FACTBOX-Greece's main political and socio-economic risks
01 Oct 2009 15:59:14 GMT Source: Reuters
By Dina Kyriakidou and Ingrid Melander Oct 1 (Reuters) - One of the euro zone's weakest links, Greece is expected to slide into recession this year, while a snap parliamentary election on Oct. 4 raises the risk of political uncertainty if no party wins outright. Here are some of the risks Greece faces: ELECTIONInvestors and rating agencies say debt-ridden Greece needs a strong government to emerge after the election to push through long-delayed reforms. The latest official polls, published nearly two weeks ago, showed that the opposition socialists were ahead but not certain of getting enough support to form a government outright [ID:nLF326758]. The prospect of an inconclusive vote sent jitters through financial markets after the election was announced early in September: Greek stock prices <.ATG> fell, and the premium investors demand to hold 10-year Greek bonds rather than benchmark German bunds hit a six-week high [ID:nL4459548]. A repeat vote or, less likely, a coalition, would follow if there is no clear winner [ID:nL4452577]. DEBT Seen by investors as the euro zone's soft underbelly, Greece has the currency bloc's second biggest debt as a percentage of GDP after Italy. Debt is forecast at 103.4 percent in 2009. Yield spreads on Greek bonds over German bunds hit a record high in February, as investors fled the euro area's periphery during the financial crisis. Although spreads have now returned to more normal levels, Greece's ballooning debt remains the economy's most serious risk. [ID:nLAG003658]. Rating agencies Fitch and Moody's have downgraded their outlook on Greek government bond ratings, citing concerns over the impact of the economic downturn on public finances. Standard & Poor's cut Greece's rating to A- in January. [ID:nLC364448] SLOW REFORMS, PRIVATISATIONS Greece faces the risk of extended slow economic growth if it fails to adopt structural measures to boost competitiveness and correct its fiscal imbalances, the EU and the IMF have said. Facing not only street protests but even resistance within its own ranks, the outgoing government has been slow to implement structural reforms needed for long-term growth. In 2008, an overhaul of the social security system, which experts warned would collapse in 15 years due to an ageing population, fell short of what was necessary. Education reform, seen as crucial to making the labour market more competitive, had a similar fate amid violent protests. The government was more successful with privatisations. It sold a stake in telecom OTE <OTEr.AT> to Deutsche Telekom (DT) <DTEGn.DE> and privatised Olympic Airlines. ECONOMIC RISKS Greece's economy, which makes up about 2.5 percent of the euro zone total, is forecast to slide into recession this year, for the first time since 1993. [ID:nL4353819] Tourism and shipping remain Greece's main economic pillars, making it particularly vulnerable to the global downturn. Although shipping has shown signs of recovery, tourism has been especially hurt this year. [ID:nLI116407] Greek banks, although largely safe from the toxic assets which brought down global giants, have invested heavily in the Balkans and their profit growth has waned as the once-booming economies of eastern Europe slow down. Standard & Poor's views Greece's banks as facing the highest long-term economic risks in western Europe [ID:nWLA2442]. SOCIAL UNREST/VIOLENCE After Greece's worst riots in decades in December 2008, violence has simmered with frequent gas canister attacks and some bomb attacks. The riots were triggered by the police killing of a teenager and fanned by high youth unemployment as well as mistrust of the political system and a just society. [ID:nLB478062]. Calm soon returned but far-left and anarchist groups have renewed attacks on businesses and police, culminating with the killing of a policeman in June. A car bomb blew up outside the Athens stock exchange on Wednesday, damaging the building extensively. Analysts say that while the roots of the unrest remain, another flare-up could easily be triggered.
People try to pass a flooded road near the beach of Lefkadi village near Chalkida town, northeast of Athens, September 12, 2009. A policeman on his way to work drowned in ...
