GREECE

Inside Kerin Hope on plans to update the country’s tourist industry Page 6

FINANCIAL TIMES SPECIAL REPORT | Friday June 5 2009

www.ft.com/greece­2009

Cradle of democracy is rocked by angry voters Kerin Hope on a sense of dissatisfaction that may see both main parties punished in Sunday’s European elections

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n the land that invented democracy, disillusionment with party politics is running high, for reasons that would seem familiar to many 5th century BC Athenians. There is criticism of clientelism or “jobs for the boys”, allegations of corruption and a sense that ordinary citizens’ concerns have been brushed aside by the political elite. As a consequence, Sunday’s European parliament elections may see an unusually low turn-out by Greek voters. Voters are expected to punish both the governing right-of-centre New Democracy party, led by Costas Karamanlis, the prime minister, and George Papandreou’s PanHellenic Socialist Movement, the main opposition party. The Socialists have an edge going into the election, according to opinion polls, though many leftwing voters could shift to a more radical party. The options include the still-Stalinist communists and the Left Coalition, a rallying point for the “€700 generation” of young graduates with an income of less than €700 a month. Support is also growing for the EcoGreens, the most popular environmental party, who are forecast to beat the parliamentary threshold of 3 per

cent of the vote and win their first ever seat. But many voters fed up with Greece’s dynastic politics – a system that has resulted in a politician with the surname of “Karamanlis” or “Papandreou” heading one of the two mainstream parties for the past 50 years – are likely to show dissatisfaction by staying away from the poll. The conservatives will lose a sizeable number of votes to Laos, a farright party led by a former New Democracy deputy, and a few to Chryssi Avghi, a rightwing extremist group that has raised its profile by running for the European parliament. Last month members of Chryssi Avghi attacked a derelict court building in central Athens where immigrants from Afghanistan and north Africa have been living for months in squalid conditions. Human rights activists criticised the police for failing to intervene. Mr Karamanlis has not lived up to his pledge when he came to power in 2004 to end corruption and “re-invent the state” as a driver of social and economic reform. The social unrest that erupted last December, causing damage of more than €300m to shops and other property during two weeks of rioting in Athens and other cities, still simmers close to the surface. Two new local extremist groups have emerged in recent months, staging a series of bomb attacks against banks, government offices and police stations. No arrests have been made. A wave of immigration from con-

Muslim immigrants clash with police in Athens last month after a police officer reportedly ripped an Iraqi’s copy of the Koran

flict-hit regions in the Middle East and Afghanistan threatens to overwhelm Greek authorities. Athens last month saw its first Muslim protests, after a police officer reportedly ripped an Iraqi immigrant’s copy of the Koran. An estimated 250,000 migrants have arrived in the past two years, mostly crossing by small boat from Turkey to east Aegean islands that have few resources to cope. The majority move to Athens. Having handed out work and residency permits to about 600,000 immigrants from Albania and other former communist states, Greece already has one of the highest ratios of migrants to local population in the European Union.

Owners get that sinking feeling as crisis takes toll SHIPPING FINANCE

Robert McDonald on turbulent times for the industry and its lenders Greek shipowners have borrowed heavily to finance fleet expansion and renewal, but hundreds of vessels still under construction are rapidly losing value as trading conditions have worsened in the global slowdown. Some owners who can afford to lose deposits amounting to 10-20 per cent of the price are reneging on newbuilding contracts rather than take delivery of a devalued asset. Others who are too highly leveraged to take such a hit are trying to restructure their borrowing, while also seeking to delay deliveries in the hope that freight markets will recover next year. “What we are seeing today is massive cancellations,” says Alexandra Papadopoulou-Soumaki, deputy head of credit and risk at HSBC in Greece. According to brokers, ship values have dropped by an average of 20 per cent and are projected to continue falling. The fallout comes after a prolonged borrowing spree. According to Petrofin Bank Research, an Athens-based analyst, lending to Greek shipowners more than doubled from €32.3bn in 2004 to €73.2bn last year, The global order book doubled over the same period, leaving a large overhang of ships waiting to be delivered, equivalent to 70 per cent of the existing bulker (bulk carrier) fleet, 42 per cent of the container fleet and 30 per cent of tankers. Newbuildings still under construction amount to about one-third of total Greek capacity of 263.6m deadweight tons – the world’s largest fleet, equivalent to 16.2 per cent of global capacity. There have been no Greek bankruptcies so far but

some owners may not survive if the downturn continues into 2011, say local analysts. In previous crises banks have been quick to foreclose, particularly on untested newcomers. This time, however, lenders are being more accommodating in order to protect their balance sheets. Complex loan agreements are being overhauled. Covenants governing ratios of collateral to borrowing and earnings are being temporarily ignored. Repayments of principal are being consigned to “balloons” that in some cases will not become payable until 2019. “Banks cannot take hostile action against owners who cannot meet their payments because that automatically means immediate write-offs which they cannot afford these days,” says Dimitri Anagnostopoulos, shipping adviser to ABN Amro. “They have to buy time and make some orderly restructuring.” In exchange for pushing back principal repayments, banks have raised interest rates and required shipowners to inject fresh capital into their companies, either through ship sales or out of their personal assets. For five years, until mid-2008, owners enjoyed an unprecedented boom as trade expanded with Brazil, Russia, India and China and freight rates rose to record levels. Greek owners rushed to order more ships in Asian

yards – often greenfield sites in China being developed with owners’ downpayments – with delivery dates as far away as 2013. The surge in orders drove the price of newbuildings to record levels. Some owners made speculative orders, intending to re-sell ships as the market rose while they were still in the yard. But as the credit crunch took hold, freight rates plummeted. The Baltic Dry Index, an industry benchmark, plunged 94 per cent between May and December

A large increase in Chinese­owned tonnage would have an adverse impact on Greece’s shipping industry 2008, while the tanker index fell 40 per cent. This year the dry sector has seen a partial recovery, as China has begun to restore depleted supplies of iron ore and other commodities. But the tanker index has continued to fall. Last month it was 80 per cent down from the highs of last July. Mrs Papadopoulou-Soumaki says that if yards show any signs of not being able to meet delivery dates, owners jump to cancel without incurring any charges. But even when yards comply there are cancellations: “If owners still have huge

Choppy waters: fallout follows a prolonged borrowing spree

amounts to pay out, they might be willing to take the loss.” HSBC Shipping Services said in a recent report that around 60 per cent of tonnage scheduled for delivery in 2010 and 2011 might not be delivered at all. “We are counting on these cancellations to balance the supply-demand situation,” says Mrs Papadopoulou-Soumaki. However, Chinese stateowned shipping companies are being encouraged by the government to take over orders cancelled by foreign buyers. Chinese owners are also buying up dry bulk tonnage at cheap prices, according to brokers. In the longer-term a large increase in Chinese-owned tonnage would have an adverse impact on Greece’s shipping industry, which carried a high percentage of Chinese imports during the boom years. “Greeks don’t have enough cargoes to justify the large size of their fleet,” says Mr Anagnostopoulos. “Asian countries and particularly China have a huge population and a huge volume of imports and exports. “China would prefer to have its own ships rather than paying foreigners very high freight rates when markets move up again. In the next round of a good market China will be selfsufficient, with its own fleet.” Selling ships in a distressed market only compounds problems as markto-market policies governing ship portfolios put further pressure on collateral to debt covenants. For the time being, banks are looking the other way. But there are questions about whether shipowners have the personal resources with which to shore up the ratios. “Shipowners have not only lost in terms of the value of their collateral, but they also face lower freight rates, and if the cash they have accumulated in good markets has been invested in shares and bonds, these have lost value as well,” Mr Anagnostopoulos says.

Few of the current wave of immigrants have been granted asylum or allowed to work. The Council of Europe’s senior human rights official last January criticised Greece for not doing enough for new arrivals. “The government does not have an immigration policy,” says Mr Papandreou. With the economy growing at an average of 4 per cent yearly and plenty of unskilled jobs available for immigrants, it was relatively easy for the government to brush social issues aside. But as recession looms, the official jobless rate has edged up from 7.6 per cent to 9.7 per cent of the workforce in the past six months. Continued on Page 4

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Inside this issue Economy The global crisis has laid bare weaknesses, writes Kerin Hope, but the government still insists growth will be positive this year Page 2

Energy The chief executive of state­owned gas supplier Depa is interviewed by Robert McDonald and Kerin Hope Page 5

Opinion Greece has turned things round repeatedly in the past and can do it again, writes George Pagoulatos Page 2

Culture Can the new Acropolis museum (below) revive interest in Greece’s classical heritage? Page 6

Who’s Who Profiles of big names in business, politics and culture Page 3 Banking The global slowdown has put cost cuts and consolidation on the agenda, says Dimitris Kontogiannis Page 4

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FINANCIAL TIMES FRIDAY JUNE 5 2009

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Greece

Structural weaknesses exposed by global crisis ECONOMY

Only the government is predicting positive – if reduced – growth this year, writes Kerin Hope

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fter a decade of sustained growth that brought Greece close to convergence with its eurozone partners, the global crisis has laid bare enduring weaknesses in the economy. The European Commission, the country’s central bank and the International Monetary Fund all predict that Greece will fall into recession this year with growth shrinking by 1 or 2 per cent. But the government still insists growth will be positive, though it has cut the official forecast from 1.1 per cent to 0.5 per cent of gross domestic product. “We’re not as pessimistic [as the Fund], we don’t believe it will be that bad,” says Yiannis Papathanassiou, finance minister.

Contributors Kerin Hope FT Athens Correspondent Robert McDonald FT Contributor Dimitris Kontogiannis FT Contributor Andrew Baxter Commissioning Editor Steven Bird Designer Andy Mears Picture Editor For advertising details, contact: Sotiria Kontouli +302107240160 s.kontouli@ actionprgroup.com

Yet the index of business confidence is just above a record low. Greek manufacturers have shut down subsidiaries in south-east Europe. Hoteliers slashed prices after a disastrous start to the tourist season. Construction, a driving force during the boom years, is slumping, with a large backlog of unsold new homes in the Attica district around the capital. The figures are different but Greece still faces a slowdown comparable with western Europe, says Ben May of Capital Economics in London: “If you’re used to growing at 4 per cent and go to minus two, it’s same as going from 2 per cent to minus four.” But unlike its European partners, Greece had to rule out a fiscal stimulus package because of its high budget deficit, and a swollen public debt that is set to rise above 100 per cent of GDP this year. The two exceptions have been a €600m package for farmers who blocked the main roads to central Europe last January to protest against low crop prices, and an accelerated disbursement of €1.3bn in EU structural assistance for small and medium-sized businesses, approved by the Commission. This is intended to relieve pressure on cash-strapped companies unable to borrow from banks because of the credit crunch. Greece has already covered this year’s €50bn debt-financing requirement, including a €8bn cushion to cover unexpected demands. Spreads over German bunds have narrowed from January’s record levels, following a rating downgrade by Standard & Poor’s, as market confidence recovered. Athens-based banks, which escaped exposure to toxic assets, have been the biggest buyers this year of Greek government bonds. Banks have used them as collateral to borrow at low interest rates from the European Central Bank and meet local funding needs. But Greece’s high debt to GDP ratio – second only to Italy’s

in the euro area – along with a low credit rating compared with its west European partners, is a reminder that the country cannot afford further slippage. Greece is back in the Commission’s special monitoring programme for eurozone members with budget deficits above 3 per cent of GDP. After a first-quarter collapse in revenues, reducing the deficit this year from 5.0 per cent to 3.7 per cent of GDP, the EU-approved target, will be hard to achieve. “The fact that you’ve seen quite heavy fiscal deficits over recent years, although the economy has been growing fast, suggests there’s a big structural deficit,” Mr May says. The Fund warned last month that if nothing were done, the

Wages for higher­paid civil servants have already been frozen. Fresh tax increases are likely to be announced this month budget deficit would reach 6 per cent of GDP this year and 7 per cent in 2010. Mr Papathanassiou says he is confident that additional revenue-raising measures, along with structural reforms to reduce spending, will keep Greece on track to bring the deficit below the eurozone ceiling in 2010. “We’re not going to ask the Commission for an extension,” he says “We have to put order in the public finances and demonstrate that we can reach the (3 per cent of GDP) target.” Wages for higher-paid civil servants have already been frozen. Fresh tax increases are likely to be announced later this month. A crackdown on tax evasion is under way. Revenue officials who fail to meet targets face demotion. The financial police is out in force to reduce VAT evasion by small businesses. Electronic

cross-checking of companies’ invoices and receipts is being stepped up. Permanent spending cuts projected to result in savings of around 2 per cent of GDP are being launched, Mr Papathanassiou says. By next year, more than 250 out of 600 state entities will be abolished or merged with larger units, with employees being shifted to other public sector jobs. State hospitals, local government bodies and social security funds will have to produce balance sheets in accordance with international accounting standards. A new system for purchases of hospital equipment and distribution of pharmaceuticals is being designed with the aim of eliminating wasteful spending. Such reforms are long overdue, but have been opposed by publicsector unions that wield strong political clout. Greece spends the equivalent of 7 per cent of GDP annually on public administration compared with an EU average of around 3 per cent, according to the Parisbased Organisation for Economic Co-operation and Development. “Whether it’s taxes or spending there are huge leakages in the system that have to be plugged,” says Yannis Stournaras, an Athens university economics professor and head of IOVE, a private sector thinktank. “If the state is made more efficient, that in itself can be a catalyst for returning to strong growth rates,” Prof Stournaras says. Another priority for the government is to implement the EU directive on liberalising services, which is due to be approved by parliament during its summer session. This would mean the gradual liberalisation of “closed” occupations, from licences for truckers to appointments of notaries public – a measure that would add another 1 per cent to annual GDP, according to the OECD.

Boom to bust: a building under construction in Athens

Reuters

It’s time for the Greeks to turn things round – again Opinion GEORGE PAGOULATOS In an ironically symbolic picture from last December’s riots in Athens, the poster of Greece’s National Tourism Organisation appeared behind a shattered window, featuring the slogan: “Greece: The True Experience!” Five years ago, with euphoria over Greece’s entry to the eurozone still fresh, urban infrastructure expanding, a galloping growth rate and a new-found pride from the successful hosting of the 2004 Olympics, Greeks were living their True Experience. This modern-day Greek dream is now crumbling, and it is not just because of the global financial crisis. Relatively speaking, the impact of the crisis on Greece has been less harsh, as it has been cushioned by the limited openness of the economy. Annual growth in gross domestic product averaged 2.9 per cent in 2008; it is projected to be stagnant or marginally negative for 2009. Apart from the financial system, the crisis has particularly affected sectors that mostly relied on bank credit: construction and the housing sector – important growth engines in recent years – and the shipping industry. It is also taking a toll on tourism, export manufacturing, and imports of capital goods and consumer durables. Credit has tightened, consumption has slowed down, and business investment has declined. The government has sought to finance public investment by using advance payments of European Union funds. Yet Greece’s main economic problem is not an outcome of the crisis but of complacency during the prolonged boom that preceded it.

Over the last decade, average growth in gross domestic product approached 4 per cent, and the official unemployment rate declined from 12 per cent in 1999 to 7.6 per cent in 2008. The euro eliminated foreign exchange risk, allowed low interest rates, accelerated credit expansion and increased capital inflows. For years, domestic demand grew faster than supply, sustaining an inflation rate higher than the eurozone average, and a growing external indebtedness of both the public and private sector. This imbalance is demonstrated in a current account deficit of as much as 13-14 per cent of GDP. The second major imbalance is fiscal. The budget deficit rose to 5 per cent of GDP in 2008, activating the European Commission’s excessive deficit procedure. However, Greece’s fiscal problem is structural – not merely cyclical. At 97.6 per cent in 2008, the Greek public debt-to-GDP ratio is the second highest in the European Union and rising. Governments failed to take advantage of the good times to put the public finances in order. Reducing the debt-to-GDP ratio towards the 60 per cent Maastricht reference level within the next decade will require primary surpluses of 4-5 per cent of GDP. Fiscal consolidation means tackling tax and social security evasion, adopting fiscal discipline throughout government, ending preferential treatment for the governing party’s supporters in the form of public sector appointments or contracts, and curtailing the large defence budget, preferably through a mutual moratorium with Turkey. Fiscal sustainability is further aggravated by rising pension costs. A limited reform in 2008 focused on unifying the

system’s numerous pension funds. Without further reforms, pension costs are projected to reach 19 per cent of GDP by 2050, one of the highest in the EU. Several structural weaknesses underlie Greece’s twin problem of external deficit and public debt. Despite some progress in the run-up to eurozone entry, competitiveness has declined again, largely as a result of inflation rates that have been persistently higher than the eurozone average. Higher corporate profit margins have been a major cause of inflation, indicating that better enforcement of market competition is needed. A number of important

‘It is clear that the ‘convergence model’ has exhausted its limits’ George Pagoulatos reforms are incomplete: reducing red tape that impedes entrepreneurship; liberalising closed shops; encouraging people to start working earlier and retire later; improving the effectiveness of social protection spending; reforming education. Universities are being suffocated by over-regulation and student militancy. Greece posts high rates of youth unemployment, long-term unemployment and female unemployment. Its employment rates are among the lowest in the eurozone, reflecting a longer stay in education (for the young), inadequate social care or employment flexibility (for women) and higher rates of early retirement (for women and older employees).

Combined with demographic ageing, this means that Greece could in the future have one of the highest dependency ratios of retired to active population. It is clear that the “convergence model”, which took Greece to the euro and allowed per capita income to catch up with the EU average, has exhausted its limits. It should be replaced by a more extrovert, competitiveness-oriented model, based on strengthening the productive base and productivity through investment and structural reforms. The national saving rate (public and private) must rise; exports and competitiveness have to converge to eurozone levels. Greece has turned things around repeatedly in the past, switching from “success story” to “problem case” and back again. Over the past 50 years, the country has posted the second-highest average economic growth in the EU-15. After losing ground in the 1980s it became a growth champion once again from the mid-1990s. A once-destitute Mediterranean economy has raised per capita GDP to 90 per cent of the eurozone average. Greece has a comparative advantage in services, especially tourism and shipping. Leaders in south-east Europe, Greek banks remain profitable and well-capitalised by current EU standards. The country can develop into a regional business centre and energy hub. Greece’s geography and climate could attract retiring baby boomers, creating investment opportunities in health and other services. Provided it can summon up the will to reform, Greece can turn itself around once again. George Pagoulatos is associate professor at the Athens University of Economics and Business

FINANCIAL TIMES FRIDAY JUNE 5 2009

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Greece

Big names in politics, business and culture WHO’S WHO

Kerin Hope profiles six of the country’s leading personalities across a spectrum of activities Costas Hatzidakis Costas Hatzidakis, a lawyer from Crete, spent 12 years in the European parliament before returning to Greece in 2007 to run in a national election with the right-of-centre New Democracy party. Seen as a technocrat, he was appointed transport minister with the thankless task of privatising Olympic Airlines. Against the odds, Mr Hatzidakis reached a deal with the European Commission on repayment of illegal state aid, persuaded militant unions to accept redundancies and found a local buyer. He was promoted to development minister following a cabinet reshuffle in January with a brief to overhaul Greece’s competition committee, in disrepute after a bribery scandal. He is also involved in pipeline politics – negotiating a role for Greece in South Stream, the new Russian natural gas pipeline, while finalising a deal to buy gas from Azerbaijan that would be shipped through Turkey to Greece and Italy.

Lavrentis Lavrentiadis Lavrentis Lavrentiadis, 37, put himself through university, studying for a first degree in accounting and finance, followed by a distance-learning PhD in marketing, while working almost full-time to rescue a struggling family business. A self-styled outsider, he chose to invest in industrial chemicals, gradually consolidating a number of producers in Greece and neighbouring Balkan countries into the Neochimiki group, which was sold to Carlyle, the private equity group, two years ago. Mr Lavrentiadis has been following a similar strategy in pharmaceuticals and veterinary products, acquiring smaller local manufacturers and distributors under the umbrella of a new company, Alapis, which is listed on the Athens stock exchange. He has also started to invest in local media. But his latest project, setting up a €4bn private equity fund to invest in Greece and southeast Europe, is on hold because of the global slowdown.

Epidavros. The festival is participating this year in the “Bridge Project” sponsored by Bank of America, which links theatres in New York and London, through a production of Shakespeare’s “The Winter’s Tale” by the UK’s National Theatre, to be played at Epidavros in August.

Giorgos Loukos

George Papaconstantinou

Since Giorgos Loukos took over as director of the annual Athens festival, the country’s showcase arts event, audiences have soared and international artists have flocked to perform at the ancient theatres of Herod Atticus in Athens and Epidavros in southern Greece. Mr Loukos, 59, a former artistic director of the Lyon Opera Ballet and the Cannes Biennale, divides his time between Athens and Paris. He says the key to success was adding contemporary theatre and dance to the festival’s traditional mix, inspired by the late Maria Callas, of classical music and Greek theatre. Troupes from almost 20 countries will perform this summer. Mr Loukos has opened several new festival venues in disused factories in central Athens and overcome local opposition to bringing foreign companies to stage modern plays at

A member of a northern Greek political family, George Papaconstantinou heads the opposition PanHellenic Socialist Movement’s list of candidates for the European parliament elections – although he is tipped to return to a cabinet job if Pasok wins the next general election. After earning a PhD in the economics of technology at the London School of Economics, he worked at the Paris-based Organisation for Co-operation and Development. He returned to Greece as a government adviser on the information society, overseeing an EU-funded programme for introducing computers to Greek schools, and co-ordinating strategy for the EU’s Lisbon agenda of social and economic reform. As spokesman for Pasok for the past two years, the soft-spoken Mr Papaconstantinou has tried to refocus the Greek political

Big wheels: top row (left to right): George Papaconstantinou, Andreas Vgenopoulos, Costas Hatzidakis; bottom row: Lavrentis Lavrentiadis, Michalis Tremopoulos, Giorgos Loukos

debate on issues rather than personalities.

Michalis Tremopoulos Michalis Tremopoulos, a journalist and writer based in Thessaloniki, has promoted green issues as a member of local and regional government in northern Greece and through consumer protection groups. As a member of the collective leadership of the EcoGreens, the country’s largest green party, he heads its list of candidates for the European elections. Mr Tremopoulos is poised to become the first Greek “green” to win a parliamentary seat, according to opinion polls. Younger voters are turning to the green movement amid dissatisfaction with the two big parties’ record on protecting the environment. Concerns focus on the long-term impact of industrial pollution, the revival of a major project to divert a river in central Greece and fears that new planning regulations will result in the over-development of more coastal areas.

Andreas Vgenopoulos A shipping lawyer turned financier, Andreas Vgenopoulos, 53, has become a catalyst for change in Greece’s corporate sector through

GREECE Area: 131,960 sq km Language: Greek Currency: Euro (€)

Xanthi MAC ED ONIA

Exchange rate: 2008 average $1= €1.47 Latest $1= €1.4

ALBANIA

Kavalla

TURKEY TH RAC E Alexandroupolis

Thasos

Florina Thessaloniki Katerini

Yannina

Population: 11.2m (2007 estimate) Main cities & population (2001) 3.7m Athens 1.0m Thessaloniki 0.3m Patra

Corfu

Lemnos

Larisa

GREECE

Volos

Lesbos

Lamia

Preveza

Agrinion

Cephalonia

Chalcis Euboea

Zante

Legal system Based on the constitution of 1975

Samos Pirgos Tripolis

Cyclades

Kalamata I on i an Sea

Mirtoa n Sea

ca ne se

National elections Sep 16 2007 (legislative). February 2005 (presidential). The next legislative election is due by September 2011; the next presidential election by March 2010

Rhodes

Sea of C rete Scarpanto Canea

Crete

Heraklion 150 km

Electoral system Universal direct suffrage over the age of 18 years 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 the support of parliament. A New Democracy government was elected on September 16 2007, with Costas Karamanlis as prime minister

Main trading partners (share of total trade to world 2008) Italy Germany Bulgaria China Cyprus Netherlands

Exports Imports

Economic summary Total GDP (€bn) Total GDP($bn) Real GDP Growth (annual % change) GDP per Head ($ PPP) Inflation (annual % change) Agricultural Output (annual % change) Industrial Production (annual % change) Services Production (annual % change) Domestic credit growth (annual % change) Unemployment (%) Budget Balance (% of GDP) Current Account Balance($bn) Exports of Goods (fob)($bn) Imports of Goods (fob)($bn) Trade Balance($bn)

6

9

12

2008* 2009** 243 261 357 345 2.9 -3.1 30,907 30,144 4.2 0.4 0.4 0.4 3.2 3.2 3.0 -5.0 -5.6 4.0 7.7 8.9 -5.2 -5.9 -51.5 -30.4 29.1 20.2 93.9 60.3 -64.8 -40.2 * estimate

Sovereign credit rating Standard & Poor’s A-

3

Chios

Athens

de

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

TURKEY

Do

Head of state President, without executive powers, elected by parliament for a five-year term. The president must be elected by a two-thirds majority or, on the third ballot, by a three-fifths majority. Should this not be possible, parliament is dissolved, an election is held, and the president can be elected by a simple majority of deputies in the new house. Karolos Papoulias was elected on March 12 2005

Piraeus

Patra

Official name Hellenic Republic

Mitilini

Aegea n Sea

Skiros

Constitution

0

Bla ck Sea

BULGARIA

MACEDONIA

Moody’s A1

** forecast

Fitch IBCA A

Sources: Economist Intelligence Unit; IMF; Datastream

Marfin Investment Group, the investment holding company he founded in which Dubai Financial, an investment vehicle of the Gulf state, is the biggest shareholder. Last year MIG brought about Greece’s first big strategic privatisation by selling its 20 per cent stake in Hellenic Telecom, the state-controlled

operator, to Deutsche Telekom, which also took over management. In another landmark deal, MIG bought Olympic Airlines, the loss-making state carrier, after an international tender collapsed. Mr Vgenopoulos now has Greece’s banking sector in his sights; in a controversial reverse takeover,

Cyprus-based Marfin Popular Bank will be absorbed by its Greek subsidiary. Mr Vgenopoulos, who enjoys a reputation for abrasiveness, ruffled feathers on Cyprus last month when he told shareholders at MPB’s annual general meeting last month that the island is governed by a “gerontocracy”.

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FINANCIAL TIMES FRIDAY JUNE 5 2009

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Greece

Taking more account of efficiency BANKING

Cost cuts and consolidation are on the agenda, writes Dimitris Kontogiannis

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he global slowdown has forced Greek banks to focus on cost-cutting ahead of an expected round of bank consolidation. For much of the past decade, banks relied on high economic growth rates in Greece and other south-east European countries – fuelled to a large extent by a credit boom – to produce returns on equity above 20 per cent annually. A sharp fall in interest rates following Greece’s entry into the eurozone in 2001, low household indebtedness, an underbanked market and steady growth in personal incomes all contributed to the banks’ glowing financial results. However, the global financial crisis has exposed Greece’s fiscal vulnerability. Measures to slash the budget deficit are likely to weigh on future economic growth – and, therefore, loan growth – as banking assets tend to rise in tandem with nominal growth in gross domestic product in the longer-term. “The Greek banks cannot afford to be oblivious to the new landscape characterised by less leverage, lower margins and – especially – much lower loan growth rates. They have to become leaner, so cost control is a must,” says Anthimos Thomopoulos, chief financial officer at National Bank of Greece, the country’s biggest lender. “The deficit in growth has to be financed by a greater degree of efficiency and may take the form of mergers at a later stage – driven by self-preservation,” he adds. But cost-cutting is hard because of inflexible labour

Focusing on costs: Piraeus Bank, along with National Bank of Greece and Alpha Bank, have signalled operating expenses will be flat this year

laws and strong union opposition to reducing overheads. Nick Karamouzis, deputy chief executive officer at Eurobank EFG, says “past excesses in banking infrastructure, including branches” will have to be addressed. “When a banking machine set up to process daily thousands of applications for new loans takes fewer because growth has slowed, it will have to adjust to the new reality,” says Mr Karamouzis. Eurobank EFG is expected to cut operating expenses by 5 per cent this year. National, along with Piraeus Bank and Alpha Bank, the other two large

Several banks are making plans to raise fresh capital as soon as market conditions permit

lenders, have signalled they will be flat. Non-performing loans in large banks are expected to peak in the first half of 2010, after rising from about 3.8 per cent in 2008 to as high as 6 per cent this year. To help weather the crisis, banks are making use of a €28bn government support package to boost their liquidity and capital strength. They have received capital injections of some €3.83bn out of €5bn made available to boost their capital adequacy ratio and help withstand losses from bad loans and investments in Greece and abroad. The state has bought preferred shares, paying 10 per cent annual interest, in

exchange for providing fiveyear floating-rate bonds. In return, the state has appointed a commissioner to the banks’ boards with power to veto decisions on executive pay and distribution of earnings. The banks have also borrowed more than €4.4bn from the European Central Bank, using as collateral zero coupon bonds provided by the government as part of the rescue plan. On the other hand, they have made limited use of a state guarantee for new debt issued before the end of 2009 with maturities ranging from three months to five years, because the cost of funding is seen as high. Greek banks have grown more cautious about lending in south-east Europe, where their subsidiaries had an estimated market share last year of around 16 per cent, amid concerns about the region’s economic stability. Generous funding from the European Union and multilateral institutions has boosted liquidity across the region, but uncertainty remains, partly because risk management systems put in place by Greek banks have still to be tested. At the end of last year Eurobank EFG’s exposure abroad stood at 23 per cent of its loan book followed by Piraeus Bank with 19 per cent and National and

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Alpha Bank with 13 per cent each. But if Turkey is included, National’s exposure outside Greece reached 30 per cent of total lending at the end of 2008. Consolidation will not be immediate, says Mr Karamouzis. “This is an era of slower loan volume growth and stricter regulation so I would expect the banks to work on tackling their problems individually in the next few quarters,” he says. One deterrent is an unpredictable economic environment, both in Greece and the surrounding region. Another is the political situation, which matters because the state still has a sizeable equity stake in three banks, and a strong government is needed to approve the emergence of a significantly bigger lender, adds Mr Karamouzis. Some bankers think the state’s new involvement in the sector as a shareholder is likely to damp merger and acquisition activity. On the other hand, several banks are making plans to raise fresh capital as soon as market conditions permit, so that they can refund the state and recover their independence. But with four large lenders and another four smaller players in a country with 11m residents, mergers and takeovers are likely to happen sooner rather than later.

Going mobile Velti builds global footprint for clients’ campaigns It takes determination to sustain a high­technology start­up in Greece, where the government has been slow to update labour and tax regulations and offers few incentives for entrepreneurs. Yet Alex Moukas, a software scientist with a master’s degree from the Massachusetts Institute of Technology, whose previous company was bought by SAP, the world’s largest maker of business software, decided there was enough talent at home to justify the risk. While senior executives at Velti, the Athens­based mobile marketer Mr Moukas co­founded with Christos Kaskavelis, another former expatriate, have studied and worked abroad, many new employees are IT graduates straight from local universities. “There are a lot of smart people here plus other advantages – a reasonable cost of living and the availability of European Union funding,” Mr Moukas says. However, about 90 per cent of Velti’s business comes from abroad. “Many of our clients are multinationals so we’ve developed a global footprint,” Mr Moukas says. Velti opened offices last year in New Delhi, Shanghai, San Francisco and Moscow to support local clients. Velti handles mobile advertising campaigns in more than 30 countries. It works with leading operators, among them Vodafone, Wind, Orange and MTS, which controls Russia’s biggest network. In a fragmented marketplace, it has become a leading force thanks to a proprietary marketing platform that handles the planning, execution and monitoring of multiple level campaigns across different mobile formats and channels. The latest version of the platform offers 70 “templates” that businesses seeking to cut costs can use for mobile marketing campaigns. Customers also make savings under a software­as­a­service arrangement, or a revenue­sharing deal for a campaign run by Velti, rather than licensing and hosting the platform themselves. “This is a new market that moves fast and there aren’t so many businesses with resources to buy a software platform,” Mr Moukas says. Despite its potential mobile advertising has been slow to take off, partly because usage is still low compared with the fixed internet. But increasing

Moukas: innovation is key

numbers of advertisers are including mobile in their media mix. Simple campaigns using SMS messaging to run competitions or offer product discounts to subscribers have proved effective, Mr Moukas says. He says the sector is poised for rapid growth, regardless of the global slowdown: “We’re less affected by recession because we’re able to run highly targeted campaigns with immediately measurable results.” According to industry forecasts, the global market is set to grow from around $4bn last year to almost $20bn by 2012. By then mobile subscriptions are expected to reach almost 4bn, covering just over half the world’s population. Velti claims a bigger reach than its competitors thanks to a joint venture with Interpublic, a leading holding group of international advertising agencies. Recent projects included building a mobile community for Johnson & Johnson, the healthcare manufacturer; promoting content sponsored by Vodafone Live! for Disney, the entertainment group; running an SMS contest for cash prizes for MTS, and a campaign for Argos, the UK retailer, allowing consumers to check prices and reserve items using SMS texts. “Innovation is key,” Mr Moukas says. As well as spending heavily on research and development, Velti has started to consolidate its position by acquiring smaller competitors using cutting­edge technologies. Last month it bought AdInfuse, a San Francisco­based mobile advertising company with 30 employees. It specialises in collecting customer data in order to target specific user­groups. It helps that Velti, which is listed on London’s Aim market, has managed to maintain debt at low levels, Mr Moukas says. The company’s revenues increased 164 per cent last year to €52.5m, with pre­tax income up 58 per cent to €7.8m.

Kerin Hope

Cradle of democracy rocked by voters Continued from Page 1

Unemployment among women and new entrants to the workforce is in the high double-digits. Jobs are especially scarce for young Greek high-fliers with degrees from abroad. “There used to be opportunities in Spain, France and Dubai if you couldn’t find a job with a local company, but those are much fewer this year,” says Ilias Papadakis, a UK-trained electronics specialist. Greece has been partly sheltered from the impact of global downturn because its economy is based on services, not manufacturing. But that also means it may take longer to recover than its eurozone partners and face several years of weak growth. Transfers from the EU’s structural funds that have transformed the country’s infrastructure over the past two decades will slow sharply after the present €20bn package ends in 2013. Inflows of foreign direct investment are low compared with central Europe, in spite of Greek aspirations to become a base for international companies doing business in the Balkans. Yet investor interest has picked up especially in the energy sector, says Dimitrios Pazaitis, chief executive of the national investment agency. “There are opportunities to be found in a downturn,” he says. The government’s critics say reforms of labour markets, education and the state pension system have been half-hearted and that mor e r a d i c a l s t e p s a r e

needed if Greece is to compete effectively in Europe once the downturn ends. But the conservatives’ embattled position – halfway through their second term they have only a twoseat majority in parliament – puts constraints on policymaking. Foreign policy has been put on the back burner as Mr Karamanlis focuses his attention on domestic politics. Greek efforts to bring its western Balkan neighbours closer to Europe have faltered. Greece has failed to recognise Kosovo’s independence on the grounds it sets a precedent for a permanent division of Cyprus. The dispute with Macedonia over its use of an ancient Greek name still festers. Greece’s veto of Macedonian membership of Nato has affected its rela-

tions with the US as well as producing angry reaction in Skopje. Relations with Turkey are also cooler, over Ankara’s continued refusal to recognise Cyprus, although bilateral trade and investment continue to make gains. While Mr Karamanlis’s leadership is not under threat, his party’s credibility is at a low ebb. A series of financial scandals, from a fraudulent land swap involving property belonging to a monastery on Mount Athos to sales of structured bonds at inflated prices to state-controlled pension funds, have highlighted a disturbing lack of accountability in the political system. A judicial investigation revealed that several deputy ministers were involved in the land swap, but the case is not expected to come

Costas Karamanlis: party’s credibility at a low ebb

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to court because parliament failed to vote in favour of lifting their immunity. When the government shut down parliament without warning for the European election campaign, a week earlier than expected, the Socialists said the move was made to halt further investigations of scandals. Whatever the outcome of Sunday’s vote, several of Greece’s new European parliament members will be prepared for only a short stay in Strasbourg. Both main parties are gearing up for a general election next spring, when parliament is due to elect a president. Talented eurodeputies are usually among the first to be offered cabinet posts. A consensus would be needed to re-elect the incumbent, Carolos Papoulias, a Socialist former foreign minister, or another candidate, by the required three-fifths majority. Otherwise a general election takes place, with the new parliament empowered to elect the head of state – a ceremonial post – on a simple majority. Provided the Socialists have a convincing lead in opinion polls, and that there are signs of economic recovery later in 2010, Mr Papandreou will come under pressure from his party to bring the government down. But having lost two elections already, Mr Papandreou, a former foreign minister, needs to be quite certain of victory – or he will be looking for a job outside Greek politics.

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Greece

LNG set to play key complementary role ENERGY

Robert McDonald and Kerin Hope interview the chief executive of Depa

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reece has adopted a new strategy to advance its goal of becoming a regional energy hub, according to Makis Papageorgiou, chairman and chief executive of Depa, the state-owned gas supplier. With delays expected in securing long-term supplies of natural gas delivered by pipeline, Depa plans to develop liquefied natural gas terminals as a mediumterm alternative, Mr Papageorgiou says. “The pipelines are necessary, definitely. But the complementary solution to the problem is LNG,” he says. Greece wants to create a pipeline network that would make it a trans-shipment hub for its European Union partners in southern Europe as well as aspiring member-states in the western Balkans. Depa is currently only a domestic supplier. It has a long-term contract to import 2.8bn cu metres of gas annually from Gazprom of Russia through a pipeline

from Bulgaria. It buys another 0.75bcm annually from Botas, Turkey’s state gas supplier, delivered through a separate crossborder pipeline from western Anatolia. Another 0.6 – 0.8bcm of LNG annually is supplied by Sonatrach of Algeria and stored on the uninhabited islet of Revythousa, close to Athens. Depa plans to increase imports to 12bcm yearly through Turkey, the pipeline’s full capacity. It would ship 8bcm annually to Italy through a pipeline beneath the Adriatic, providing an alternative source of supply for the European Union, and retain 3bcm for local use or export to the west Balkans. The remaining 1bcm would be allotted for third-party access. Depa and Italy’s Edison group have formed a joint venture, Poseidon, to construct the 200km seabed pipeline, while the Greek group’s network operator, Desfa, will build a 260km extension across northern Greece from the Turkish interconnector. But the Greek-Italian project may be held up because of delays in the current development phase at Azerbaijan’s Shah Deniz field in the Caspian, and in reaching transit agreements with Turkey.

“Negotiations about transit fees are still going on between the Azeris and the Turks,” Mr Papageorgiou says. “In order to have a final agreement with Socar [the Azeri state gas supplier] we need to have the transit arrangement.” Depa is already expanding the Revythousa terminal to supply 5bcm a year. It plans to build a similarsized facility near the north Aegean port of Kavalla. A third terminal is under consideration, which would be

‘Since our goal is to have an energy hub here, the big projects have to be international’ built at Astakos, an industrial port in western Greece. Mr Papageorgiou says Depa expects to sign a deal this month with RasGas of Qatar to purchase LNG on the spot market. It already has similar agreements to buy spot cargoes from Gaz de France, British Gas, and ENI of Italy. Qatar has been mentioned as a possible partner for the Astakos project. Greece’s LNG terminal proved its usefulness last January, when Depa briefly

exported gas from Revythousa to Bulgaria, which lost more than 90 per cent of its gas supply when Russia cut off exports through Ukraine. Edison and other European energy companies, which have joint ventures with local companies to construct private, gas-fired power generating units in Greece, have shown interest in the €600m Kavalla project, which would take five years to build. “There’s a big new market here in south-east Europe – Bulgaria, Skopje [Macedonia], Montenegro, Albania. We could also trade LNG,” Mr Papageorgiou says. Greece last month joined Serbia and Bulgaria in signing up to Russia’s South Stream project to ship up to 60bcm annually of gas by pipeline beneath the Black Sea to a Bulgarian port. But South Stream is still at an early stage, Mr Papageorgiou says. In the meantime, Depa is committed to seeking international partners for the Kavalla terminal. “Since our goal is to have an energy hub here, the big projects have to be international, contributing to the diversification of sources and routes as urged by the European Union,” says Mr Papageorgiou.

Depa is expanding the terminal on the uninhabited islet of Revythousa, close to Athens.

Resorting to legal battle: £800m project in unholy delay after 15 years – in spite of abbot’s blessing Ask Abbot Philotheos of Toplou monastery why Crete’s first integrated resort project is still on hold after 15 years, and he responds without hesitating, “Unfortunately, there are vested interests involved.” The abbot manages Toplou’s 6,500­acre landholding at Cavo Sidero in north­east Crete – including sandy beaches, archaeological sites and a unique palm forest – on behalf of a local charitable foundation set up to develop the area in a sustainable way. But Loyalward, a UK investor

group that won an international tender to develop Cavo Sidero, held by the foundation in 1994, is still waiting to break ground on the £800m project. “Over the years members of the local community have become firm backers of the project because they understand it will provide jobs and stop unregulated tourist development,” the abbot says. “But that hasn’t prevented outsiders from waging a legal campaign against us.” The Council of State, Greece’s highest legal body, will decide later this year whether the

project can go ahead, following an appeal by Cretan environmental groups backed by Syriza, a leftwing political party. Alecos Alavanos, Syriza’s leader, has condemned the project, saying: “The church should be dealing with the souls of citizens, not getting involved in real estate deals.” Previous court cases brought by opponents of the project concerned the foundation’s title to Cavo Sidero and an accusation against its board of breach of faith and receiving bribes. The cases were dismissed

by higher legal authorities. Loyalward was renamed Minoan Group, then listed on London’s Aim market in 2007 after its environmental impact study, which cost more than £3m and took three years to prepare, was approved by six government ministries. The group waited almost two years for the council of state hearing to take place after being postponed three times. “We’re confident the project complies with the highest environmental standards,” says Christopher Egleton, Minoan’s

Second­home market needs a new lease of life PROPERTY

Moves to reduce planning delays are under way, writes Dimitris Kontogiannis Greece has long been a leading tourist destination in the Mediterranean but has so far failed to use its status to boost its secondhome market, unlike Spain and other south European countries. Greece has an estimated 9 per cent share of Mediterranean tourism. But it sells just a few thousand properties a year to non-residents, mostly from west Europe. About 11m second homes have been sold to nonresidents around the Mediterranean, including 5m units in Spain, according to Nick Giannoulelis, an Athens-based real estate consultant. “If you translate Greece’s market share in tourism in this area to second homes, it should have sold 1m units. Yet less than 100,000 second homes have been sold to foreigners,” he says. Most foreign buyers in Greece are pensioners or people in the last 10 years of their working life who are seeking a sunsoaked home near the sea for their retirement, accord-

ing to real estate agents. Anna Nazou, head of international business at Danos Associates, which has an alliance with BNP Paribas Real Estate, says the second-home market in Greece remains significantly undeveloped compared with Spain, Portugal and Cyprus. In Greece, “second homes have mostly been developed by individuals, families and very rarely by experienced and specialised secondhome developers,” Ms Nazou says. Two big obstacles for developing a second-home market in Greece have been the absence of a uniform planning regime and a lack of large sites to develop sizeable projects – due to fragmented land ownership in many seaside and mountain areas. Although there are no official figures, many current purchases are of disused old houses in villages which are renovated by their new owners using local contractors. “Greece can learn from the mistakes of other countries and create an attractive and safe investment environment for foreign institutional investors when international capital markets recover,” says Panos Mihalos, president of SouthEast Real Estate, formerly DTZ Hellas. But Greece needs to

improve the legal and local planning framework of its real estate market, he adds. For example, foreign buyers find it difficult to understand why the price of the house in the purchase contract is less than the actual price paid – an accepted Greek method of reducing transaction taxes. The value of the house in such contracts is based on the so called “objective value” set administratively by the state and is less than

If Greece takes the necessary steps, ‘the second home market can become a tool for growth’ the commercial price of the property But if Greece takes the necessary steps, “the second home market can become a tool for growth,” Mr Mihalos says. A new planning decree to regulate the second-home market is aimed at streamlining different sets of regulations that apply in different parts of the country. But Mr Giannoulelis says it is too soon for international developers to go ahead with projects on the ground that Greece now has a special planning regime

Retirement dream: a house under construction near Lindos on the island of Rhodes

for tourism. Both hoteliers and environmental groups have criticised the decree, which is likely to undergo modifications after being tested in practice. “There is a risk the council of state [the country’s highest legal entity] may rule a specific planning decree is unconstitutional in some cases,” he says. The decree’s main shortcoming is that it fails to facilitate the development of large second-home projects suitable for nonresidents, especially pensioners, he adds. Instead it provides for implementing such projects only in the context of golf tourism and theme parks, which would also include large hotels. To a large extent, the decree appears tailored to the requirements of hotel owners, facilitating the development of condo hotels and the conversion of existing units into condo hotels provided there is enough space. Ms Nazou says the global slowdown has brought a dramatic fall in sales of second homes. But she is optimistic about the future. “When the environment recovers, Greece will have a fresh opportunity to compete with established second-home markets, assuming the new planning regime can be efficiently and rapidly implemented,” she says.

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executive chairman. “The development footprint covers less than 10 per cent of the site and we’ll allow the present over­grazed landscape to return to its original form.” Minoan plans to build five separate resort villages and a hotel complex beside a desert­style 18­hole golf course for a total of 1,000 beds. “It would be a year­round operation, creating more than 2,000 permanent jobs,” Mr Egleton says. Crete is Greece’s most popular tourist island with more than

3.5m visitors annually. But it offers only a handful of high­end resorts, none of which have a full­size golf course or a wide range of villa accommodation. So far the area around Cavo Sidero has escaped large­scale development for mass tourism because of poor road connections with Heraklion, the main destination for charter flights. This year, a local airport at Siteia is being expanded to handle international flights. Minoan has spent more than £30m to date on preliminary work at Cavo Sidero, including

botanical and archaeological research and community projects, Mr Egleton says. It has funded conservation of the palm forest and helped Abbot Philotheos expand the monastery’s olive oil business and its winery. “We’re not competing for business with other resorts on Crete. We’re offering a product that sets a new benchmark for tourism on the island. That should be beneficial for everyone,” Mr Egleton says.

Kerin Hope

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Greece

Longer­term challenge adds to present woes TOURISM

Kerin Hope on the need for a fresh look at a business model dating from the 1970s

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t was always going to be a tough year for Greek tourism as the “post-Olympics effect”, a three- to fouryear boost in arrivals for the host country of a summer Games, faded out. With British tourists avoiding eurozone destinations because of the weak pound, Germans opting for holidays at home, and Russians cancelling charters of mega-yachts, the global slowdown has added to the sector’s woes. “We’re looking at a fall of 15 to 20 per cent in visitor numbers this year after a poor start to the season,” says George Drakopoulos, general manager of Sete, an industry lobby group. The country’s tourism earnings fell 18 per cent in the first quarter, year on year. Full-year revenues could fall by as much as 25 per cent, according to hoteliers’ associations in Crete and Rhodes, the most popular Greek destinations. Tourism is the country’s most important industry, employing one worker in five and producing annual revenues almost equal to Greece’s total exports of goods. Visitor numbers reached a record 15.1m last year, a 28 per cent increase since the 2004 Athens Olympics. But revenues grew by only 12 per cent over the same period, to €11.6bn. Last year the average tourist spent €770 compared with €880 in 2004, “mainly because the length of a holiday has short-

ened by a day or two”, says Nikiforos Lambrinos, a hotelier in Crete. But visitors are spending less on tavernas and excursions, instead choosing all-inclusive packages – a trend Mr Drakopoulos expects will intensify this summer: “North Europeans will be more careful about spending while on holiday because of the recession.” Bookings for the summer season have picked up, with hoteliers offering discounts of 20-30 per cent for package holidays in a bid to compete with Croatia and Turkey, Greece’s main regional rivals, which have the advantage of being cheaper destinations that are outside the eurozone.

Greece does not yet offer any large­scale integrated resorts operated by an international chain The right-of-centre government, criticised in the past for failing to appreciate the importance of tourism for the economy, has come up with tax breaks for the industry, including a cut in local government tariffs from 2 per cent to 0.3 per cent of annual turnover. “This will make a huge difference to a hotelier’s balance sheet. Even with a 20 per cent fall in turnover, it will be possible for many operators to break even,” Mr Drakopoulos says. The longer-term challenge for Greece is to move up-market, extend the season from the present six months a year, and offer visitors a wider range of products than the familiar mix

of sun and sea with a side trip to a classical ruin or Orthodox monastery. Greece’s tourism model dates from the 1970s, with large beachfront hotels lining popular stretches of coastline. Small inbetween plots are filled with villas and cheap rooms-to-rent. High land prices mean even luxury resorts are cramped for space. However, boutique hotels in less-travelled regions, which are able to attract bookings through the internet, offer a different kind of holiday. Angelos Seferiades, a partner in Kihli, a hotel management consultancy, says that small, high-quality hotels that stay open year-round can contribute to diversifying the tourism product. Kihli is preparing to launch a luxury hotel near Monemvasia in the Peloponnese – a region that attracts comparatively few tourists because it lacks an airport. The property, a restored Byzantine-era mansion set among olive trees and cypresses with a view of the sea, has just under 30 rooms. Its vineyard is being replanted with local grape varieties. “After a four-hour drive from Athens a high standard of comfort and service really matters,” Mr Seferiades says. “We’re offering an upscale version of agrotourism that can compare with similar establishments in Spain or France.” However, Greece does not yet offer any large-scale integrated resorts operated by an international chain that can attract high-end visitors from the US and set a benchmark for the rest of the hotel industry. Several local investors have acquired large tracts of seaside land in unspoiled areas, often

Small is beautiful: a luxury boutique hotel is planned near Monemvasia in the Pelopennese

buying small landholdings from local owners over a period of years. Obtaining the nine basic permits needed before construction can start – including two environmental impact studies and approvals from at least three departments of the state archaeological service – is also a long process.

New Acropolis museum is summit of achievement CULTURE

Kerin Hope on a €130m project aimed at reviving interest in Greece’s classical heritage A forklift truck slowly shifts a tall block of carved marble into place in the lobby of the new Acropolis museum. Electric drills buzz as the base is secured, while a worker sweeps up a scatter of white dust. Antonis Samaras, the culture minister, watches closely as the display takes shape. He hopes the opening on June 20 of the €130m museum at the foot of the Acropolis hill in the centre of Athens will spark a revival of interest in Greece’s classical heritage. “We’ve seen a steady decline in numbers of visitors to museums and archaeological sites the past few years,” he says. “We have to make them accessible, lively places that people want to come to, not just once but often.” The number of visitors to Greece’s 200 state museums fell 27 per cent last year to 1.9m, according to the state statistics office. This compares with an average of more than 3m annually in the mid-1990s. Mr Samaras’s first move has been to set the entry price to the new Acropolis museum at €1 – the same as a city bus ticket – for the rest of this year, rising to €5 in 2010. “Our policy will be to keep prices significantly lower than at comparable museums abroad,” he says, citing entry prices of €9 and $15 respectively for the Louvre in the Paris and the Metropolitan Museum of Art in New York. Dimitris Pandermanlis, a senior archaeologist and president of the state organisation responsible for the construction of the new museum, says the arrangement and labelling of sculptures, from the frieze of the Parthenon temple to the dozens of free-standing

Reflections on the past: the new Acropolis museum in Athens

pieces in the classical gallery, is “designed so that people can wander around, stop and look, feel they’re engaging directly with the antiquities”. A bookshop, gallery for temporary exhibitions, a restaurant and café and an auditorium for lectures and conferences will all help create a contemporary atmosphere, Prof Pandermanlis says. Mr Samaras says the success of films such as Troy and 300, which made extensive use of digital special effects, proves the ancient Greeks still have a universal appeal, even though the study of classical languages is no longer widespread, even in Greece. “Digital technology has a big role to play in explaining not just the ancient world but modern Greek history. We’d like to have visitor centres at the main sites that would use virtual reality to recreate scenes from daily life as well as the big battles,” he says. The state archaeological service has already absorbed more than €200m from European Union structural packages, covering more than 350 projects to

restore monuments and renovate regional museums. “The guiding principle was to make more of Greece’s cultural heritage accessible to a generation that has leisure to enjoy it,” says an archaeological service official. The current EU structural package provides €950m of funding for the next five years, of which €100m will

‘It’s a challenge to evoke the feeling of antiquity without falling over into kitsch’ cover digital displays, Mr Samaras says. This summer Greece’s 65 most important ancient sites will be open continuously from 8am to 8pm, following the hiring of additional site guards in spite of the recession. “It’s a quite different experience when you tour a site in cool morning temperatures, or watch the sun setting behind the columns of a temple,” Mr Samaras says.

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However, educational programmes for young visitors are key to ensuring that Greek museums continue to flourish, says Nikos Stampolidis, director of the NJ Goulandris museum of Cycladic art in Athens, a private institution. Visitor numbers at the Cycladic museum have remained steady at around 60,000 a year, thanks to an extensive schools programme run by museum staff, and regular temporary exhibitions of western European art and antiquities, he says. Prof Stampolidis recently launched an innovative gallery with scenes from the life of an Athenian born in the 5th century BC in a seaside “deme” (district) south of the city. “It’s a challenge to evoke the feeling of antiquity without falling over into kitsch,” he says. The display, which is focused on artefacts used in childhood, sports activities, household life, warfare and death, includes theatrical lighting and background music. Two accompanying films illustrate the hero’s marriage ceremony and his funeral.

Miltos Kambourides, managing partner of Dolphin Capital Investors, a property development company listed on London’s Aim market, believes that change is on the way, following Greece’s adoption this year of a nationwide land-use plan. He says Dolphin plans to start construction “within the next few months” of an Aman resort

hotel near Porto Heli in the Peloponnese, an area popular with wealthy Athenians seeking summer homes. A number of villas would be built at a later date. “It’s been a difficult but successful process getting all the permits,” Mr Kambourides says. “We believe that projects of this kind will bring a new

Dreamstime

kind of visitor to Greece and help drive the tourism sector forward.” Dolphin plans to develop another half-dozen integrated resorts around Greece, including three with golf courses, as part of a €2bn portfolio of properties that extends to Cyprus, Turkey, Croatia, Panama and the Dominican Republic.