Greece

Politics:

• Analysis

  Greece politics: Austerity fatigue could lead to early election

  The main opposition party, the left-wing Syriza Unifying Social Front, has taken a clear lead over the senior party in the fragile three-party governing coalition, the centre-right New Democracy (ND), in two recent opinion polls. However, Syriza would currently not have sufficient backing to form a government in its own right. It looks increasingly likely that an early election will be held in 2013, or 2014 at the latest, which could cast major doubt on the continuation of the EU/IMF lending programme and Greece's euro zone membership.

  The anti-austerity Syriza has taken a healthy lead of 3-5 percentage points over ND in two opinion polls (published on November 28th), while ND's coalition partners, the left-leaning Panhellenic Socialist Movement (Pasok) and Democratic Left (DIMAR), have dropped to the bottom of the list of seven parties represented in parliament-the two parties are respectively fifth and sixth in a Marc poll for Alpha TV and seventh and sixth in a VPRC poll for the magazine Epikaira (see table below).

  Syriza in the spotlight

  Syriza, formerly a loose coalition of more than a dozen micro movements, in May transformed into a single party, thus giving it under Greek electoral law entitlement to a bonus allocation of 50 seats in the 300-seat parliament should it come first in an election; the bonus is only given to parties, not to multi-party coalitions or electoral alliances. However, Syriza is riddled with factionalism. During a weekend party congress on December 1st-2nd, party leader Alexis Tsipras urged internal factions to unite behind a common ideological position in order to take "a decisive step forward" in fresh elections.

  The party's position on the EU/IMF bail-out is amorphous. It repudiates the reforms set out in the Memorandum of Understanding (MoU) agreed with creditor countries and has implied that Greece should default on its loans. Conversely, it argues the need for a pan-European bail-out programme coupled with an end to the continent-wide emphasis on austerity that is weakening economic growth prospects and has contributed to mounting job losses.

  But, although Syriza has repeatedly called for a snap poll, the party is aware that it is not yet ready to govern. Its support is insufficient to secure an absolute majority, and it would have difficulty forging a coalition. The party's roots are in the Eurocommunist movement of the 1970s; there is mutual antipathy between it and the Communist Party of Greece (KKE), which still adheres to a Stalinist line. There is also bad blood with DIMAR, which is a splinter from Syriza. Syriza has reportedly made overtures to Independent Greeks (AE), a rightist splinter from ND, although the only thing they have in common is an anti-MoU stance.

  Pasok collapsing

  Syriza might attract adherents from Pasok, which is fragmenting. Pasok, which dominated Greek politics for all but eight years of the three decades from 1981 to 2011 and used to command the support of over 40% of the electorate, was stunned by its tail-end showing in the VPRC poll. Since the June election, eight of the party's 33 deputies have resigned or been expelled for voting against coalition policies and now sit as independents in parliament. On December 3rd, a party heavyweight and former minister of health, Andreas Loverdos, announced that he was setting up the Radical Movement for Social Democratic Alliance (RIKKSY) with a view to establishing his own party. The few remaining socialists from the original Pasok (before it evolved into a social-democratic party) might well jump ship, especially to join Syriza, if they thought Pasok's fortunes were irreversible. The leadership of party chief Evangelos Venizelos could be challenged at a party congress scheduled for February next year.

  Party standings in parliament and latest opinion polls
  	General election (Jun 17th)		VPRC poll (Nov 28th)	Marc poll (Nov 28th)	Latest seats tally (Dec 4th)
  	% of vote	seats	% of vote	% of vote	seats
  New Democracy (ND)	29.7	129	26.5	26.2	125
  Syriza Unifying Social Front (Syriza)	26.9	71	31.5	29.0	71
  Panhellenic Socialist Movement (Pasok)	12.3	33	5.0	6.4	25
  Independent Greeks (AE)	7.5	20	6.5	7.1	20
  Golden Dawn (XA)	6.9	18	12.5	12.4	18
  Democratic Left (DIMAR)	6.3	17	5.5	6.1	16
  Communist Party (KKE)	4.5	12	6.5	5.7	12
  Others and independents	5.9	0	6.0	7.1	13
  Total	100	300	100	100	300
  ND-Pasok-DIMAR coalition	48	179	37	39	166
  Sources: Alpha TV; Economist Intelligence Unit; Epikaira; Hellenic Parliament.

  Planned cabinet reshuffle

  The ND prime minister, Antonis Samaras, is still seen as the man best suited to lead government but has a support rating of only 16.8%, compared with 9.5% for Mr Tsipras, 3.7% for DIMAR leader Fotis Kouvelis and just 2.8% for Mr Venizelos. Mr Samaras has indicated that he plans to reshuffle the coalition cabinet as soon as the EU/IMF resume lending. To date, ND's centre-left coalition partners have only had non-political nominees in cabinet. The reshuffle would seek to include Pasok and DIMAR politicians so as to have the parties share more directly the political responsibility for contentious policies. To accomplish this, Mr Samaras will either have to create a massive, unwieldy cabinet or remove some ND office-holders. It is questionable whether he can do this without creating ruptures in his own ranks.

  Snap election is a rising risk

  Until recently, it seemed that the coalition would strive to hold together until the economic depression ends-possibly in mid-2014-before calling a fresh election in a more positive economic climate. The current politicking, however, makes an election in 2013 increasingly likely, with the prospect of a Syriza-led government and all the potentially negative consequences that would have for the economic reform and recovery programme.

  December 05, 2012

• Background

  Greece: Political forces at a glance

  Political outlook: Political forces at a glance

  The centre-right New Democracy (ND) party, led by Antonis Samaras, won a narrow victory at the general election in June 2012 and holds 129 out of 300 seats in parliament; the June election was a repeat of the May 2012 election, which had been inconclusive. Thanks to support from ND's traditional centre-left rival, the Panhellenic Socialist Movement (Pasok), with 33 seats, and a small party, the Democratic Left (DIMAR), with 17, the government holds 179 seats in parliament. The next general election is not scheduled until 2016, but the fragile nature of the coalition government makes an early election likely. The Economist Intelligence Unit believes that an early election will take place by 2014, by which time Greece will have to restructure some of its public debt again and receive another international bail-out if the country is to avoid euro exit. Ongoing fiscal austerity will entrench economic hardship and increase the likelihood that the next election will be won by anti-austerity forces, especially Syriza Unifying Social Front (Syriza; previously known as the Coalition of the Radical Left), which almost won the two snap elections in May and June 2012.

  General election resultsa
  	2009		May 2012		Jun 2012
  Party	% of vote	No. of seats	% of vote	No. of seats	% of vote	No. of seats
  New Democracy (ND)	33.5	91	18.9	108	29.7	129
  Syriza Unifying Social Front (Syriza)b	4.6	13	16.8	52	26.9	71
  Panhellenic Socialist Movement (Pasok)	43.9	160	13.2	41	12.3	33
  Independent Greeks (AE)	-	-	10.6	33	7.5	20
  Golden Dawn (XA)	0.3	-	7.0	21	6.9	18
  Democratic Left (DIMAR)	-	-	6.1	19	6.3	17
  Communist Party of Greece (KKE)	7.5	21	8.5	26	4.5	12
  Popular Orthodox Rally (LAOS)	5.6	15	2.9	-	1.6	0
  Others	4.5	-	16.1	-	4.3	-
  Total	100	300	100	300	100	300
  a The current electoral law was used for the first time in the May 2012 election and gives the winning party a 50-seat bonus in parliament. b Syriza Unifying Social Front (Syriza) was formed in May 2012 and is the successor to the Coalition of the Radical Left (SyRizA), which contested previous elections.
  Source: Ministry of the Interior.

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  July 27, 2012

• Structure

  Greece: Political structure

  Official name

  Hellenic Republic

  Legal system

  Based on the constitution of 1975

  National legislature

  Unicameral Vouli (parliament) of 300 members, which is directly elected by a form of proportional representation for a four-year term, although early dissolution is possible.

  Electoral system

  Universal direct suffrage over the age of 18

  National elections

  June 17th 2012 (legislative). The next legislative election is not scheduled until 2016, but the fragile nature of the current coalition government makes an early election likely.

  Head of state

  President, without executive powers, elected by parliament for a five-year term. Karolos Papoulias, a former foreign minister from the centre-left Panhellenic Socialist Movement (Pasok), was elected on March 12th 2010. The president must be elected by a three-fifths majority of parliament. If this is not possible, parliament is dissolved, an election held and the president can be elected by a simple majority of deputies in the new house.

  National government

  Council of Ministers responsible to the legislature, headed by a prime minister appointed by the president on the basis of ability to gain support in parliament. On June 20th 2012, Antonis Samaras from the centre-right New Democracy (ND) party was sworn in as prime minister. ND is the senior partner in a coalition government with Pasok and the small Democratic Left (DIMAR) party. However, the cabinet consists entirely of ND members and independent technocrats.

  Main political parties

  New Democracy (ND); Syriza Unifying Social Front (Syriza); Panhellenic Socialist Movement (Pasok); Independent Greeks (AE); Golden Dawn (XA); Democratic Left (DIMAR) and Communist Party of Greece (KKE).

  Key ministers

  Prime minister: Antonis Samaras (ND)

  Administrative reform & e-governance: Antonis Manitakis (Indep.)

  Development, competitiveness & transport: Kostis Hatzidakis (ND)

  Education, religious affairs, culture & sport: Konstantinos Arvanitopoulos (ND)

  Environment, energy & climate change: Evangelos Livieratos (Indep.)

  Finance: Yannis Stournaras (Indep.)

  Foreign affairs: Dimitris Avramopoulos (ND)

  Health: Andreas Lykourentzos (ND)

  Interior: Evripidis Stylianidis (ND)

  Justice, transparency & human rights: Antonis Roupakiotis (Indep.

  Labour, social security & welfare: Giannis Vroutsis (ND)

  Macedonia–Thrace: Thodoris Karaoglou (ND)

  National defence: Panos Panagiotopoulos (ND)

  Public order & citizen protection: Nikos Dendias (ND)

  Rural development & food: Athanasios Tsaftaris (Indep.)

  Shipping: Kostas Mousouroulis (ND)

  Tourism: Olga Kefalogianni (ND)

  Minister of state: Dimitris Stamatis (ND)

  Government spokesman: Simos Kedikoglou (ND

  Central bank governor

  Giorgos Provopoulos

  December 01, 2012

• Outlook

  Greece: Key developments

  Outlook for 2013-17

  • A fragile three-party coalition led by the centre-right New Democracy (ND) took office after the election on June 17th 2012. The Economist Intelligence Unit expects the coalition to fall by 2014, leading to a new election.
  • In the context of an economic depression, soaring unemployment and rising anti-austerity sentiment among the electorate, there is a high probability that the left-wing Syriza Unifying Social Front (Syriza) will win the next election.
  • Although Greece secured a second EU-IMF bail-out and restructured part of its public debt in March 2012, the country's debt sustainability remains suspect. Another debt restructuring deal is likely by 2014.
  • Political instability, social unrest and economic hardship could trigger a disorderly debt default and an exit from the euro area. The Economist Intelligence Unit assigns a 40% risk to Greece leaving the euro zone in 2012-17.
  • If Greece stays in the euro area, economic policy will remain guided by the two Memorandums of Understanding (MoU) that the country agreed with its international creditors, focusing on deep austerity and structural reforms.
  • We forecast that real GDP will fall by 5% in 2013 and 1.5% in 2014 (after an estimated 6.8% drop in 2012), followed by average growth of 1.9% in 2015-17.
  • From an estimated rate of 1.1% in 2012, we expect inflation to remain low in 2013 (0.4%) and 2014 (0.8%), before averaging 1.4% in 2015-17.

  Review

  • The government made great strides in ensuring the release of suspended bail-out funds from its international lenders by passing crucial austerity and reform packages intended to meet the country's bail-out conditions.
  • First, on November 7th, parliament narrowly approved a structural reform package to liberalise labour and product markets and open closed professions. However, the coalition lost seven deputies in parliament after the vote.
  • Second, on November 11th, parliament comfortably approved the 2013 budget, which foresees EUR9.4bn in extra savings next year (especially wage and pension cuts). The coalition lost one additional deputy in parliament.
  • Euro zone finance ministers gave Greece a two-year extension for fiscal targets (from 2014 to 2016), but have not yet unlocked a EUR31.5bn bail-out tranche.
  • Greece's Public Debt Management Agency (PDMA) sold EUR5bn in Treasury bills to avoid a sovereign default by mid-November.
  • Economic data remained very weak. For example, real GDP fell by 7.2% year on year in the third quarter, the unemployment rate rose to 25.4% in August, and retail trade volumes contracted by around 9% year on year in August.

  December 01, 2012

Economy:

• Background

  Greece: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	11.4	Population growth	0.3
  GDP (US$ bn; market exchange rate)	290.2b	Real GDP growth	-2.4
  GDP (US$ bn; purchasing power parity)	295.4b	Real domestic demand growth	-3.4
  GDP per head (US$; market exchange rate)	25,480	Inflation	3.3
  GDP per head (US$; purchasing power parity)	25,932	Current-account balance (% of GDP)	-12.1
  Exchange rate (av) €:US$	0.7b	FDI inflows (% of GDP)	0.7
  a Economist Intelligence Unit estimates. b Actual.

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  Background: After 400 years of Ottoman rule, Greece emerged as a nation state in 1830. A devastating civil war followed the retreat of German occupying forces in 1944. The rebuilding of the shattered economy was launched with Marshall Plan aid, but left-right antagonism persisted. Between 1967 and 1974 a military junta ruled the country, but since then a democracy has been in place. In 1981 Greece joined the European Community, now the EU. It became a member of economic and monetary union (EMU) at the start of 2001. However, it was given undue leniency in compliance with public finance conditions. Its rising debt has proved unsustainable and put Greece's continued membership of EMU in question.

  Political structure: Greece is a parliamentary republic. The prime minister and the government hold executive powers. The president is elected by the 300-member parliament to serve a five-year term. The government must have the support of parliament to hold office. Following the general election on June 17th 2012 seven political parties are currently represented in parliament: the centre-right New Democracy (ND), Syriza Unifying Social Front (Syriza), the centre-left Panhellenic Socialist Movement (Pasok), the nationalist Independent Greeks (AE), the neo-Fascist Golden Dawn (XA), the Democratic Left (DIMAR) and the Communist Party of Greece (KKE). After the election, a coalition government consisting of ND, Pasok and DIMAR was formed, led by the ND prime minister, Antonis Samaras. The government consists mainly of ND ministers plus several technocrats, as Pasok and DIMAR refused to participate in the cabinet.

  Policy issues: The primary focus of the new government is to cut the fiscal deficit and public debt and improve the business environment to make economic recovery possible. The dire condition of the public finances and a consequent weakening of the banking sector put continued euro membership at risk. The previous two governments and the current one have imposed successive draconian austerity packages. They have also in principle made sweeping structural economic reforms to meet the conditionality attached to an economic rescue package in May 2010, but implementing these reforms has so far proved difficult. In March 2012 Greece secured a second EUR130bn rescue package, including debt restructuring, from euro zone governments and the troika of the European Commission, European Central Bank and IMF.

  Taxation: The corporate tax rate is 20%, but a special, supposedly temporary, levy has been introduced. The basic top rate for personal income tax is 45% for income over EUR100,000. Value-added tax (VAT) is levied at rates of 23%, 11% and 5.5%.

  Foreign trade: In 2011 goods exports were worth EUR20.2bn and imports EUR47.5bn, according to the Bank of Greece (the central bank). The current-account deficit was EUR21.1bn (9.8% of GDP; the first time it has been in single digits since 2005).

  Major exports 2011	% of total	Major imports 2011	% of total
  Mineral fuels etc	30.0	Mineral fuels etc	27.2
  Manufactured goods	25.4	Manufactured goods	21.6
  Food & live animals	14.2	Machinery, transport equipment	18.5
  Chemicals & related products	10.3	Chemicals & related products	15.8
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Germany	9.6	Germany	10.7
  Italy	8.0	Italy	9.3
  UK	7.9	Russia	9.2
  Bulgaria	6.2	South Korea	5.7

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  December 01, 2012

• Structure

  Greece: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 01, 2012

• Outlook

  Greece: Country outlook

  Greece: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: A general election on May 6th produced a highly fragmented parliament that was unable to form a government, necessitating a new election, which was held on June 17th. That repeat election was won by the centre-right New Democracy (ND) led by Antonis Samaras, ahead of the left-wing Syriza Unifying Social Front (Syriza). The two traditional mainstream parties that have governed Greece since 1974, ND and the centre-left Panhellenic Socialist Movement (Pasok), lost a significant share of the vote at the May election, although ND then regained some support as many voters feared that a Syriza victory could lead to a Greek euro exit. There is broad public discontent with the corruption, cronyism and vested interests associated with Pasok and ND. Nonetheless, the two parties were able to form a coalition government after the June election, along with the small Democratic Left (DIMAR).

  ELECTION WATCH: Despite recent defections the coalition government still has a healthy majority in parliament (167 seats out of 300). However, Pasok and DIMAR are unreliable partners for the ND-led government; Pasok in particular (which has seen its electoral support collapse in opinion polls) faces growing internal turmoil.

  INTERNATIONAL RELATIONS: Greece's international standing will continue to be weakened by dependence on EU-IMF loans. There is a significant risk that the country will come into conflict with its creditors, leading to a disorderly default, a collapse of the banking system and departure from the euro zone. The Economist Intelligence Unit believes that, in the eventuality of Greece leaving the euro zone, it would still be possible for the country to remain a member of the EU, although it would have to be given temporary derogations from EU rules on the free movement of capital.

  POLICY TRENDS: Greece faces a harsh choice. It can continue down the road directed by its EU/IMF creditors, which has so far caused an ever-deeper depression with rapidly rising unemployment (especially among young people), widespread corporate bankruptcy and increasing homelessness and deprivation. Or it can risk a step into the unknown and a partial breakdown of the economic system (at least in the short term) through a disorderly default, probably followed by a collapse of the banking system and necessitating the introduction of a new national currency to revive it.

  ECONOMIC GROWTH: From its pre-crisis peak in the third quarter of 2007 to its latest trough in the third quarter of 2012, the Greek economy contracted by almost 20%. After five years of depression (including an estimated 6.8% contraction in real GDP in 2012), we expect the economy to contract further, by 5% in 2013 and 1.5% in 2014. The economy should then recover from 2015, driven by returning business and consumer confidence following the expected official-sector involvement (OSI) in 2014 as well as foreign trade (with weak imports because of depressed domestic demand and stronger exports as demand in key trade partners in the EU recovers). Serious downside risks remain, however. This forecast assumes that OSI occurs in 2014 and that Greece remains in the euro zone.

  INFLATION: After muted inflation, estimated at 1.1% in 2012 (EU harmonised measure), we expect even lower inflation in 2013 (0.4%) and 2014 (0.8%), before a slight acceleration in 2015-17 (to average 1.4%). In October 2012, inflation stood at 0.9%. Weak domestic demand and lower wages across the public and private sectors will continue to put downward pressure on inflation. We expect external price pressures to be only moderate, as the oil price in 2013 is forecast to be lower than in 2012.

  EXCHANGE RATES: Although not our central forecast, there is a high risk that several countries will leave the euro zone during the next two years. Such fears have led to flight from euro assets and partly explain the volatility of the currency, which depreciated from above US$1.40:EUR1 in August 2011 to a two-year low of US$1.21:EUR1 in July 2012. However, the euro has since strengthened moderately to US$1.28:EUR1 in mid-November, in response to central bank intervention. Even assuming that it survives in its present form, the euro will remain volatile due to shifting risk appetite, economic weakness and lower reserve accumulation by Asian economies. We forecast average exchange rates of US$1.26:EUR1 in 2013 and US$1.25:EUR1 in 2014-17, but sharp movements in either direction remain a significant risk.

  EXTERNAL SECTOR: With austerity measures sharply cutting domestic demand and imports for most of the forecast period, we expect Greece's current-account balance to improve further, from an estimated deficit of 5% of GDP in 2012 to a surplus of around 1.1% of GDP by 2017.

  December 01, 2012

• Forecast

  Greece: Country forecast summary

  Country forecast overview: Highlights

  • An "orderly" (negotiated) default on more than one-half of Greece's public debt held by the private sector was carried out successfully in March 2012. However, Greece still faces an unenviable choice of either continuing a severe fiscal austerity programme, in return for bail-out funds from official creditors, or defaulting again on its sovereign debt. We expect Greece and its international creditors to negotiate a second orderly debt restructuring in 2014, this time involving debt held by official creditors. A "disorderly" (chaotic) default would probably trigger a collapse of the banking system and exit from the euro area. We assign a 40% risk to Greece leaving the euro zone by 2017.
  • A three-party coalition government led by the centre-right New Democracy (ND) took office after the election on June 17th 2012. The coalition is fragile and political instability is likely to persist. The coalition includes two centre-left parties, the Panhellenic Socialist Movement (Pasok) and the Democratic Left (DIMAR), but both Pasok and DIMAR refused to participate in the cabinet (which consists mainly of ND ministers and some technocrats). The Economist Intelligence Unit expects the coalition to fall by 2014, leading to a new election, which could be won by the left-wing Syriza Unifying Social Front (Syriza).
  • For most or all of the forecast period, unless Greece leaves the euro zone, economic policy will be dictated by the troika of the European Commission, the European Central Bank (ECB) and the IMF, which indirectly represents the creditor countries. The government is implementing an agenda of severe fiscal tightening to meet the terms of the medium-term fiscal strategy. However, it will find this increasingly difficult to implement against a backdrop of political instability, intensifying social unrest and deepening economic depression.
  • Following five years of depression (including an estimated 6.8% contraction in real GDP in 2012), we expect the economy to contract further, by 5% in 2013 and 1.5% in 2014. The economy should then recover from 2015, driven by returning business and consumer confidence (following the expected debt restructuring in 2014) as well as foreign trade. However, in the event of a disorderly default and euro exit, demand would be likely to fall even more sharply in the short term, with uncertain recovery prospects thereafter.
  • After an estimated inflation rate of 1.1% in 2012, we expect inflation to remain low in 2013 (0.4%) and 2014 (0.8%), before averaging 1.4% in 2015-17.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	-6.8	-5.0	-1.5	0.7	2.6	2.4
  Consumer price inflation (av; %)	1.1	0.4	0.8	1.2	1.4	1.6
  Consumer price inflation (av, %; EU harmonised measure)	1.1	0.4	0.8	1.2	1.4	1.6
  Government balance (% of GDP)	-7.0	-5.9	-4.4	-1.3	-0.5	0.2
  Current-account balance (% of GDP)	-5.0	-3.5	-2.5	-0.5	0.6	1.1
  Commercial banks' prime rate (av; %)	7.2	6.9	7.3	7.7	7.9	7.9
  Exchange rate US$:€ (av)	1.28	1.26	1.25	1.24	1.26	1.26
  Exchange rate US$:€ (year-end)	1.29	1.26	1.24	1.26	1.26	1.26
  Exchange rate ¥:€ (av)	101.88	104.31	108.60	110.13	116.13	115.09

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  December 01, 2012

View detailed map

Country Briefing

Land area

131,957 sq km

Population

10.96m (2001 census)

Main cities

Population in 000 (2001 census)

Greater Athens (capital): 3,757

Thessaloniki: 1,047

Patras & district: 334

Larisa & district: 278

Iraklion & district: 294

Climate

Mediterranean

Weather in Athens (altitude 107 metres)

Hottest month, July, 18-41°C; coldest month, January, 0-18°C (1997 data); driest month, July, no rainfall; wettest month, March 164 mm rainfall

Language

Greek

Weights and measures

Metric system

Currency

Euro (€)=100 cents

Time

2 hours ahead of GMT in winter; 3 hours ahead in summer

Public holidays

January 1st; January 6th; March 2nd; March 25th; April 17th; April 19th; April 20th; May 1st; June 7th; June 8th; August 15th; October 28th; December 25th; December 26th

March 23, 2012