the Greek government. The yield of the Greek two-year bond reached 15.3% in the secondary market. Standard & Poor's estimates that in the event of default investors would lose 3050% of their money. Stock markets worldwide and the Euro currency declined in response to this announcement. On May 1, a series of austerity measures was proposed. The proposal helped persuade Germany, the last remaining holdout, to sign on to a larger, 110 billion euro EU/IMF loan package over 3 years for Greece (retaining a relatively high interest of 5% for the main part of the loans, provided by the EU).On May 5, a national strike was held in opposition to the planned spending cuts and tax increases. Protest on that date was widespread and turned violent in Athens, killing three people. Nonetheless, overall reaction to the unprecedented harsh measures has been rather modest. The November 2010 revisions of 2009 deficit and debt levels made accomplishment of the 2010 targets even harder and indications signal a recession harsher than originally feared. Japan, Italy and Belgium's creditors are mainly domestic institutions, but Greece and Portugal have a higher percent of their debt in the hands of foreign creditors, which is seen by analysts from Swiss business school IMD as being more difficult to sustain. Greece, Portugal and also Spain have a 'credibility problem', because they lack the ability to adequately repay due to their low growth rate, high deficit, less FDI, etc.

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Analysis of economic scenariocurrent strengthy Increasing investment in large scale infrastructure projects y Stable banking syste y y y

current challengesRapidly deteriorating economic conditions Poor state of government finances Exports turning uncompetitive

Future prospectsy Increased investment with PPP taking effect and revamping public entities Liberalization of government dominated service sectors yy

Future risksLabor market rigidities and unrealistic wage hikes Widening current account deficit

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Investment sectorsy y

y y y y

Tourism Energy o Wind o Solar o Geothermal o Biomass/Biofuels o Licensing Procedures ICT Life Sciences Food & Beverage Environmental Management

TourismGreece is one of the top tourism destinations in the world. The number of tourism visits over the last decade has shown a steady increase. From 14.2 million international visitors in 2004, more than 17 million people visited Greece in 2008, and it is expected that in a few years this number will reach 20 million, almost twice the countrys population.

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TOURISM IN GREECEA Global Brand, A Timeless Destination Greece is one of the top tourism destinations in the world. In fact Lonely Planet placed Greece among its top 10 destinations for 2010 and Greece ranks second in Englands 2008 Telegraph Travel Awards in their Best European Country ranking. The number of tourism visits over the last decade has shown a steady increase. From 14.2 million international visitors in 2004, more than 17 million people visited Greece in 2008, and it is expected that in a few years this number will reach 20 million, almost twice the countrys population. A New Tourism Investment Era The increasing number of tourists and the evolving profile of todays traveler demand a host of new tourism offerings and infrastructure projects. In Greece, investors will find a wide spectrum of opportunities, a welcome environment for new investment, and some of the most beautiful locations in the world. A Unique Landscape Greece has more than 15,000 kilometers of coastline, 190,000 beaches, and 6,000 islands and islets. In addition, visitors are discovering the diverse selection of sailing and cruising options, incentive travel, and weekend breaks, opening up new opportunities in niche and attractive markets. Pristine beaches, iconic mountains, a wealth of history, timeless traditions, spectacular landscapes, and renowned hospitality draw visitors from around the world to the land where democracy was born and dreams are fulfilled. Greeces Mediterranean climate is ideal for year-round tourism and one of the core priorities of Greece today is to create a dynamic, sustainable, four-season tourism infrastructure that responds to the diverse and challenging needs of the 21st Century. According to the 2009 Travel & Tourism Competitiveness Report published by the World Economic Forum, Greece holds the 24th overall position among 133 countries, 3rd place in the prioritization of travel & tourism sub index, 9th place in the number of World Heritage cultural sites, 5th place in tourism infrastructure and 1st place in the physician density subindex. A Core Economic Sector Tourism accounts for 18% of Greeces GDP, directly or indirectly employs more than 900.000 people, and is the leading source of the countrys invisible receipts (36% in 2007). Currently, more than 9,000 hotels operate in Greece. Due to Greeces many islands and islets, more than 6,000, the geographical range of tourism destinations is extensive. In addition, the wide variety of natural landscapes, extensive number of historic sites and villages, and wideranging number of activities mean that opportunities are virtually limitless.11

Approximately 85% of arrivals originate in Western Europe: 21.2% from the United Kingdom, 17.5% from Germany, 8.8% from Italy, 5.3% from France, 5.2% from Holland, and 7.5% from the Scandinavian countries. Increasingly, however, significant numbers of visitors from Eastern Europe and China are making Greece their preferred destination, creating a wider base of origin countries and new demands for services, facilities, and attractions.

Tourist Arrival

Source: Greek National Tourism Organization and National Statistical Services of Greece Priorities Although the countrys tourism infrastructure is well developed, Greece is committed to expanding its tourism offerings and establishing itself as a 12-month destination. Its Mediterranean climate is ideal for activities such as year round golf and trekking and it is estimated that one million Europeans would consider Greece as a second home destination. At present, 70% of arrivals are in the May-October period and visits are disproportionately concentrated in Crete (21% of total bed capacity) the Dodecanese islands, which includes Rhodes (17%), the Ionian Islands, which includes Corfu (12%), Attica, which includes Athens (9%), the peninsula of Halkidiki (6.5%), and the Cyclades islands, which includes Santorini and Mykonos (6%). Among the targeted sectors for expansion include the development of integrated resorts and residential real estate, golf courses and sports tourism, wellness and health tourism, upgraded and12

new marinas, conference centers, agrotourism products, religious tourism, thermal spas and thalassotherapy centers, gastrotourism, and a wide range of thematic offerings related to Greeces rich cultural and historical heritage. Historically, hotels in Greece have been small in size, with the average number of beds per hotel standing at 76. Larger hotel units with more diverse offerings will be a welcome addition to the current accommodation infrastructure. A Legendary Opportunity Most of the hotels in Greece are categorized as 1- and 2-starhotels, meaning there is plenty of room for investors to establish 4-and 5-star properties. And, according to the Greek Hotel Branding Report, branded hotels in Greece account for 4% of the total number of hotels and 19% of total availability of rooms, while in other European countries this figure lies between 25 and 40%. Hotel chains that operate as franchisors will discover attractive opportunities to establish a network of two-, three-, or four-star hotels in Greece. Breakdown of hotels by star rating at key tourist destinations

Source: National Statistical Service Dual Opportunity: Both small and large operators exist side by side within Greeces diverse tourism market.13

As the world addresses diverse and challenging questions related to energy production and supply, Greece is in a pivotal position to chart its energy future, emerging as a strategic energy hub in Southeast Europe and a desirable location for investment. A Sustainable Investment The energy policy of Greece favours major private sector investment. It is estimated by the World Bank that investment of more than 30 billion Euro will be required by 2020 in the upgrade and building of power plants, in transmission and distribution, and in renewable energy sources (RES). Greeces comprehensive energy policy, to establish sustainable, competitive, and secure sources of energy, has established an encompassing regulatory and market framework for the energy sector. This, in combination with Greeces wide-ranging investment regulatory framework, provides for exceptional opportunities for investment in a number of areas. Recent legislation (Law 2773/1999) provides for the deregulation of the electrical energy market and as such, domestic production, transmission, and distribution in the energy field is open to private investors. This sweeping change has transformed the electricity and energy market in Greece into one of the most exciting sectors of growth and opportunity in Europe. While previously all electricity production, transmission, and distribution was under the monopoly of PPC, today companies from around the world are taking advantage of this tremendous market opportunity. Among the companies currently active in Greece are: Hellenic Petroleum, Motor Oil, Public Gas Corporation (DEPA), Prometheus Gas, Public Power Corporation (PPC), Public Power Corporation (PPC) RES, Mytilineos Group, Terna, Global Energy, Energy Solutions, Solar Cells Hellas, Next Solar, Enova, EDF, Edison, Conergy, EGL, Acciona, Enel, Eurus Energy, Gamesa, Rokas-Iberdrola, Endesa, WPD, Atel. These companies are involved in mainstream electricity production, gas distribution, and the expanding field of renewables. Greeces strategic geo-economic location, between energy producers in the Middle East, North Africa, and the Caspian Sea region, as well as on the vital transport routes of the Aegean Sea and the Eastern Mediterranean, mark it as the expanding hub between East and West. Greece has initiated crucial, major ventures in oil, gas, and alternative sources that literally put the country at the heart of the Southeast European energy axis. Three decisive projects are laying the groundwork for a diverse, competitive, and secure energy supply: the Burgas-Alexandroupolis oil pipeline, the Interconnector Turkey-Greece-Italy (ITGI), and the South Stream natural gas pipeline. With these transformative projects Greece is emerging as an oil and gas conduit, supplying the markets of Southeast and Western Europe as well as those as far away as North America.14

Burgas-Alexandroupolis Oil Pipeline The Burgas-Alexandroupolis oil pipeline will contribute significantly toward the decongestion of the sensitive Bosporous Strait and provide a new, export channel for Black Sea oil to European and North American markets. The Greek-Russian-Bulgarian mega project will see the participation of Greek companies with 23.5% and the Greek state with 1%. The 279-kilometre pipeline, from Burgas in Bulgaria to the northern Greek port town of Alexandroupolis, is slated to have an initial annual throughput of 50 million tonnes of oil, and with an annual capacity of more than 50 million tonnes. The cost of the project is estimated at 800 million Euro. Interconnector Turkey-Greece-Italy (ITGI) The Interconnector Turkey-Greece-Italy (ITGI) gas pipeline will be a key conduit for Caspian and Iranian gas to reach the markets of Western Europe. Operation commenced in 2007.Currently, Greece is connected to Turkey and Italy via an undersea pipeline that will be connected to the wider European gas network by 2010. The project is made up of two parts: onshore and offshore (Poseidon Pipeline) with preliminary budgets of 900 million Euro (onshore) and 350 million Euro (offshore). The onshore section is to be part of the Greek National Grid and the offshore section is to be built by the Poseidon company, a joint venture of Edison and DEPA. The total length of the pipeline, from Komitini to the Ionian Sea, is 590 kilomteres. Completion date is to be 2012.

Source: Hellenic Gas Transmission System Operator S.A

South Stream The South Stream Pipeline, with an end point in Italy, is a major project to supply Russian gas to Western Europe. The pipeline is to pass through Greece and may connect to the Interconnector Turkey-Greece-Italy (ITGI).

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Source: Hellenic Gas Transmission System Operator S.A Greece imports LNG from Algeria by sea, further diversifying energy sources. Current plans also call for the upgrade and development of new electricity interconnections with neighbouring countries, further enhancing cross-border exchanges between Greece and its neighbours. These plans create significant investment opportunities in the electricity interconnection market. In addition to acting as a strategic transport hub, Greece is also a favorable location from which to develop energy investment in the greater area of Southeast Europe. The Energy Community of Southeast Europe, based in Athens, focuses on the creation of a unified energy market in the Balkan region, through the establishment of common market rules and regulations, to be integrated at an appropriate date within the EU energy market. Signatories to the Energy Community Treaty, created in cooperation with the European Union (of which Greece is a member) include: Croatia, Bosnia and Herzegovina, Serbia, Montenegro, FYROM (Former Yugoslav Republic of Macedonia), Albania, Romania, Bulgaria, UNMIK on behalf of Kosovo.

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Electricity Production in the interconnected system for 2010:

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TRANSMISSION LINES IN SOUTHEAST EUROPE

Source: Hellenic Transmission System Operator S.A. Natural Gas Natural gas was introduced to Greece in 1988 when the Public Gas Corporation (DEPA) was established. DEPA is 35% owned by Hellenic Petroleum and 65% by the Greek State. Today, the de-regulated energy market in Greece provides for companies to participate in the transmission and distribution of natural gas. Natural gas has become an important component of Greeces energy policy as the country diversifies to include cleaner and more competitively priced energy sources. The construction of the natural gas transportation grid is one of the largest energy infrastructure projects to have taken place in Greece in recent years. There are three entry points for the natural gas transportation system:(1) At the Greece-Bulgaria border, where natural gas enters via a central pipeline from Russia; (2) At the Greece-Turkey border, where the National Natural Gas Transportation System interconnects with the Turkish system; and (3) At the island of Revythousa in the Gulf of Pachi near Megara, where there are facilities to receive, store, and gasify Liquid Natural Gas (LNG) that is exported by tanker from Algeria. The National Natural18

Gas Transportation System transports gas from the entry points to consumers in mainland Greece. There are currently three Gas Supply Companies (EPA) operating: EPA Attikis, EPA Thessalonikis, EPA Thessalias. The National Natural Gas Transportation System consists of: the gas transportation central pipeline. The high-pressure central pipeline (70 bars) is 512 km long. It extends from the Greek-Bulgarian border (Promahonas) to Lavrio in Attica and from Thessaloniki to the Greek-Turkish border (Kipoi). Transportation branches total 689 km in length. The branches set out from the central pipeline and supply the areas of Eastern Macedonia and Thrace, Thessaloniki, Platy in Imathia, Volos, Viotia, Inofyta, Attica and Corinth. In 2007 construction work began on branch lines toward Western Thessaly and Evia, adding 119 km. The Natural Gas Metering and Regulating Stations The Control Center and the Load Distribution Center Operation Operation and Maintenance Centres in Attica, Thessaloniki, Thessaly and Xanthi. Suppliers Natural gas is supplied to DEPA by the Russias Gazexport (a subsidiary of Gazprom) and the Algerias Sonatrach. Supply contracts expire in 2016 (Gazexport) and 2020 (Sonatrach). The Gazexport agreement guarantees the supply of 2.8 billion cubic metres annually. The Sonatrach agreement provides for the delivery of between .51 and .68 billion cubic metres annually. Transportation System The natural gas transportation system is comprised of several basic components: Main high-pressure pipeline for the transportation of natural gas (70 bar) from the GreekBulgarian border to the Attica regiona total length of 512 km High-pressure branch lines to Eastern Macedonia and Thrace, Thessaloniki, Volos and Attica a total length of 440 km Metering and regulating stations for metering the amount of gas supplied and regulating its pressure Remote control and telecommunications systems Operational and maintenance centers in Attica, Thessaloniki, Thessaly, and Xanthi The expansion of the transportation system from Komotini to the Greece-Turkey border (at Kipoi) has entered the final study phase (12/08). Distribution System The mandate of the Gas Supply Companies is to expand, operate, and maintain city networks as well as to distribute gas to domestic, commercial, and industrial users (with an annual consumption of up to 100 GWh Gross Calorific Value). DEPA holds 51% equity of the Gas Supply Companies through its 100%-owned subsidiary Gas Distribution Company (EDA) and private investors hold a 49% share and have management control. The distribution system consists of:

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Medium pressure (19 bar) networks in Attica, Thessaloniki, Larissa, Volos, Inofyta, Platy Imathias, Katerini, Kilkis, Serres, Drama, Xanthi, Kavala, Alexandroupolis, and Komotini Low pressure (4 bar) networks in Attica, Thessaloniki, Larissa, Volos, Inofyta, Kilkis, Xanthi, Komotini. DEPA will concede the use of these networks to new Gas Supply Companies (EPA) as they are established. Expansion of Networks, New Gas Supply Companies The strategic development laid out by DEPA is to increase the share of natural gas in the national energy market. Initiatives are under way to increase urban gas consumption rapidly through the establishment of new EPAs and through the extension of networks to new industrial areas and through the promotion of investment in gas-powered power production. New Applications In combination with efforts to increase natural gas consumption in conventional uses, DEPA is endeavoring to develop new natural gas applications: The cogeneration of power and heat is an area where natural gas can significantly improve competitiveness through the reduction of total energy costs. Noteworthy technical advances in power production using natural-gas fuel cell technology achieve greater energy efficiency and improved environmental performance. The use of natural gas in greenhouses is widely practiced throughout Europe and offers opportunities in Greece. Natural gas assists in the production of carbon dioxide (which is produced during the combustion of natural gas), thereby promoting photosynthesis and plant growth. Cogeneration Cogeneration plants are able to use all raw material fuel types, including biomass, as a source of energy. The dominant fuel used today, both for environmental and economic reasons, is natural gas. The efficiency of a cogeneration plant may exceed 90% and cogeneration offers energy savings of between 15%-40% compared with energy derived from more conventional means. Cogeneration produces approximately 4% of total electricity in Greece, a percentage that is expected to increase significantly in the near future. A number of factors are key to the expanding role of cogeneration in Greece: The de-regulation of electricity generation has attracted many project proposals, most of which are gas-fuelled Electricity demand in Greece is expected to grow at 3.5% annually from 2010 to 2020. According to Greeces Energy Regulatory Authority (RAE), 6,000 MW of additional capacity will be needed by 2015. Four important changes in the Greek natural gas system:

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Major structural gas projects are being carried out to connect Greece and Italy with the Caspian region (supply) The de-regulation of the gas market with new tariffs The Greek government is promoting the use of gas for electricity production and for heating, complying with supply policy and environmental commitments European policy and support schemes toward the creation of a single electricity and gas market in Europe Since 1990, Greeces PPC has converted a number of power stations to cogeneration mode and is becoming far more receptive to the cogeneration model. In addition, conditions for the development of CHP (Combined Heat & Power) is improving both in legal certainty and fuel supply (Law 3486 implements the electricity liberalisation directive and developments in the gas infrastructure). The food sector is currently benefiting most from CHP; not far behind is the refinery sector. In the past, the most efficient CHP installations were refineries, due to their continuous operation, inexpensive fuel (distillery by-products) and favourable power-to-heat ratio. The Hellenic Association for the Cogeneration of Heat and Power estimates that the total potential for CHP is more than 700 MW in the industrial sector and 100-300 MW in the services sector under current CHP policies. HACHP states that the market prospects for cogeneration in Greece are increasing, a result of the wider use of natural gas and the financial support for cogeneration installations provided through EU funds and through the attractive investment incentives of the Greek government.

Renewable Energy Sources (RES) A Sustainable Future Greece, and the European Union, have established key priorities and binding policies related to the production of electricity from renewable sources. To establish security and diversification of its energy supply, and ensure environmental protection and sustainable development, Greece promotes the establishment of power using renewable energy sources. Increasingly, renewable energy sources play an important role in Greeces energy production profile. Current production is based on large-scale hydropower stations operated by PPC. Renewables account for approximately 5% of electricity production, not including the 5% contribution of hydropower stations. The present investment framework calls for a striking increase in production from Wind, Solar, Geothermal, and Biomass/Biofuels, which are expected to contribute increasingly as a transport fuel.

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For 2010, the total installed capacity of RES stood at 1736.3 MW, 75% of which came from wind energy production,, 11.5% from solar, and the remaining 13.5% from biomass and hydro-electric production units. Greeces target is to produce electrical energy from RES at a 29% share of the total electrical power by 2020. DEVELOPMENT OF INSTALLED CAPACITY RES - 2020 TARGET

Solid Renewable Energy Source Advantages - High guaranteed sale prices for renewable. - Guaranteed demand for 20 years - High demand - Binding EU targets for renewable energy production - Ideal climate conditions

Life sciencesStrong market fundamentals and a top-notch talent pool provide the opportunity for cost efficient medicine development in Greece.Strong market fundamentals Greeces Life Sciences industry has been developing at a vigorous rate. Start-up and spin-off companies are emerging with new products and established players are increasingly pursuing22

international R&D collaborations for the development of competitive, technology-based products. Essential to this dynamic growth is the Greek R&D infrastructure, which includes internationally renowned Research Institutes and University Research Groups. Greece is proud to host world-class research teams, engaged in leading-edge Life Sciences Research and international collaborations with corporate and research players, in Europe and worldwide. The Biotech market growth has been exceptionally strong. Total pharmaceutical spending in Greece, as a proxy for Biotech spending, has grown at an annual pace of 17.5% from 2000 to 2007, while the total annual healthcare expenditure in Greece from 2000 to 2006 has been growing at 11%. Greece boasts the largest number of pharmacies per capita in Europe, with 94.2 pharmacies per 100,000 inhabitants. The strong growth in pharma spending in Greece is supported by the social security safety net, through which most pharma expenditures are reimbursed by the Greek state. The Greek state pharma expenditure covered 90% of the total pharma expenditure in 2006. The growth in pharma expenditure is estimated to continue as Greeces population ages, Greece smoking rate remains high, obesity rises, and sedentary lifestyles take hold. Despite the fact that Greece is a net importer of pharmaceuticals, domestic production of medicines has grown by 11.1% annually from 2000 to 2007. Furthermore, Greeces highly effective drug management system has reduced counterfeit medicines to a minimum compared with other European Union countries. Healthcare services have also been growing strongly. Private hospitals have increased their market share and the demand for privately funded health care is proving strong. Obstetrics is one of the most rapidly growing private healthcare services sectors. Greek private hospitals are expanding into neighbouring Southeast European countries and analysts estimate that Greece could become an attractive destination for health tourists seeking high quality healthcare services at competitive rates. Regional Hub for Clinical Trials Greece has established itself as a regional hub for clinical trials and most major international pharmaceutical companies conduct clinical trials in Greece. Approximately 300 protocols are approved each year, with about 700 state university and research institutions overseeing these protocols. The average cost per clinical trial per patient stands between 2,000 - 3,000 Concrete Investment Opportunities Greece offers a unique investment opportunity to international pharma companies to enhance and support their main growth driver: the development of new medicines. With an exceptional talent pool at very competitive rates, top universities and research facilities to conduct R&D, and a competitive overhead structure, Greece is an ideal location for a research team developing and testing a new medicine or for developing medical and diagnostic devices. And, as underlined, a conducive environment for clinical trials presents an opportunity for biotech companies looking to the international market to gain the extra edge over the competition. Establishing regional headquarters in Greece for the Southeast Europe, Middle East or North Africa region allows companies to tap into highly educated, strongly motivated human capital23

with strong multinational corporate ethics. Biovista Inc. Named Top Innovator in Life Sciences Biovista Inc. was awarded the 2009 Top Innovator Presentation Award in Healthcare at the 2009 New England Venture Summit, held December 8, 2009 in Dedham, Massachusetts, USA. The award, which recognizes cutting edge private companies driving the future of innovation, was granted to Biovista, which competed with over 50 other privately held companies that play a leading role in innovation in the Technology, Life Sciences and Clean-tech sectors. Biovista's repositioning programmes leverage the company's technology platform to identify suitable drugs and reposition them in isolation or in combination with other drugs to therapeutic areas currently not covered by existing products. By selecting drugs that already satisfy basic toxicity, ADME and related criteria, Biovista is able to deliver significant value at reduced cost and in dramatically shorter time frames than is normally the case. EMBIO Diagnostics Captures 1st Prize in Entrepreneurship Competition EMBIO Diagnostics won the 1st prize of the 6th Cyprus Entrepreneurship Competition. EMBIO focuses on the development of sophisticated, portable cell biosensors for the detection of pesticides, biological warfare, animal/ human viruses & inflammation markers by means of membrane and genetic engineering. Two landmark products of the company are the Bioelectric Recognition Assay (BERA) cell biosensors and the Molecular Identification through Membrane Engineering (MIME) technology, which are widely appreciated as standard analysis tools for mass screening of chemical and biochemical compounds. Forth Photonics Funding for Further Growth Forth Photonics has completed its second round of fundraising with a new investment of 7.6m. The newly-raised funds are expected to take Forth Photonics first product through to full commercialisation. Forth Photonics will use the funds to commercialise its medical device, DySIS (Dynamic Spectral Imaging System), which is the only medical device to use dynamic spectral imaging technology to assist gynecologists in the detection and mapping of precancerous and cancerous lesions of the cervix. The use of DySIS has been shown in clinical trials to significantly increase the sensitivity of pre-cancerous lesion detection compared with traditional methods. Advantages of Investing in Greece's Life Science market Strong market fundamentals High quality personnel Business-conducive environment R&D support Attractive investment opportunities Attractive funding opportunities Strong Market Fundamentals The Life Sciences market in Greece has been displaying strong growth in recent years, with pharmaceutical expenditure growing at a pace close to 20% annually, supported by a strong state social security net. This trend is expected to continue, driven by the demographic characteristics of the Greek population.24

Human Capital The Greek workforce has a high percentage of graduate and post-graduate degrees: Workforce by level of education

Source: National Statistic Service

Greece has one of the highest number of doctors per capita in the world, an important statistic when using physicians as a proxy for medical workers.

Doctors per 1,000 habitants

Source: World Development Indicators Database

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Conducive Business Environment Greece's government has given increased emphasis to R&D activities and is committed to investing in the advance of technology by developing the countrys considerable intellectual capital. Innovation is a key priority and the private sector is increasingly devoting more resources to foster new and marketable products and services. Cooperation among universities and business, the public and private sector, and research and production has been growing in recent years, providing the impetus for advances in innovation. The Thermi Incubator in Thessaloniki and the Technological Parks in Athens, Thessaloniki, Patras, Volos, Herakleio and Ioannina are examples of institutes that support cutting edge R&D in Greece. R&D Support The Institute for Molecular Biology and Biotechnology (IMBB) The Institute for Molecular Biology and Biotechnology (IMBB) was founded in 1983 and is one of the Institutes of the Foundation for Research and Technology Hellas (FORTH). FORTH, among Greeces leading and largest Research Centres, comprises seven Research Institutes, located throughout the country. FORTH has become one of the top European research centers, thanks to its high impact research results and its valuable socioeconomic contribution. Its track record in nurturing startups/spin-offs and establishing RTD partnerships with industrial partners are also notable. IMBB was ranked first in evaluations of Greek Research Institutes carried out by the Greek Secretariat for Research and Technology. Biomedical Research Foundation of Academy of Athens (BRFAA) Established in 2003, BRFAA supports basic science and clinical research through its research programmes in immunology, gene expression, cell biology, stem cells, cancer, metabolic diseases, development and the function of the cardiovascular and the nervous systems. It comprises of two Basic Sciences Centres focusing on the understanding of basic aspects of biological pathways and Centres for Immunology and Transplantation, Neurobiology, Experimental Surgery, Clinical Research and Environmental Health.

Attractive Funding Opportunities International investors planning to penetrate the Greek biotechnology and pharmaceutical markets may benefit from funding opportunities provided both from public and private sources. A number of National Strategic Reference Program funding programmes allow for the enhancement of technology development realisation of R&D projects, for the spawning of spinoffs and spin-outs. In addition, international companies will find in Greece an entire range of seed capital funding, venture capital funding and private equity funding required to finance growth. The Athens stock exchange is an attractive option for drawing equity capital, as there are many listings with international tranches.

Food and beverages

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Food and beverage is the most dynamic and high-growth sector in Greek manufacturing, accounting for 25% of turnover, 24% of employment, 25% of total invested capital, and almost 25% of added value.A Natural Growth Industry Food and beverage is the most dynamic and high-growth sector in Greek manufacturing, accounting for 25% of turnover, 24% of employment, 25% of total invested capital, and almost 25% of added value. Foreign companies have experienced high rates of success in this sector since the Greek market has shown robust growth for almost a decade. In addition, Greece serves as an ideal bridge to the emerging markets of Southeast Europe and the Eastern Mediterranean. Growth in the sector averaged 20,6% during the last decade and food and beverage companies are the leading exporters in Greece, accounting for almost 20% of total export sales, with revenues of exceeding 2 billion Euro. The leading markets for Greeces high-quality products include Germany, Italy, Spain, UK, and the United States. Many multinationals are enjoying the benefits of being based in Greece. Giants such as Nestl, Coca Cola, Kraft Foods, Barilla, Cadbury, and General Mills manufacture a wide range of products and find that local and regional markets are receptive to new product lines as well as established favourites. Greeces food and beverage companies have created a large sales and distribution network in Southeast Europe, a strength that is reinforced by the dynamism of the Greek enterprises operating in the region. Topping the list of products exported are vegetables, fruits, olive oil, dairy products, fresh seafood, canned fruits, olives, raisins, wine, and tomato products. There is abundant opportunity to create value added in many product categories, especially as the global interest in healthful foods, snack foods, and convenience foods continues to expand. Honey and nut based snacks, macaroni products, marmalades and pickled goods, as well as novel seafood and meat products demonstrate a significant potential in numerous markets. And as consumption of olive oil grows, Greece is ideally positioned to respond in this sector as it the third largest producer of olive oil in the world. Advantages of Investing in Food and Beverage Low operating costs Abundant raw materials EU production standards and regulations Access to the emerging growth markets of Southeast Europe where Greek F&B companies have developed an extensive production and distribution network Global trend to the Mediterranean diet Highly experienced and qualified labour force Familiarity of Greek consumers with international food products, brands and tastes Investment opportunities include boutique and niche market goods, the entire gamut of mass market items, products marketed as Mediterranean, and the exploding organic food sector.27

Specialty goods such as saffron of Kozani, mastiha from Chios, and spirulina as a nutritional supplement are being recognized for their superb quality. In addition, well-known products including ouzo, feta cheese, and Greek pistachios are establishing themselves in new markets worldwide. R&D Support Greeces universities and research institutes focus heavily on providing assistance to the food and beverage industry. A number of highly specialised research centres assist manufacturers and processors in developing innovative solutions to meet the needs of todays marketplace.

Environment managementGreece is embarking on a long-term plan to overhaul its waste management practices Integrated Solutions to Lead the Way Greece is embarking on a long-term plan to overhaul its waste management practices. New technologies are needed to deal with an increasing burden of waste and that meet the demand for disposal, energy generation, recycling, and building new, closed-loop systems that limit waste generation. According to EU directives, all Member States, including Greece, should recycle 55-80% of packaging material by 2011 and decrease organic urban waste by 25% through composting processes at source by 2010. This should increase to 50% by 2013 and 65% by 2020. Since there is insufficient domestic capacity to meet the needs of the market, investment opportunities are exceptional. The Greek government, local waste management authorities, and private waste management service companies need the expertise of foreign firms to fill this significant gap. Advantages of Investing in Waste Management Binding EU commitments to recycle packaging material and other products, and decrease biodegradable waste and other urban solid waste that is sent to landfill Insufficient local capacity; foreign expertise is required Solutions needed to deal with an increasing waste burden Integrated waste management facilities are needed Need for innovative solutions that create energy from waste Favourable Public-Private Partnership (PPP) and EU financial framework Investment opportunities in waste management are exceptional. The expertise of foreign firms to meet the demands of the local market is a necessity since domestic capacity to meet this need is insufficient.28

Greece produces more than 5 million tons of residential and commercial urban waste annually. This is equivalent to 455 kilograms per person. The region of Attica produces almost 39% of Greeces urban waste, followed by the region of Central Macedonia (16%) and the city of Thessaloniki (9%). Contributing to the increasing amounts of urban waste are the growth in tourism, increased urban development, a shift in living standards, and a change in consumer habits and behaviour. The quest for more efficient waste management has led to recycling programmes in a number of municipalities, and although these initiatives have shown increased participation and promising results, the demand for more comprehensive and effective programs remains. In 2008, 525,000 tons of packaging material were recycled/recovered from a total production of 1,050,000 tons. A total of 19 centres for sorting and recovery were established in Athens, Thessaloniki, Heraklion, Chania, Kalamata, Patras, Zakynthos, Schimatari, Lamia, Karditsa, Corfu, Katerini, Magnesia, and Ioannina. The ten recycling systems throughout Greece today deal in packaging material, vehicles, tires, lubricants, batteries, and electrical and electronic equipment. Currently, 15 companies deal in the management of hazardous waste. The authority responsible for the planning and implementation of alternative waste management in Greece is the National Organization for the Alternative Management of Packaging Materials and Other Products (EOEDSAP) of the Ministry of the Environment, Energy and Climate Change. Targeted Opportunities Opportunities for investment and cooperation may be identified in a number of areas: Selective collection at source and the recycling of municipal waste Collection and treatment of various products and materials, including batteries, tires, waste oils, and electrical/electronic products Creation of disposal facilities for municipal waste Construction of transfer station networks, recycling centres, sanitary landfill sites for residual waste; mechanical, processing and compost units; rehabilitation of existing landfill sites Implementation of integrated waste management systems and solutions in specific regions Management of clinical and hazardous waste Implementation of coastal rehabilitation projects Supply of mechanical equipment and know-how that suits the local environment Other areas where investment is needed include innovative technologies for asbestos removal, treatment and disposal; physiochemical treatment of liquid industrial waste, waste minimisation techniques for industry, and sewage sludge processing with energy recovery. Waste to Energy A highly promising area is technology to transform waste to energy. Investors may cooperate29

with Greeces research and technology institutes and councils to develop effective solutions that foster sustainable development. Existing Waste to Energy Facilities Currently, Greece operates two waste to energy facilities, one in Athens, the capital of Greece, at the Ano Liosia Hygenically Controlled Landfill and one in Thessaloniki, the second largest city of the country, at the Tagarades Hygenically Controlled Landfill. The Ano Liosia facility produces heat and power from biogas and has an installed capacity of 23.5 MW. The Tagarades power plant produces electricity from biogas and has an installed capacity of 5 MW, capable of covering the energy needs of 80,000 residents. Composition of Urban Waste in Greece

Source: Ministry of the Environment, Energy and Climate Change

Source: Ministry of the Environment, Energy and Climate Change

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Market challenges

InfrastructureThe holding of the 2004 Olympic Games in Athens was a major catalyst for Greece to initiate a number of changes and improvements in a variety of areas. One of the greatest beneficiaries was the infrastructure of Greece. The program to improve infrastructure continues today as Greece invests heavily in strategic projects that will facilitate transport, logistics and telecommunications, so the flow of goods, services, and information is done efficiently, promptly, and cost effectively. Road Network During the last decade, the road network has seen substantial . One of the largest infrastructure projects in Europe is the Egnatia Highway, a new East-West highway corridor connecting the port of Igoumenitsa on the Ionian Sea with Alexandroupolis, near the Turkish border. The PATHE highway system has also been substantially upgraded and connects the southern port of Patras, Athens, and Thessaloniki and continues north to the border with FYROM. The third major highway system in Greece is the Ionian Highway that connects Patras with Igoumenitsa. Within the greater Athens area, the new Attika Highway Ring Road has substantially changed road transport in the capital region and is an important logistics route, connecting the airport with logistics centres, sea ports, and rail stations. Although these main arteries are of a high standard, many of Greeces secondary roads are still in need of improvement and are benefiting from the many PPP projects in transport. Airports Greece has 40 airports, 15 of them international. Many of these airports, especially on the islands, primarily serve tourists and handle charter flights. In 2001, the Athens International Airport opened and is considered to be one of the best airports in Europe. For a map and list of airports in Greece visit the Hellenic Aviation Authority site at http://www.ypa.gr/ Currently, many of Greeces airports are undergoing significant infrastructure and facility upgrades. Ports With hundreds of islands, Greece has many seaports, 12 of which are international. The port of31

Piraeus is one of the busiest in Europe and is the main cargo port of the country, followed by Thessaloniki, Patras, and Igoumenitsa. Greece has more than 140 ports that serve passengers and cargo. Currently, there is in place a nationwide programme to upgrade the ports of Greece to meet the needs of cargo shipping, security concerns, and the countrys 17 million annual visitors. In November 2008, Chinas Cosco signed an agreement to run the Port of Piraeus in a 35-year, 4.5 billion Euro deal that is slated to significantly increase the ports cargo capacity and efficiency. In addition, the agreement will position Piraeus as a leading point of entry for goods from Asia destined for the European market. Railway The Greek railway system has been placing emphasis on upgrading its infrastructure, with some notable successes serving passengers in Athens. The improvement of the rail bed and the laying of new track to improve transport times have been the main priorities. The rail system is essentially north to south and connects Patra Athens and Thessaloniki. Within recent years travel time between Athens and Thessaloniki has been reduced considerably, from more than six hours to just over four. Today, the Greek railway serves destinations outside Greece that include Sofia, Bulgaria; Bucharest, Romania; and Istanbul, Turkey. The new suburban railway connecting Athens Airport with the capital is fast and efficient. In addition, the relatively new Athens Metro system, the first in the city, has been extremely successful and has had a major impact on improving urban transport. The Athens Metro is expanding its lines and hours to meet increased demand from passengers. A new metro system is being constructed in Thessaloniki that is scheduled to begin operation in 2012. Waterways The shipping lanes serving Greeces mainland and islands are, for the most part, highly efficient and transport large quantities of passengers and cargo every year. In addition to passenger and cargo ferries, a large number of high-speed catamarans introduced in recent years have reduced travel times considerably. Power and Energy Greece relies on lignite for the majority of its electricity production. In recent years the energy market has been liberalised, breaking the monopoly of the PPC. As the monopolistic practices of PPC diminish the private sector is enjoying more opportunities. In wind and solar, progress is being made as Greece has committed to a minimum 29% of energy from RES by 2020. In 2007, Greece signed agreements to build the Burgas-Alexandroupolis oil pipeline, to transport oil from Russia through Bulgaria and the southern natgas corridor that will transport natural gas from Russia via the Black Sea to Bulgaria, Greece, Italy and from there to Europe.

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The Greece-Italy natural gas pipeline, officially called the "Interconnector Greece-Italy (IGI) comprises a supplement to the Interconnector Greece-Turkey (IGT) natural gas pipeline -- which is currently under construction. These major projects are transforming Greece into an energy hub in Southeast Europe. Telecommunications As in energy, the liberalisation of the telecommunications market has taken place during the last decade, resulting in a large number of telecom suppliers in landline, cellular, and Internet services. Although the Hellenic Telecommunications Organization (OTE) still wields considerable power, the market is highly competitive and services of a high standard. Celluar phone penetration in Greece is one of the highest in the EU. Since 2007 Greece has been making good progress in adopting digital technologies, with the country meeting or exceeding strategic targets, and the government announced plans to create a nationwide fibre optic network during the next decade. Greece ranked 6th worldwide and 1st in the European Union for the annual growth of broadband in 2007 ranked 1st worldwide in 2006. Once complete, the fibre optic network would allow simultaneous high-definition television channels, videophone services, tele-education, tele-medicine and other services, and would be an open-access network that could be used by all telecommunications and content providers. The project has a tentative budget of 2.1 billion Euro. It is envisaged to reach two million homes in Athens, Thessaloniki and 50 other large towns and cities, and preparation is underway to develop high-tech networks for all regional areas. Water and Sewage Systems As concerns about climate change mount, Greece is faced with questions about its long-term water supply, but has managed to avoid serious problems thus far. The concern is greatest on a number of islands that have limited fresh water resources and must rely on transported water. Innovative desalination projects using RES technologies are currently being planned for implementation. Almost 100% of households have continuous access to water supply and almost 95% are connected to the sewage system. Relatively new sewage treatment plants serving Athens and Thessaloniki have dramatically improved the water supply in the Saronic Gulf near Athens and the Thermaicos Gulf of Thessaloniki. The water quality in Greece is considered to be of a high quality and water borne diseases are virtually non-existent.

Legal, judiciary, and regulatory framework Political analysisOverview Greece has overcome its turbulent past and is now witnessing political stability as well as economic prosperity. Despite its

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economic success, it needs more time to break away from its past, when government intervention was at its highest. Greece was conferred membership to the EU in 2001 and successive governments have tried to ensure the continuation of economic reforms to meet its targets. The present ND Party government has a wafer thin parliamentary majority, which has made it dependent on support from other parties to bring in important reforms. The economic downturn of the country has further made it difficult to garner public support to carry out important reform policies. It was evident when the public took to the streets to oppose privatization and pension reforms, besides salary ceilings in the later part of 2008. In view of rising instability, the country may schedule an election before the current term comes to an end in 2011.Table

Analysis of political scenario Current strength y y Democratic principles firmly in place Closer integration with the EU Current challenges y y Troubled relations with neighbors Existence of terrorist groups

Future prospects y y Continuation of reforms Improvement in public administration system

Future risks y y y Narrow majority of the ruling coalition Political and social unrest Continued existence of corruption and nepotism

Current strengthsDemocratic principles firmly in place Greece is considered to be the birthplace of democratic principles and modern democracy was firmly established in the country with the adoption of the constitution in 1974. This constitution laid the foundation of the government. Elections are considered to be fair and transparent and governments have been voted out of power whenever popular sentiment has

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turned against them. The countrys democratic progress is reflected in the voice and accountability parameter, where Greece ranked in the 73.6 percentile in 2008 in a study conducted by the World Bank. In 1996, it had a lower percentile rank of 69.4. However, in comparative terms, peer nation Portugal has a higher ranking at 88, which indicates Greeces scope for further improvement. Closer integration with the EU EU membership has provided an opportunity for the Greek government to integrate itself closely with other EU members. After Greeces entry into the EU, economic prosperity has become part of the country's political agenda. Furthermore, reform measures undertaken in this direction will become an important determinant of the success of any political party. Since joining the EU, Greece has taken pragmatic politico-economic decisions and large inflows of funds from the EU have contributed to its economic development. After the country became a member of the EU, successive governments have been working on policies for fiscal discipline, resulting in improved financial condition. The government is bound by the targets set under the Maastricht treaty, which gives it little room to diverge from EU practices. Therefore, a continuation of the economic policies aimed at fiscal consolidation is expected, which will give economic and political stability to the nation.

Current challengesTroubled relations with neighbors. Greeces relations with its neighbors, especially Turkey, have shown signs of improvement, but remain far from healthy. Although there have been improvements in business relations, territorial disputes over the Cyprus issue have caused political tension. Relations with Macedonia have been tense, as there is a Greek province by the same namefor this reason, Greece also opposed Macedonias membership of the EU. Meanwhile, dealings with Albania have been difficult since the 1990s, following huge influx of refugees from Albania into Greece, which has led to deteriorating relations between the two nations and social unrest in Greece.

Existence of terrorist groupsGreece has been subjected to terrorist violence in the past and, despite a government crackdown, there continues to be a presence of suspected groups active in the country. Terrorism in Greece is believed to have been fuelled by extremists from far left organizations, spurred by accusations of government oppression of minority groups. Besides this, Greece's pro-US stance in international affairs has become a major issue for some of these groups. In 2009, the US embassy and police station in Athens were bombed and a number of other attacks took place: the terrorist group Revolutionary Struggle has accepted responsibility for most of these. Acts of terrorism will invariably increase the security risk in the country and hamper its growth prospects.

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Future prospectsContinuation of reforms Greece has undertaken a number of structural reforms. During its last term, the government was not able to push through planned reforms to the pension and education systems, but with a new mandate for change, the incumbent government initiated a number of reform programs, which will start showing results soon. Similarly, in order to keep pace with its Eurozone partners, the government may press ahead with the privatization of airways and other public enterprises, opening up new opportunities for investment.The Greek government is also focusing on agreements and infrastructure projects being promoted in the energy sector,with the aim of securing an energy supply for the future, promoting renewable energy sources and protecting theenvironment. Improvement in the public administration systemAlong with the reform processes mentioned above, the government endeavors to improve the public administration system.The culture of the system is moving away from a formal legal setup to focus on service to citizens. Furthermore, by reducing unnecessary bureaucracy the government has undertaken regulatory reforms which should go a long way toward making the system equitable and transparent. This will enhance the efficiency of public administration, a crucial entity of government. Future risks Narrow majority of the ruling coalition Although the ruling ND government came to power in 2007 for a second term, it managed to get a small majority of 152 out of 300 seats in parliament. This has made it dependent on support from other parties to bring in important reforms. Moreover, the resignation of two key party members from Karamanliss team has weakened his authority in parliament, while the economic downturn has made it increasingly difficult to garner public support in order to carry out important reform policies. This was evident when the public took to the streets to oppose privatization and pension reforms, besides salary ceilings in the later part of 2008. Deteriorating economic conditions are expected to increase discontent and, in view of the rising instability in the country, it may go for an election before the current term comes to an end in 2011.

Political and social unrest The decline in Greeces foreign relations with Turkey and an increase in terrorist activities may give rise to political unrest, as territorial disputes continueGreeces support for the Greek population in Cyprus has long been a source of conflict.36

Secondly, Greece is expected to maintain a pro-EU stance and to remain close to the US in international politics. Such a situation by no means guarantees an abatement of terrorism, as the US continues to be at the top of the list of terrorist targets: its associates have faced politically motivated attacks on a number of occasions.

Continued existence of corruption and nepotismCorruption continues to be a part of the political culture of Greece. The country has been rocked in the last several years by a series of large political finance scandals, under both Pasok Party and ND Party rule. The present government of Kostas Karamanlis has publicly criticized corruption and nepotism. According to the Berlin-based watchdog Transparency International, Greece's ranking in terms of corruption fell from 46 to 54 in 2007, but made marginal progress in 2008 by securing the 56th rank, behind almost every other EU nation. The prevalence of corruption and nepotism may impact some of the benefits of reforms.

Financial systemOverview Greece is a member of the EU and has relinquished control of its monetary policy authority to the European Commercial Bank (ECB). The Bank of Greece is the country's central bank and is responsible for the implementation of monetary policies. Greece began the deregulation of its financial system in the 1990s, in the run up to its EU membership. The central bank is responsible for ensuring the smooth operation and stability of the Greek financial system.

Financial authorities/regulatorsCentral Bank of Greece The Bank of Greece is the central bank, follows the directives of the ECB and is responsible for the implementation of monetary policy. It is also the main supervisory agency for the quality of commercial bank portfolios and the protection of the monetary system against bank failures. In line with requirements of the 1992 Maastricht Treaty, the Bank of Greece is required to become independent from the government, and has consequently enforced strict limits on government use of the money supply as a source of loans. Commercial banks and specialized credit institutions, such as investment banks, the Agricultural Bank of Greece, mortgage banks, and the Postal Savings Bank, are the other types of financial institutions in Greece. Commercial banks include both domestic and foreign owned banks. With the onset of liberalization in the banking sector since the 1990s, these institutions decide on their specialization by market conditions rather than legislative constraint. Hellenic Capital Markets Commission37

The Greek capital markets are regulated and supervised by the Hellenic Capital Markets Commission (HCMC). Organized market participants such as the Athens stock exchange, and market intermediaries like investment firms and agencies involved with the clearing and settlement of securities function under the HCMCs regulations. The HCMC is also responsible for the regulation of mutual fund companies and portfolio investment companies. In addition to licensing and supervising investment firms, the HCMC is also responsible for the organized securities market and the issuers of punlic trade securitites. Insurance regulator The supervisory system for insurance companies is currently in transition. Prior to 2008, insurance companies were regulated by a division of the Ministry of Development. Since January 2008 a new supervisory agency, the supervisory commission for private insurance, has been established. The new agency will supervise insurance companies and intermediaries. Greek stock markets The Athens Exchange (Athex) is the only official market for shares, rights, global depositary receipts, derivatives and bonds trading in Greece for retail and institutional investors. All large companies shares are listed in this exchange. The Athex comprises several markets for which different listing requirements apply. In the main market, securities of large and more established companies are listed (a company may apply for listing on the main market if its own funds amount to at least 12m). Besides Athex, there is the parallel market, where securities of smaller companies are listed (a company may apply for listing on the parallel market if its own funds amount to a minimum of 3m). The Greek derivatives market, Adex, was merged with Athex in 2002. Derivatives listed on the Adex include futures, options, swaps, repos, reverse repos, and warrants. The Greek market of emerging capital markets (Eagak) comprises a parallel exchange of emerging markets and addresses the needs of companies operating through subsidiaries in the Balkan region and south-east Europe. There is also a market for fixed income securities (ASSE), where government bonds, corporate bonds and international bonds are issued. The Thessaloniki Stock Exchange Centre (TSEC) reviews applications by companies based in northern Greece and south-east Europe for listing on the new market, Athex, and provides administrative support to Eagak. The market capitalization of the Athex reached a high of $265 billion in 2007, but contracted by 65% in 2008 following the global financial crisis.

Import and exports of GreeceYear 1975 1980 Exports 2.294 5.153 Imports 5.357 10.54838

1985 1985 1990

4.539 8.105 10.961

10.134 19.777 25.944

As seen in the chart, Greece's balance of trade hasn't been very encouraging, due to the fact that Greece's exports are continuously less than its imports. Greece's trade barriers has put it into horrible debt, now over US$400 billion, an overwhelming 125% of Greece's gross domestic product (GDP). Greece is a member of the European Union (EU), which has helped them out alot. Although, it still has an enormous trade deficit - $42.8 billion for 2009 an amount 2.5 times higher than its total exports. In 2008, Greece had a higher trade deficit of $64.8 billion, which is somewhat reassuring. It stays grounded with the help of loans from the EU, remittances from Greeks living abroad, tourism, and shopping. Although the trade deficit might have decreased in 2009, the trade imbalance wasn't as comforting. Greeces trade imbalance with America was a negative $1.64 billion for 2009, up by 75.3% from $932.6 million in 2008. Americas delivery of air combat machinery to Greece accounted for almost half of total Greek imports in 2009 ($1.1 billion). Other top Greek imports from the U.S. include fuel oil, medicinal equipment, and steelmaking materials. Greek imports from America that were the fastestgrowing also includes aircraft on the top of the list - as well as animal feeds, railway transportation equipment, coal, and inorganic chemicals. Greece's fastest-growing exports include: textile, sewing and working machinery, food and tobacco processing machinery, pulp and paper machinery, plastic materials, and non-textile apparel and household goods.

Greece's Business Trade Barriers Strengthy y y y

Greek exporters delivered $95.6 million worth of vegetables to the U.S. last year. Greece shipped $21.9 million worth of dairy products and eggs to the U.S. while spending only $121,000 on similar food items from America. Greece s industrial sector transports large amounts of fuel around the world. A moderately-valued currency, high investment flow potential and average business environment lead to a slightly positive outlook for Greek investments.

Greece's Business Trade Barriers Weaknessy y y

y y

America exported $1.1 billion worth of military aircraft to Greek importers versus only $19.3 million in military aircraft and parts that Greece shipped to the U.S. Some aspects of Greek legislation on the stocking, transport and distribution of petroleum products violate EC Treaty trade barrier rules. The rules forced companies marketing petroleum products to conclude supply contracts with Greek refineries and prevent retailers from importing petroleum products directly from other Member States. Greece's exports are almost always less than their imports, which causes massive trade imbalance. When it comes to aircraft, U.S. still has a huge competitive advantage over Greece. 39

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GreeceCountry ConditionsClimate for Investment & Trade Overview Openness to Foreign InvestmentGreece, a member of the European Union, provides a reasonably hospitable climate for foreign investment. On the upside, Greeces membership in the E.U.s Economic and Monetary Union offers currency stability, the infrastructure has improved significantly in the last five years, and the ongoing liberalization of the energy and telecommunication markets offer investment opportunities. Greek businesses are among the leading investors in Southeast Europe, and Greece is actively positioning itself as a hub for Balkan trade. On the downside, after a decade of high GDP growth (between 1997 and 2007, Greece averaged 4 percent GDP growth, almost twice the E.U. average), the financial crisis and resulting slowdown of the real economy have slowed GDP growth to two percent in 2008. It is projected to shrink by 1.5 to 2.0 percent in 2009 and by 0.3 percent in 2010. Key economic problems with which the government is currently contending include a burgeoning government deficit (12.7 percent of GDP in 2009) and high public debt (113.4 percent of GDP projected for 2009), both of which are the highest in the Euro zone. The E.U. recently moved Greece one step closer to sanctions under the Excessive Deficit Procedure. The E.U. has mandated that Greece develop a plan to immediately restore fiscal discipline and reduce its deficit to the three percent E.U. ceiling within an agreed period of time (as yet, undetermined). Greeces economy is hampered by extensive government regulation. Many international corporations state that bureaucracy remains the number one impediment to doing business in Greece. International organizations such as the OECD, Transparency International, the World Bank (in its Annual Doing Business and Governance Reports), and the World Economic Forum (in its Global Competitiveness Report) cite issues with corruption and government regulations that complicate investment and other commercial activities. As a result, Greece has had relatively modest levels of foreign investment as a percentage of the economy. It ranked 21 out of 30 OECD countries in level of Foreign Direct Investment (FDI) in 2008. The position of Greece in the world indices of the above organizations has deteriorated in the last year. Greece ranks 109 in 2010 World Banks Doing Business index (nine slots down from 2009 index). On economic freedom it ranked 81st out of 179 in the 2009 Heritage Economic Freedom Index. It dropped to the 71th position on the Transparency Corruption Perception Index in 2009 from 57th in 2008 (in last place, together with Bulgaria and Romania among the 27 countrymembers of the E.U.). Historically, growth has been financed by private sector borrowing and public sector spending, and absorption of E.U. structural adjustment funds, which totaled roughly 24 billion dollars from 2000-2006. The E.U. has allocated a similar amount of funding, approximately 26.5 billion USD, for Greece for 2007-2013. The GoG encourages private foreign investment as a matter of policy. Investments are screened by the Ministry of Economy, Competitiveness and Shipping when the investor wants to take advantage of41

government provided tax and investment incentives; foreign and domestic investors face the same screening criteria. Although Greece previously restricted foreign and domestic private investment in public utilities, it opened its telecommunications market and is in the process of slowly liberalizing its energy sector. Restrictions exist on land purchases in border regions and on certain islands due to national security considerations. Greece is the only E.U. country that does not have a land registry, which is a barrier to investment. U.S. and other non-E.U. investors in Greeces banking, mining, broadcasting, maritime, and air transport sectors are required to obtain licenses and other approvals that are not required of Greek and E.U. investors. Foreign investors can buy shares on the Athens Stock Exchange on the same basis as local investors.

Major investment laws are: Legislative Decree 2687 of 1953 which, in conjunction with Article 112 of the Constitution, gives approved foreign productive investments (basically manufacturing and tourism enterprises) property rights, preferential tax treatment and work permits for foreign managerial and technical staff. The Decree also provides a constitutional guarantee against unilateral changes in the terms of a foreign investors agreement with the Greek government, but the guarantee does not cover changes in the tax regime. Law 3299/2004, the investment incentives bill, as amended by Law 3522/2006 and Law 3752/2009, provides grants to cover up to 60 percent of qualifying investments (generally those made in less-developed regions of Greece). Through a combination of incentives and corporate tax breaks, this law attempts to boost entrepreneurship, foster technological change, and achieve regional convergence throughout Greece. Law 3522/2006 introduces grants to newly founded small enterprises (Greek and foreign) to assist them with operational expenses for up to five years and attempts to simplify and expedite procedures for the evaluation of investment projects. Law 3752/2009 encourages investors to take advantage of tax breaks instead of grants and increases incentives to investment in energy from renewable sources, in modernization of tourist installations and in high technology services. Law 3389/2005 on Public Private Partnerships (PPP). This law is designed to facilitate public private partnerships in the service and construction sectors by creating a market-friendly regulatory environment. Law 89/67 as amended in November 2005 by Law 3427/2005 provides special tax treatment for offshore operations of foreign companies established in Greece. Law 468/76 governs oil exploration and development in Greece. Law 2289/95, amending this legislation, allows private (both foreign and domestic) participation in oil exploration and development. Law 2773/99 opened up 34 percent of the Greek energy market in compliance with E.U. Directive 96/92 concerning the regulation of the internal electricity market. Law 31 75/2003 harmonizes Greek legislation with the requirements of the E.U.s Directive 2003/54/EC on common rules for the internal market in electricity. Law 3426/05 completed Greeces harmonization with E.U. Directive 2003/54/EC and provided for the gradual deregulation of the electricity market. Law 2364/95 as amended by Laws 2528/97, 2992/02, 3175/03 and 3428/05 governs investment42

in the natural gas market in Greece. Law 2246/94 and supporting amendments have opened Greeces telecommunications market to foreign investment.

When Greece joined the European Monetary Union (EMU) Euro zone on January 1, 2001, it committed to serious structural reforms to meet EMU convergence criteria. To this end, the Greek government has opened the telecommunications market, and the energy market has undergone some deregulation. Since 2001, about 34 percent of eligible consumers of middle and high-tension voltage have had the choice to obtain their electricity from producers other than the l state monopoly, the Public Power Corporation (PPC). The electricity market in Greece was to be completely deregulated by mid-2007. The deregulation process has been slow, and the goal not yet realized. Only three private producers are operating at this time, due to problems in arranging financing and obtaining state licenses

The new center-left government of PASOK, elected in October 2009, pledged fiscal and other structural reforms to enhance the competitiveness of the Greek economy. The new administration promised to gradually adopt policies and programs designed to achieve fiscal consolidation and tax reforms, reduce red tape in business transactions and expedite market deregulation. The new Finance Minister recently announced plans to raise about 2.5 billion Euros (3.6 billion dollars) from privatizations in 2010 to help pay down the countrys burgeoning public debt. It is not yet clear which companies will be privatized under this plan. Greece has stakes in about 20 listed companies including ATE bank, Postal Savings Bank, gaming firm OPAP and telecoms group OTE. The state asset sale program will be clarified in the beginning of 2010. Greece has raised about 8.7 billion Euros from privatizations in the period 2003-2009. Some of these privatizations have sparked significant resistance from the public; however, the government thus far is standing firm. The global economic environment may also impact the private sectors ability to raise financial resources to buy these firms. Foreign and domestic investor participation in privatization programs is generally not subject to restrictions. The previous Greek government had announced in December 2007 that it would cap private investment in companies of strategic importance (corporations which own, exploit, or manage national infrastructure networks such as telecommunications, energy, etc.) at 20 percent unless special approval is granted by an inter-ministerial privatization committee. The European Commission contested the Greek law on investment in strategic firms and sent Greece in November 2008 a final warning to change the law or face European Court action. Thus far, the European Commission and the Greek government are still in negotiations on how this issue should be addressed.

Transparency of the Regulatory System As an E.U. member, Greece is required to have transparent policies and laws for fostering competition. Foreign companies consider the complexity of government regulations and procedures and their43

inconsistent implementation to be the greatest impediment to investing and operating in Greece. On occasion, foreign companies report that they encounter cases where there are multiple laws governing the same issue, resulting in confusion over which law is applicable. In order to simplify and expedite the investment process, a quasi-state investment promotion agency, the Hellenic Center for Investment (ELKE), was established in 1996. ELKE, reorganized and renamed Invest in Greece Agency in March 2008, is designed as a one-stop shop for investors in cutting through red tape and acquiring the numerous permits needed to proceed with investments. For investors seeking government incentives under Law 3299/2004, the Agency is responsible for helping investors with projects valued at over 8.8 million Euros (11.9 million dollars), or over three million Euros (4 million dollars) in cases in which there is at least 50 percent foreign participation. It also advises the government on streamlining investment and promoting Greece as a favorable investment destination, and improving the investment climate in Greece. The new investment incentives Laws 3522/2006 and 3752/2009 that amended 3299/2004 are also intended to simplify and expedite the evaluation of projects.

Greek labor laws limit working hours, limit overtime, restrict part-time employment, and are restrictive regarding the dismissal of personnel. A labor law (3385/2005) passed in July 2005 gives greater flexibility to employers to ask employees to work without overtime premium pay during peak times, in return for compensatory time off during non- peak times. Under current regulations, both private and public companies are prohibited from firing or laying-off more than two percent of their total workforce per month without government authorization

Greeces tax regime lacks stability, predictability, and transparency. The new administration has made tax evasion one of its highest priorities. The government often makes small adjustments to tax levels and has not hesitated to impose retroactive taxation. Although foreign investors object to the frequent changes in tax policies, foreign firms are not subject to discriminatory taxation. Generally, in sectors open to private investment, foreign investment is not prohibited or restricted in any way. Proposed laws and regulations are usually published in draft form for public comment before being debated in Parliament. The International Financial Reporting Standards (IFRS) for listed companies was introduced in fiscal year 2005, in accordance with E.U. directives. These rules improved the transparency and accountability of publicly traded companies.

Foreign/Free Trade Zones/PortsGreece has three free-trade zones, located at the ports of Piraeus, Thessaloniki and Heraklion. Greek and foreign-owned firms enjoy the same advantages in these areas. Goods of foreign origin may be brought into these zones without payment of customs duties or other taxes and remains free of all duties and taxes if subsequently transshipped or re-exported. Similarly, documents pertaining to the receipt, storage, or transfer of goods within the zones are free from stamp taxes. Handling operations are carried out according to E.U. regulations 2504/1988 and 2562/1990. Transit goods may be held in the zones free of bond. The zones also may be used for repackaging, sorting and re-labeling operations. Assembly and manufacture of goods are carried44

out on a small scale in the Thessaloniki Free Zone. Storage time is unlimited, as long as warehouse charges are promptly paid every