Untitled Document

GREEK BUSINESS AND THE ROLE OF THE FINANCIAL MARKETS

London, 21 February 2000

Ladies and Gentlemen,

The Greek economy today is in better shape than ever before. An energetic private sector, investing in new technologies and corporate restructuring, is ready to embark in new business ventures, in Greece and abroad. A leaner and more responsive state sector prepares for the opening up of the competitive landscape by raising funds in the capital markets and implementing ambitious investment programs. All in all, a New Economy is developing in Greece!

We have come a long way. Convergence has brought strong growth coupled with lower inflation and declining interest rates, lower deficits and reduced public indebtedness. As a result of this virtuous circle, in a few weeks from today Greece will apply for participation in the Euro zone from the beginning of next year. Challenging years of stabilization, deregulation and restructuring have put Greece in a position to join the league of advanced countries in Europe.

Capital markets have been instrumental for the transformation of the Greek economy. An unprecedented flurry of M&A activity, leading to business restructuring, was made possible by the strong performance of the Athens Stock Exchange. Vibrant corporate action and the government's privatization drive reinforce the dynamism of the Athens exchange. All in all, in 1999 about EUR 10 billion, or roughly 10% of GDP, were raised through IPOs and share capital increases. In the process, the Athens Stock Exchange itself has matured. A sizeable daily turnover and an improved institutional framework clearly set the Greek stock market apart from emerging markets.

Greek companies increasingly resort for funds in the Athens Stock Exchange, exploit merger opportunities, and, enter into alliances, transforming in the process the corporate landscape in Greece. This is a structural phenomenon of fundamental importance. It has already produced ramifications in certain industries like shipping or construction, where improved competitiveness is evident. In passenger shipping, for instance, fleets have been enlarged, routes were added and Greek shipping companies are expanding beyond Greece. Finally, Greek construction companies are increasingly taking on big projects.

The flourishing Athens Stock Exchange has also allowed the transfer of state assets to the private sector on a grand scale. Privatization revenue has reached roughly 6% of GDP. So far, hence comparing favorably with similar experiences in other EU countries, namely Italy, Portugal and Spain. Still, even more privatization projects are in the pipeline. Moreover, the liberalization of the telecommunications, energy and transportation sectors from the beginning of 2001 are expected to attract new entrants into the market, thus further enhancing competition and prompting substantial investment activity as well as restructuring. Overall, a fundamental transformation of the Greek economy is currently underway and immense benefits can be achieved in the process.

The prospects of the Greek stock market over the medium term are positive. Although certain segments clearly exhibit unrealistic valuations, the growth potential of the Greek economy has not been fully discounted in the market. In particular:

Not only is the privatization process still in its initial stage, but its dynamic effects on the overall economy will be greater in the years to come. I say this because up to now, in most cases, we have seen the transfer only of partial ownership, and not the management, to the private sector. The exception was the acquisition of lonian Bank by Alpha Credit Bank in 1999 in a landmark privatization deal.
In the latter half of the 90s, growth consistently outperformed EU average despite very high real interest rates. Now, with Euro zone participation, an unprecedented reduction in real interest rates is in store. This is going to push investment and growth even higher. Moreover, in a rapidly maturing environment in terms of financial sophistication, this will also boost the demand for financial services, and, therefore, the growth prospects of the financial sector.
The 2004 Athens Olympics are estimated to add about 10 percentage points to GDP growth over the next 4-5 years. Moreover, EU structural funds of EUR 25 billion over the period 2000-2006 will promote infrastructure investments and further support private investment through incentives.
Finally, southeastern European countries are increasingly becoming a focus of intense interest for Greek businesses. As the international reconstruction effort for the region gets underway, Greece is poised for a bigger role in the Balkans. We are the only European Union members in southeast Europe, and Greek businesses serve as an important investment gateway in the region's countries. About 20 percent of Greece's trade is with its Balkan neighbors, and the potential for volume increases is considerable. In particular telecommunications and banking have emerged as the main sectors for Greek investments in southeast Europe.

The financial sector has been at the heart of this transformation process. The deregulation and liberalization of the financial system during the nineties have led to new product development and encouraged service diversification. State-controlled banks have modernized and dealt effectively with various inefficiencies. As a result, competition today thrives. Customers enjoy better quality services and a wider menu of financial products than ever before.

Today, commercial banks and other financial sector entities aggressively mobilize savings for investment and leverage corporate undertakings. With the advent of the Euro, the passage into a low and stable interest rate environment acts as a catalyst. Substantial pools of savings (including reserves of the social security funds) are being brought into the market and the financial sector is called upon to manage it. Mutual funds have grown significantly during the past few years, now accounting for over 30% of GDP. More interestingly, equity mutual funds absorb now about 40% of the total from 6% a year ago, when money market funds accounted for two thirds of the market. Furthermore, more attractive and cheaper financing is available, supporting the investment and growth dynamics of the Greek economy. Lending on the retail level is on the rise, especially consumer loans, mortgages and loans to small and medium-sized enterprises. Moreover, corporates have now the opportunity to tap the corporate bond market, especially after the recent lifting of tax disincentives in issuing corporate bonds. A further move by the authorities to develop the legal framework for asset securitization (especially mortgage-backed securities) would improve banks' liquidity management and, thus, allow them to increase lending.

In conclusion, the New Economy is here. Growth prospects are indeed excellent. The financial sector is expanding rapidly, taking advantage of the all-important structural shift in the way people and institutions leverage themselves in an environment of low inflation and declining rates. Market reforms can open new avenues leading the supply potential of the Greek economy to new heights. The new government to take over after early elections, to be held on April 9, has, therefore, its hands full. Privatizations have to accelerate, market liberalization of the energy and the telecommunications sectors to be brought forward, and, social security reforms to be introduced as early as possible in the new government's tenure in office.

Ladies and gentlemen,

Dealing with these issues effectively will make for an easy sailing to the post Euro period. A period that promises to offer excellent opportunities to all and to consolidate the gains achieved so far. Thank you.