S-B 1 a2202445zs-b.htm S-B

Use these links to rapidly review the document
TABLE OF CONTENTS

As filed with the Securities and Exchange Commission on March 8, 2011

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



REGISTRATION STATEMENT
AND POST-EFFECTIVE AMENDMENT
UNDER SCHEDULE B
OF
THE SECURITIES ACT OF 1933



HELLENIC REPUBLIC
(Name of Registrant)



Name and address of authorized agent in the United States:

Aglaia Balta
Consul General
Consulate General of Greece
69 East 79th Street
New York, N.Y. 10021

It is requested that copies of notices and communications
from the Securities and Exchange Commission be sent to:


Krystian Czerniecki, Esq.
Sullivan & Cromwell LLP
24, rue Jean Goujon
75008 Paris
France

 

General Accounting Office
Public Debt Directorate – D 23
37, Panepistimiou Street
101 65 Athens
Greece



Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement and Post-Effective Amendment.

CALCULATION OF REGISTRATION FEE

               
 
Title of each Class of Securities
to be Registered

  Amount to be
Registered(1)

  Proposed Maximum
Offering Price Per
Unit(2)

  Proposed Maximum
Aggregate Offering
Price(2)

  Amount of
Registration Fee

 

Debt securities

  1,693,200,000   100%   $1,693,200,000   $196,580.52

 

(1)
The amount to be registered hereunder does not include $1,306,800,000 aggregate principal amount of securities that were registered pursuant to Registration Statements Nos. 33-64002 and 33-8136 and that are being carried forward. The corresponding registration fee for these securities has been previously paid.

(2)
Estimated solely for purposes of determining the registration fee.

        Pursuant to Rule 429 under the Securities Act of 1933, the prospectus included in this registration statement and supplements to such prospectus will also be used in connection with $678,460,000 of securities available under Registration Statement No. 33-64002 previously filed by the Registrant and in connection with $628,340,000 of securities available under Registration Statement No. 33-8136 previously filed by the Registrant. This registration statement also constitutes Post-Effective Amendment No. 4 to Registration Statement No. 33-64002 and Post-Effective Amendment No. 3 to Registration Statement No. 33-8136 and such post-effective amendments shall hereafter become effective concurrently with the effectiveness of this registration statement in accordance with Section 8(c) of the Securities Act of 1933.

        The securities covered by this registration statement are to be offered on a delayed or continuous basis pursuant to Release Nos. 33-6240 and 33-6424 under the Securities Act of 1933.



        The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


Table of Contents


EXPLANATORY NOTE

        This registration statement contains a prospectus, consisting of a cover page and numbered pages 2 through 106 relating to debt securities of the Hellenic Republic to be offered as separate issues from time to time on the terms and in the manner to be specified in supplements to the prospectus contained in this registration statement. Such prospectus supplements will be delivered with the prospectus included in this registration statement in connection with each such offering. A maximum aggregate principal amount of $3,000,000,000 of debt securities may be offered and sold in the United States pursuant to the prospectus on or after the date of effectiveness of this registration statement. Of such aggregate principal offering amount, $1,693,200,000 is registered hereby, $678,460,000 was previously registered under the Registrant's Registration Statement No. 33-64002 and $628,340,000 was previously registered under the Registrant's Registration Statement No. 33-8136. The first $678,460,000 offered and sold pursuant to the prospectus contained herein shall be deemed to be the securities registered under Registration Statement No. 33-64002, and the next $628,340,000 offered and sold pursuant to such prospectus shall be deemed to be the securities registered under Registration Statement No. 33-8136.


Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PROSPECTUS
Subject to completion, dated March 8, 2011

LOGO

Hellenic Republic

Securities



        The Hellenic Republic may from time to time offer and sell up to $3,000,000,000 (or its equivalent in other currencies or composite currencies) aggregate principal amount of its securities consisting of bonds, notes and/or other evidences of indebtedness. These securities may be denominated in U.S. dollars, or, at the option of the Hellenic Republic, in any other currency or currencies, in composite currencies or in amounts determined by reference to an index. The securities will be unconditional, direct and general obligations of the Hellenic Republic for the payment and performance of which the full faith and credit of the Hellenic Republic will be pledged. The Hellenic Republic may offer its securities from time to time as separate issues in amounts, at prices and on terms to be determined at the time of sale. This prospectus contains summaries of the general terms of these securities. The Hellenic Republic will provide specific terms of these securities in supplements to this prospectus. You should read this prospectus and any supplement carefully before you invest. This prospectus may not be used to effect offers or sales of securities unless accompanied by a prospectus supplement.



        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.

The date of this prospectus is                                    , 2011.


Table of Contents

        You should rely only on the information provided in this prospectus or in any prospectus supplement accompanying this prospectus. We have not authorized anyone else to provide you with different or additional information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus or in any prospectus supplement is accurate as of any date other than the dates set forth on the respective cover pages of these documents.




TABLE OF CONTENTS

2


Table of Contents


ABOUT THIS PROSPECTUS

        This prospectus is part of a registration statement that we filed with the U.S. Securities and Exchange Commission (the "SEC"). When we filed the registration statement, we used a "shelf" registration process. Under this shelf registration process, we may sell any combination of the securities described in this prospectus in one or more offerings up to the total dollar amount registered with the SEC (or the equivalent in other currencies). This prospectus provides you with a general description of the securities the Hellenic Republic may offer. Each time the Hellenic Republic sells securities, it will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update, or change information contained in this prospectus. If the information in this prospectus differs from any prospectus supplement, you should rely on the information in the prospectus supplement.



        Except as otherwise specified, all monetary amounts in this document are expressed in euro ("€", "euro", or "EUR") or in United States dollars ("dollars", "$", "US $", "U.S. dollars", or "USD").

        References in this prospectus to "we," "us," "our", and "Greece" are to the Hellenic Republic. All references in this prospectus to the "Government" are to the Government of the Hellenic Republic and its authorized representatives.



        The statistical information provided in this prospectus is based on the latest official information currently available from the stated source. The development of statistical information relating to the economy of the Hellenic Republic is, however, an ongoing process, and provisional revised figures and estimates are produced on a continuous basis. Unless otherwise noted, the most recent official figure, rather than interim or preliminary information, has been provided. Due to rounding, the numbers and percentages in the columns in tables contained herein may not add up to the indicated totals.

        The Hellenic Republic currently meets the Special Data Dissemination Standard ("SDDS") of the International Monetary Fund ("IMF") relating to coverage, periodicity, and timeliness of economic data. Although subscription by member countries to the SDDS is voluntary, it carries a commitment by subscribing members to observe the standard and to provide certain information to the IMF about its practices in disseminating economic and financial data.




FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements. Statements that are not historical facts, including statements about the Hellenic Republic's beliefs and expectations, are forward-looking statements. Forward-looking statements can generally be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "continue," "could," "should," "would" or similar terminology. These statements are based on current plans, estimates, and projections, which may change, and, therefore, you should not place undue reliance on them. Forward-looking statements speak only as of the date they are made, and the Hellenic Republic undertakes no obligation to update publicly any of them in light of new information or future events.

        Forward-looking statements involve inherent risks and uncertainties. The Hellenic Republic cautions you that a number of factors could cause actual results to differ materially from those contained in any forward-looking statements. These factors include, but are not limited to:

    general economic and business conditions within the Hellenic Republic, including the occurrence of a more severe economic downturn or a delayed resumption of economic growth;

    the impact of the international economic environment on the Greek economy;

3


Table of Contents

    the ability of the Hellenic Republic to effect fiscal and structural reforms which are key to fiscal adjustment and conditions for financial support by the euro area members states and the IMF;

    the level of the Hellenic Republic's public debt;

    the level of the Hellenic Republic's budget deficit;

    the decisions of the other euro area member states and of the IMF regarding the terms of their financial support for the Hellenic Republic;

    the development of conditions in the European sovereign debt markets, including Greece's ability to access public debt markets;

    the development of domestic inflation;

    present and future currency exchange rates of the euro;

    the interest rate set by the European Central Bank ("ECB"); and

    interest rates in financial markets outside of the euro area.


WHERE YOU CAN FIND MORE INFORMATION

        Further information concerning any series or issue of the securities is to be found in the registration statement and the related prospectus supplement, as well as any related post-effective amendment to the registration statement, on file with the Securities and Exchange Commission. You may read and copy any document Greece files with the SEC at the SEC's public reference room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for more information on the SEC's Public Reference Room. All filings made after November 4, 2002 are also available online through the SEC's EDGAR electronic filing system. Access to EDGAR can be found on the SEC's website, http://www.sec.gov. This site contains reports and other information regarding issuers that file electronically with the SEC.

4


Table of Contents


EXCHANGE RATE INFORMATION

        The table below sets forth, for the periods indicated, information concerning the USD/EUR reference rate as published by the ECB. No representation is made that the euro or U.S. dollar amounts referred to herein could be or could have been converted into U.S. dollars or euro, as the case may be, at any particular rate or at all. No representation is made that euro amounts actually represented, could have been or could be converted into, U.S. dollars at such rates or at any other rates on any of the dates indicated.

        On March 7, 2011, the reference rate for the euro was $1.4028.

 
  High   Low   Period
Average(1)
  Period End  

2011

                         
 

February

    1.3834     1.3440     1.3649     1.3834  
 

January

    1.3716     1.2903     1.3360     1.3692  

2010

    1.4563     1.1942     1.3257     1.3362  
 

December

    1.3435     1.3064     1.3220     1.3362  
 

November

    1.4244     1.2998     1.3661     1.2998  
 

October

    1.4101     1.3705     1.3898     1.3857  
 

September

    1.3648     1.2697     1.3067     1.3648  

2009

    1.5120     1.2555     1.3948     1.4406  

2008

    1.5990     1.2460     1.4708     1.3917  

2007

    1.4874     1.2893     1.3705     1.4721  

2006

    1.3331     1.1826     1.2556     1.3170  

(1)
Computed using the average of the exchange rates for euro on each business day during the relevant monthly or annual period.

5


Table of Contents


PROSPECTUS SUMMARY

        This summary highlights certain information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before investing in the securities, you should carefully read this entire prospectus and the related prospectus supplement.

        The Hellenic Republic is a Mediterranean country with a population of approximately 11 million. It is a parliamentary democracy with a president serving as Head of State. The Hellenic Republic became the first associate member of the European Economic Community, now the European Union, in 1961 and a full member in 1981. It joined the European Economic and Monetary Union in 2001. The following tables present certain summary statistical and other information about the economy of the Hellenic Republic for the periods indicated.

 
  2006   2007   2008   2009   2010(6)  
 
  (euro in millions)
 

THE ECONOMY

                               

GDP current market prices

    211,314     227,134     236,936     235,035     231,888  

Percentage change

    7.8     7.5     4.3     (0.8 )   (1.3 )

Percentage change of GDP as per constant market prices of 2000

    4.5     4.3     1.3     (2.3 )   (4.2 )

GDP per capita (euro at current market prices)

    18,954     20,293     21,085     20,873     20,552  

Unemployment Rate (percentage of labor force)(1)

    8.5     7.8     7.3     9.0     12.1  

Consumer Price Index (year-on-year percentage change—December on December(2))

    2.9     3.9     2.0     2.6     4.9  

Exports (BOP basis) f.o.b

    16,154     17,446     19,813     15,318     13,700  

Percentage change

    13.8     8.0     13.6     (22.7 )   (8.4 )

Imports (BOP basis) f.o.b

    51,441     58,945     63,862     46,085     38,180  

Percentage change

    23.2     14.6     8.3     (27.8 )   (0.1 )

Balance of Merchandise

    (35,286 )   (41,499 )   (44,049 )   (30,767 )   (24,481 )

Balance of Payments—Current Account

    (23,760 )   (32,602 )   (34,798 )   (25,819 )   (19,469 )

International Reserves (at end of period)(3)

    2,169     2,491     2,521     3,857     4,372  

General Government gross external debt (at year end(4))

    154,660     177,106     191,985     219,546     195,376  

PUBLIC FINANCE(CENTRAL GOVERNMENT BUDGET)(5)

                               

Net Revenue

    50,068     54,028     56,698     50,585     54,326  

Expenditure

    58,300     64,542     71,266     84,215     77,393  

Central Government Balance

    (8,232 )   (10,514 )   (14,568 )   (33,629 )   (23,067 )

Percentage of GDP

    (3.9 )   (4.6 )   (6.1 )   (14.3 )   (9.9 )

PUBLIC DEBT (at December 31)

                               

General Government Debt

    224,204     238,581     261,396     298,032     330,400  

Percentage of GDP

    106.1     105.0     110.3     126.8     142.5  

(1)
ESA definition.

(2)
Except for 2010 figure, which presents percentage change November on November.

(3)
New definition of reserves according to ECB rules and following entry into euro area.

(4)
Except for 2010 figure, which is at the end of the third quarter of 2010.

(5)
2011 State Budget Data.

(6)
Data for 2010 with respect to the economy is provisional.

Sources: Ministry of Finance, Bank of Greece and ELSTAT.

6


Table of Contents


RISK FACTORS

        This section describes certain risks associated with investing in the securities. You should consult your financial and legal advisors about the risks of investing in the securities and the suitability of your investment in light of your particular situation. The Hellenic Republic disclaims any responsibility for advising you on these matters.

Risk Factors Relating to the Hellenic Republic

The reduction of the Hellenic Republic's general government deficit, the sustainability of its debt, and its capacity to repay its debt depend on the successful implementation of the Economic Adjustment Program, which is subject to external and internal risks.

        The recent global financial and economic crisis exposed vulnerabilities in the Greek economy, evidenced by a significant deterioration in Greece's fiscal position (see "Public Finance—Greece's General Government Deficit"), which, due to deficiencies in Greece's accounting and statistical systems, was revealed quite late, taking markets by surprise and heightening concern about Greece's fiscal sustainability. Leading rating agencies downgraded the Hellenic Republic. Market sentiment with respect to Greece worsened sharply in early 2010, effectively cutting off Greece's access to international capital markets. Against this background and confronted with sizeable financing needs in April and May 2010, Greece agreed on a three-year economic policy package (the "Economic Adjustment Program") supported by financial assistance of €110 billion with the euro area Member States and the IMF. The Economic Adjustment Program provides for stringent fiscal measures, support for the Greek financial sector, and wide-ranging structural reforms with a view to improving confidence in Greece's fiscal outlook. Disbursement of financial assistance by the euro area Member States and the IMF is based on progress assessments of the Economic Adjustment Program conducted quarterly for the duration of the arrangement.

        While significant progress has been made in implementing the Economic Adjustment Program, which is also evidenced by the positive outcome of the progress assessments to date, its successful implementation remains subject to risks. These risks include a more severe economic downturn and delayed resumption of economic growth, slippages in fiscal adjustment stemming from delayed reform of fiscal institutions, including in the area of revenue collection, and delays in the resumption of market access. In the latter context, the recent worsening of conditions in European sovereign debt markets, if prolonged, represents a significant risk to the Economic Adjustment Program. A failure to successfully implement the Economic Adjustment Program and to attain its fiscal targets may exacerbate Greek macroeconomic conditions or even lead to the termination of international financial support. In light of Greece's very large debt burden (see "Public Finance—Greece's General Government Deficit" and "Public Debt—Summary of Public Debt"), such developments, in turn, could impact Greece's ability to service its debt and create the conditions for a credit event with respect to Greece's debt.

The short-term real growth outlook of the Hellenic Republic is unfavorable and a rebound depends upon the return of market and private sector confidence as well as the successful implementation of structural reforms under the Economic Adjustment Program.

        Real GDP growth in Greece is estimated to have contracted significantly in 2010 (-4.2%), and is also expected to contract in 2011 (-3.0%), with recovery expected to gradually set in 2012. High uncertainties, expensive external financing, tight credit conditions, and the magnitude of fiscal adjustment agreed under Economic Adjustment Program are weighing on the private sector. A rebound of economic growth will only be possible when market and private sector confidence returns and the effects of structural reforms start to materialize. The goals set for structural reforms under the Economic Adjustment Program are ambitious and although significant progress has already been made, most notably in the areas of pension, labor market and "closed professions" reform, keeping up the

7


Table of Contents


momentum and swiftly implementing the complex structural changes required remains a challenge. If delays in the implementation of the planned structural reforms were to occur, this could delay economic recovery, which in turn would jeopardize fiscal consolidation and the stabilization of the Greek financial sector, and ultimately could call into question Greece's ability to service its debt.

There can be no assurance that the Hellenic Republic's credit rating will not change.

        The Hellenic Republic has undergone a series of ratings downgrades since the end of 2009. Currently, the long-term debt of the Hellenic Republic is rated BB+ (Negative Outlook) by Standard and Poor's, and BB+ (Negative Outlook) by Fitch. On March 7, 2011, Moody's downgraded Greece's government bond ratings to B1 (Negative Outlook) from Ba1 (Negative Outlook).

        The Hellenic Republic's ratings may be downgraded further in the future, in the event of public finances deteriorating further as a result of poorer performance of economic activity or due to Government measures being perceived as insufficient. Developments at the EU level in connection with the ongoing European sovereign debt crisis, including with respect to the features of the response mechanisms to address the crisis and conditions attaching to continuous support for Greece from official sources, may also influence the credit rating agencies' assessments. Any adverse change in an applicable credit rating could adversely affect the trading price for the securities, if any, and have the potential to affect the Hellenic Republic's cost of funds in the international capital markets and the liquidity of and demand for the Hellenic Republic's debt securities.

Risk Factors Relating to the Securities

The Hellenic Republic is a foreign sovereign state and, accordingly, it may be difficult to obtain or enforce judgments against it.

        The Hellenic Republic is a foreign sovereign state. Consequently, it may be difficult for investors to obtain or realize upon judgments of courts in the United States against the Hellenic Republic.

        The Hellenic Republic will irrevocably submit to the jurisdiction of any Federal or State court in New York City in any action arising out of or based on the securities brought by any holder of a security. In addition, the Hellenic Republic will irrevocably waive, to the fullest extent permitted by the laws of the Hellenic Republic and international conventions, any immunity, including foreign sovereign immunity, from jurisdiction and, except as provided below, from execution or attachment or process in the nature thereof to which it may otherwise be entitled in any such action in any Federal or State court in New York City or in any competent court in the Hellenic Republic.

        Notwithstanding the foregoing, under the laws of the Hellenic Republic, the funds, assets, rights, and general property of the Hellenic Republic located in the Hellenic Republic are immune from execution and attachment and any process in the nature thereof to the fullest extent permitted by the laws of the Hellenic Republic and international conventions, and the foregoing waiver shall not constitute a waiver of such immunity or of any immunity from execution or attachment or any process in the nature thereof with respect to the premises of the Hellenic Republic's diplomatic missions in any jurisdiction which affords immunity thereto or with respect to assets of the Hellenic Republic outside the Hellenic Republic necessary for the proper functioning of the Hellenic Republic as a sovereign power.

        The Hellenic Republic reserves the right to plead sovereign immunity under the United States Foreign Sovereign Immunities Act of 1976 (the "Immunities Act") with respect to actions brought against the Hellenic Republic under the United States Federal securities laws or any State securities laws. In the absence of a waiver of immunity by the Hellenic Republic with respect to such actions, it would not be possible to obtain a United States judgment in an action against the Hellenic Republic, unless a court were to determine that the Hellenic Republic is not entitled under the Immunities Act

8


Table of Contents


to sovereign immunity with respect to such action. For more information, see "Description of Securities—Governing Law; Consent to Service."

There may be no active trading market for the securities or the trading market for the securities may be volatile and may be adversely impacted by many factors.

        There can be no assurance that an active trading market for the securities will develop, or, if one does develop, that it will be maintained. If an active trading market for the securities does not develop or is not maintained, the market or trading price and liquidity of the securities may be adversely affected. If the securities are traded after their initial issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the market for similar securities, general economic conditions, and the financial condition of the Hellenic Republic. While an application may be made to list the Hellenic Republic's securities on an exchange, there can be no assurance that such application will be accepted or that an active trading market will develop.

The securities will contain provisions that permit the Hellenic Republic to amend the payment terms without the consent of all holders.

        The securities will contain provisions regarding acceleration and voting on amendments, modifications, and waivers, which are commonly referred to as "collective action clauses." Under these provisions, certain key terms of the securities of any series may be amended, including the maturity date, interest rate, and other payment terms, with the consent of the holders of 75% of the aggregate principal amount of the outstanding securities of such series. See "Description of Securities—Amendments and Waivers" in this prospectus.

9


Table of Contents


THE HELLENIC REPUBLIC

GENERAL

Location, Area, and Population

        The Hellenic Republic (the "Hellenic Republic" or "Greece") is located on the southeastern tip of Europe in the eastern Mediterranean. It borders Turkey, Bulgaria, the former Yugoslav Republic of Macedonia, and Albania and has an area of 132,000 square kilometers, of which about one third is cultivated. Islands account for approximately 25,000 square kilometers, or 18.9% of the total land area, and the country has an extensive coastline of 15,000 kilometers. The sole official language is Greek.

        The climate ranges from temperate in the north to semi-tropical in some southern areas. The land surface under irrigation has increased considerably in recent years, thus helping cultivation of crops, which range from cereals to citrus fruits, tobacco, and cotton. Similar to other countries in the Mediterranean region, however, heat waves and drier conditions have led to larger and more uncontrollable forest fires across the country in past years, most recently in August 2009.

        The results of the last official census in 2001 estimated the population of Greece at 10,964,020, compared with 10,260,000 in 1991. The population growth rate according to 2001 estimates is 6.9%. In mid-year 2009, the estimated population was 11,282,751.

        The growth and distribution of Greece's population during the post-war years has been influenced by the steady number of Greeks emigrating and the high rate of urbanization in recent years. The population of Athens (greater metropolitan area) increased from 2.2 million inhabitants in 1971 to over 3 million in 2001, representing 30% of the total population in the latter year.

Constitution, Government, and Political System

        Greece functions as a parliamentary democracy, with the President of the Republic (the "President") serving as Head of State, as provided for in a constitution adopted in 1975 and revised in 1986 (the "Constitution"). Once under the rule of the Ottoman Turkish Empire, Greece became an independent kingdom in 1830. From the adoption of the first constitution in 1843 until 1973, except for the periods 1924-1936 and 1941-1944, Greece's head of state was a hereditary monarch. In 1967, a military junta seized power and, in 1973, abolished the monarchy. The military regime ended in 1974, when parliamentary democracy was restored following a referendum in which the electorate rejected a return to monarchy. Greece has universal direct suffrage for all persons over the age of 18.

        The Constitution provides for a unicameral legislature (the "Parliament" or "Vouli"), the President, a Prime Minister (the "Prime Minister") heading the Government, and an independent judiciary. The Vouli consists of 300 members who are elected for a term of four years. Of the 300 members, 288 are elected from 56 constituencies, 51 of which are multi-member. The remaining 12 seats are reserved for deputies of state and are apportioned according to the percentage of total votes cast for political parties nationwide. The President is elected by the Parliament and serves a five-year term that is renewable once. The President may not dissolve the Parliament prior to the expiration of its stated term except (a) upon a proposal to such effect by the cabinet of the Government in order to confront a matter of utmost national importance or (b) upon a vote of no-confidence in the Government by a majority of members of Parliament and the represented parties' failure, upon request of the President, to form a new Government that has the confidence of a majority of the members of Parliament.

        Legislative powers under the Constitution are vested in Parliament. The President may issue legislative decrees if authorized by legislation duly adopted by Parliament. Executive powers are vested in the Government, which is formed by the party or parties holding a majority of the seats in Parliament and is headed by the Prime Minister. The President, upon recommendation by the Prime Minister, appoints the members of the cabinet.

10


Table of Contents

        The judicial system comprises administrative, civil, and criminal courts, which are located in major cities throughout the country. The courts are organized pursuant to special laws and are divided into first instance and appellate courts. The High Court of Justice, which is authorized to hear civil and criminal cases, the Supreme Administrative Court, which is authorized to hear administrative cases, and the Auditors' Court, which is mainly responsible for disputes regarding pensions of civil servants and auditing of the public accounts, are the country's highest judicial authorities.

        Greece is currently divided into 51 prefectures, with Athens further divided into four sub-prefectures. Following a major reorganization of the sub-central government in 2010, as of January 1, 2011, local governments consist of 13 (previously 76) administrative regions and 325 (previously 1,034) municipalities. The two main political parties are the Panhellenic Socialist Movement ("Pasok") and the New Democracy Party ("NDP"). Pasok, a social democratic party founded in 1974, is currently headed by Mr. Georgios Papandreou. The NDP, a conservative party, is currently headed by Mr. Antonis Samaris.

        The current Government, headed by Mr. Georgios Papandreou, was formed after the elections of October 4, 2009, in which Pasok obtained 160 of the 300 seats in Parliament. The previous Government, headed by Mr. Konstantinos Karamanlis of the NDP, was first elected on March 7, 2004 and reelected on September 16, 2007. The President, Mr. Karolos Papoulias, was elected in March 2005 by the Parliament, and was re-elected in March 2010 to serve for another five-year term.

        The following table sets forth the election results of Greece's most recent general elections:


RESULTS OF RECENT GENERAL ELECTIONS

 
  March 7, 2004   September 16, 2007   October 4, 2009  
Party
  % of Votes
Polled
  No. of
Seats
  % of Votes
Polled
  No. of
Seats
  % of Votes
Polled
  No. of
Seats
 

Pasok

    40.55     116     38.10     102     43.92     160  

NDP

    45.36     166     41.84     152     33.48     91  

Greek Communist Party

    5.90     12     8.15     22     7.54     21  

Popular Orthodox Rally

    2.19         3.80     10     5.63     15  

Syriza (Alliance of left-wing parties)

    3.26     6     5.04     14     4.60     13  

Others

    2.74         3.07         4.83      
                           

Total

    100.00     300     100.00     300     100.00     300  
                           

Source: Ministry of the Interior.

International Relations

        Greece became the first associate member of the European Economic Community ("EEC"), now the European Union ("EU"), in 1961. Its application for full membership was approved in principle in 1976 and the Treaty of Accession was signed in May 1979. After the ratification of the Treaty by the respective parliaments of the member states of the EU, Greece became a full member of the EEC on January 1, 1981.

        Besides membership in the EU, Greece is a member of the Council of Europe and a Charter Member of the United Nations and of its specialized agencies. It is also a member of the IMF, the European Bank for Reconstruction and Development, and the International Bank for Reconstruction and Development ("World Bank") and its affiliates, the International Finance Corporation and the International Development Association. It is a party to the World Trade Organization and a member of the Organization for Economic Co-operation and Development ("OECD"). Greece is also a member

11


Table of Contents


of the European Investment Bank ("EIB"), the Council of Europe Development Bank ("CEB"), and the North Atlantic Treaty Organization ("NATO").

        The Hellenic Republic is obligated to contribute to the capital subscription and, in some cases, the additional financing requirements of certain international organizations in which it participates. The following table shows the amount of Greece's participation in the international institutions as of December 31, 2010.


GREECE'S PARTICIPATION IN INTERNATIONAL INSTITUTIONS

 
  Participation
Loans
as of December 31,
2010
 
 
  (euro in millions)
 

IMF(1)

    954.4  

Other Participations (converted into loans from the Bank of Greece)(2)

    42  

(1)
This debt comprises consolidated obligations of Greece to the Bank of Greece deriving from participations in international organizations excluding the IMF that were converted into various types of loans. After 1993, any participation increase in these organizations was funded directly from the Central Government Budget.

(2)
Equivalent to 823.0 million Special Drawing Rights ("SDRs")

Source: Ministry of Finance.

        The following table shows loans to Greece from international organizations outstanding as of December 31, 2010.


OUTSTANDING LOANS OF GREECE

 
  As of December 31,
2010
 
 
  (euro in millions)
 

World Bank

    0  

EIB

    6,022  

EU

    21,000  

CEB

    264  

Source: Ministry of Finance.

The European Union and European Integration

        Today, Greece is one of the EU's 27 member states (the "Member States"). On January 1, 2007, Bulgaria and Romania became part of the EU, joining the EU's previous members Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, and the United Kingdom. According to provisional data, the aggregate population of the Member States was approximately 501 million as of January 1, 2010. The EU is still in the process of enlargement. Accession negotiations with Turkey and Croatia started in October 2005. The former Yugoslav Republic of Macedonia and Iceland currently have candidate status. Albania, Bosnia and Herzegovina, Kosovo, Montenegro, and Serbia are potential candidates.

12


Table of Contents

    Political Integration

        Full EU membership involves a limited transfer of sovereignty to EU institutions. In return, Greece is represented in the various EU institutions. The EU's three main institutions are the Council of the European Union (representing the governments of the Member States, the "Council"), the European Parliament (elected by and representing the citizens of the Member States) and the European Commission (the executive body of the EU, the "Commission"). In addition, the heads of state or government of the Member States of the EU and the president of the Commission meet at the European Council, which defines the general political guidelines of the EU and decides on certain fundamental questions. Greece's representation includes one Government-appointed commissioner, 22 of the 736 directly elected members of the European Parliament, and membership in the Council of the European Union and the European Council. Pursuant to the Treaty of Lisbon (as defined below), the total number of elected members will increase to 751 members; the number of Greek members will remain unchanged.

        In order to ensure that the decision-making process within the EU's institutions continued to work and against the backdrop of the reform proposals reflected in the proposed European constitution, which was not ratified by all Member States, the European Council convened an intergovernmental conference to draft a new EU treaty in 2007. The treaty, which entered into force on December 1, 2009 (the "Treaty of Lisbon"), aims at enabling the EU to cope with its main challenges in the medium-term future, the enlargement of the EU, and the increased involvement of EU citizens, by introducing more democracy and transparency into the governance of the EU.

        The Member States of the EU have agreed that a longer-term objective is the formation of a European Political Union. Current areas of close cooperation include foreign and security policy as well as internal and social affairs. However, the Member States, for the time being, retain sovereignty in most important areas of policy.

    Economic Integration

        With the completion of the process leading to the Single European Market in January 1993, virtually all physical, legal, and fiscal barriers to the free movement of people, goods, services, and capital within the EU have been removed. The integration of the Member States' economies and the completion of a single market are also promoted by a European competition policy, which aims at creating a level playing field for Member States' companies and promoting economic efficiency. In addition, various liberalization and harmonization measures are being implemented. Among other things, the telecommunications and energy sectors are being liberalized and opened for private competitors. In the financial sector, the single market has been fostered by providing for the free movement of capital and the freedom to perform banking services throughout the EU based on a single license obtained in one Member State.

        Another important policy area for the EU has been agriculture. Subsidies to this sector, which make up more than 40% of the EU's budget, have been restructured to keep European farming competitive and reduce costs.

        A further tool with which the EU promotes economic integration is regional aid, which is designed to focus development efforts on certain disadvantaged regions and population segments of the EU. The Treaty on European Union of February 1992 (also known as the "Maastricht Treaty") instituted social and economic cohesion among the diverse regions and countries of the EU as one of the objectives of the EU. To achieve this objective, it was agreed that a cohesion fund (the "Cohesion Fund"), created in 1994, would provide less developed regions and countries with financial aid focused on sectors such as the environment or transportation infrastructure. The Member States eligible to receive this are Member States, whose gross national product ("GNP") per capita is below 90% of the EU average. Greece is currently one of these Member States.

13


Table of Contents

        The financial framework for the enlarged EU for the period from 2007 until 2013 was formally adopted on May 17, 2006, with an Interinstitutional Agreement ("IIA") signed by the European Parliament, the Council, and the European Commission. Among other things, the IIA defines maximum amounts for commitment appropriations, which cover commitments made to spend funds over one or more years in certain expenditure categories. Additionally, the IIA defines an annual maximum amount for payment appropriations, which cover payments made to honor the legal commitments entered into during the current financial year and/or earlier financial years. The 2011 EU budget, which was adopted by the European Parliament on December 15, 2010, amounts to EUR 141.9 billion in commitment appropriations and EUR 126.5 billion in payment appropriations. The amount of commitment appropriations corresponds to 1.13% of the EU gross national income, while the amount of payment appropriations corresponds to 1.01% of the EU gross national income.

        For more information on current benefits received by Greece from various EU funds, see "Public Finance—Transfers between Greece and the European Union" below.

    Monetary Integration

    General

        On September 17, 1984, the Greek drachma was integrated into the European Currency Unit ("ECU") basket of currencies. Greece joined the Exchange Rate Mechanism ("ERM") of the European Monetary System on March 16, 1998, by adjusting the value of the Greek drachma against the ECU by 12.3%. The Greek drachma was then included in the Exchange Rate Mechanism at the central rate of 357 Greek drachma to one ECU.

        The Maastricht Treaty was the basis for the establishment of the European Economic and Monetary Union ("EMU"). In order to qualify for the EMU, under the terms of the Maastricht Treaty, Member States have to satisfy the following conditions: (i) an inflation rate not exceeding the average of the three best performing Member States by more than 1.5% in terms of price stability, (ii) a budget deficit not exceeding 3% and a gross accumulated public debt not exceeding 60% of GDP, (iii) the observance without devaluation of the ERM fluctuation margins for at least two years, and (iv) average nominal long-term interest rates on government bonds not exceeding that of the three best performing Member States in terms of inflation by more than 2%.

        On January 1, 1999, after fulfilling these convergence criteria, eleven members of the EU adopted the euro as their legal currency. The drachma central rate, originally set at 353.107, was revalued from January 17, 2000 at 340.75 drachma per euro. With Greece joining the EMU as the twelfth Member State on January 1, 2001, this central rate became the irrevocable euro conversion rate of the drachma. On January 1, 2002, banknotes and coins denominated in euro were introduced as legal tender to replace the national currencies in the 12 Member States forming the euro area at that time (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain). Slovenia, Malta, Cyprus, and Slovakia followed. In January 2011, Estonia joined as the seventeenth Member State.

        The ECB was established on June 1, 1998, as part of the European System of Central Banks ("ESCB"). According to the Maastricht Treaty, the primary objective of the ESCB is to maintain price stability. Without prejudice to the objective of price stability, the ESCB supports the general economic policies of the EU. The Eurosystem, consisting of the ECB and the national central banks of those Member States whose currency is the euro, assumed sole responsibility for the monetary policy in the euro area on January 1, 1999. In December 2010, the ECB decided to increase its subscribed capital by EUR 5 billion, from EUR 5.76 billion to EUR 10.76 billion, with effect from December 29, 2010. The capital increase was deemed appropriate in view of increased volatility in foreign exchange rates, interest rates, and gold prices as well as credit risk. The national central banks of the euro area will pay their additional capital contributions in three equal annual installments, starting in December 2010.

14


Table of Contents

    Stability and Growth Pact and Excessive Deficit Procedure

        In order to ensure and strengthen the ongoing convergence of the economies participating in the EMU, consolidate the single market, and ensure budgetary discipline in the euro area, the Member States agreed on the main elements of a Stability and Growth Pact (the "Pact"), which became effective on July 1, 1998.

        According to the Pact, Member States are required to pursue a medium-term objective of ensuring the long-term sustainability of public finances and minimizing the risk of any Member State's general government deficit exceeding the reference value of 3% of its GDP.

        Under the Maastricht Treaty, implementing regulations, and the Pact, a Member State whose general government deficit exceeds the reference value of 3% of its GDP becomes subject to the "excessive deficit procedure." The excessive deficit procedure provides that the Economic and Finance Affairs Council, a Council composed of Economics and Finance Ministers of the Member States (the "Ecofin Council"), decides whether an excessive deficit has been incurred. If it concludes that there is an excessive deficit, the Ecofin Council, based on recommendations by the Commission, suggests corrective measures aimed at a deficit reduction and then reviews the corrective measures taken by the Member State. If it determines that such corrective measures are not adequately implemented, the Maastricht Treaty and the Pact provide for a wide range of remedies. For those Member States whose currency is the euro, this process could ultimately lead to the imposition of annual financial penalties of as much as 0.5% of a Member State's GDP. Financial penalties may not be imposed, however, until the end of a further review period. Furthermore, the Pact provides that the 3% limit may be exceeded without triggering an excessive deficit procedure, provided that the deficit ratio remains close to the 3% threshold and is considered to be exceptional and temporary, for example, in the event of a severe economic downturn (i.e., a recession), an extended period of weak growth or an unusual event beyond the control of the Member State concerned (e.g., a significant natural disaster or a war having an impact on that Member State).

        Moreover, in judging whether a deficit is too high and whether a Member State must implement corrective measures, the Ecofin Council relies on an indicative list of relevant factors that has been agreed upon by the Member States. This list includes, among other factors, the costs of implementing policies according to the EU Strategy for Growth and Jobs (Lisbon Strategy); high financial contributions aimed at fostering international solidarity and achieving European policy goals, notably European unification; and costs of pension reform.

        As a consequence of the global economic and financial crisis, nearly all Member States breached the 3% of GDP deficit reference value in 2009 or 2010. With the exception of Bulgaria, Luxembourg, Sweden, and Estonia, all EU Member States, including Greece, are currently subject to the excessive deficit procedure. For further information on the excessive deficit procedure against Greece, see "Public Finance—Excessive Deficit Procedure."

        In 2010 the Ecofin council decided to adopt measures aimed at strengthening the Pact, in particular, through a revision of the sanctions regime and a stronger focus on the development of general government debt.

        Further, a so-called "European semester" was introduced, starting in 2011, in order to improve coordination of the Member States' economic policies and help strengthen budgetary discipline, macroeconomic stability, and growth. The European semester is a six-month period each year during which the Member States' budgetary and structural policies will be reviewed to detect inconsistencies and emerging imbalances. Every year in March, the European Council will identify the main economic challenges facing the EU and give strategic advice on policies. Taking this guidance into account, in April of each year, the Member States will review their medium-term budgetary strategies and draw up national reform programs setting out the action they will undertake in areas such as employment and social inclusion. In July, the European Council and the Ecofin Council will provide policy advice on the

15


Table of Contents


basis of the programs submitted by the Member States before the member states finalize their budgets for the following year.

    Response to the European Sovereign Debt Crisis

        After Greece had experienced serious difficulties in accessing the financial markets to obtain new borrowings to cover its sizeable financing needs in the first months of 2010, the Member States that form the euro area (the "Euro Area Member States") concluded that the stability of the euro area as a whole was threatened and agreed to help Greece meet its financing needs. In April 2010, the Euro Area Member States agreed to provide Greece with stability support in the form of pooled bilateral loans in the amount of up to EUR 80 billion over a period of three years parallel to a loan facility provided by the IMF in the amount of up to EUR 30 billion. For further information on the loan provided by the Euro Area Members States to Greece and the Stand-By Arrangement concluded between Greece and the IMF, see "—Public Finance—Financial Assistance Program."

        Furthermore, on May 10, 2010, the Council of the European Union and the Member States decided on a comprehensive package of measures to address the risk of contagion in an environment of fragile financial markets and to preserve financial stability in Europe. This package includes a new community instrument (European financial stabilization mechanism, "EFSM") of up to EUR 60 billion. In addition, the Euro Area Member States set up the European Financial Stability Facility ("EFSF"). This special purpose vehicle is authorized to issue bonds guaranteed by Euro Area Member States for up to EUR 440 billion for the purpose of on-lending to Euro Area Member States in financial difficulties, subject to conditions, which are to be negotiated with the European Commission in liaison with the ECB and the IMF and to be approved by the euro area finance ministers. The IMF will participate in financing arrangements with up to EUR 250 million.

        The first Member State to receive support by the EFSM and EFSF was Ireland. The financial assistance, which is provided subject to compliance with strict conditions, is intended to provide financial support of EUR 85 billion, consisting of EUR 22.5 billion to be financed through the EFSM, EUR 17.7 billion through the EFSF, EUR 22.5 billion through the IMF, and EUR 4.8 billion through bilateral loans from the United Kingdom, Denmark, and Sweden. The remaining EUR 17.5 billion will be financed by the Irish Treasury cash buffer and investments of the Irish National Pension Reserve Fund.

        In December 2010, the European Council agreed on a draft decision for a limited treaty amendment allowing Euro Area Member States to establish a permanent mechanism to safeguard the financial stability of the euro area as a whole. The European Council further confirmed the general features of this permanent mechanism (the European Stability Mechanism, or "ESM"). The ESM will be based on, and replace, the EFSF and the EFSM, which will remain in force until June 2013. Accordingly, the ESM will provide for involvement of the IMF. The granting of financial assistance to Euro Area Member States under the ESM, which will require a unanimous decision of the euro area finance ministers, will be made subject to strict conditionality. It is planned to provide for a case-by-case participation of private sector creditors, fully consistent with IMF policies. In all cases, any ESM loan would enjoy preferred creditor status, junior only to the IMF loan. In line with IMF practices, in the case of any Member State that appears to be insolvent, liquidity assistance by the ESM would be conditioned upon the Member State negotiating a comprehensive restructuring plan with private sector creditors with a view to restoring debt sustainability. In order to facilitate this process, standardized collective action clauses are to be included in the terms and conditions of all new euro area government bonds starting in June 2013. These clauses would enable creditors to pass a qualified majority decision agreeing to a legally binding change to the terms of payment in the event that the debtor Member State is unable to pay.

        For further information on the excessive deficit procedure against Greece, see "Public Finance—Excessive Deficit Procedure."

16


Table of Contents


THE ECONOMY

Overview and Key Figures

        During the 1960s and 1970s, the Greek economy grew at a rate equal to or higher than most other OECD and EU countries. During the 1980s, phases of increased Government expenditures and social reforms were followed by economic austerity programs aimed at controlling inflation. During this period, the Greek economy was characterized by high inflation (the average annual inflation rate, as measured by the consumer price index ("CPI"), was 19.4%), relatively low GDP growth (the average annual growth rate was 1.7%), and rapidly rising public debt. During the 1990s, a differentiated economic policy mix was implemented, which allowed Greece to join the euro area. Over the last several years, there have been many positive developments with respect to the domestic economy, and a number of measures were undertaken to restructure the economy, but economic imbalances persisted. In addition, after a period of strong growth, real GDP growth decelerated and real GDP shrank in 2009 and 2010 and is expected to shrink further in 2011. Real economic growth is expected to rebound starting from 2012.

        The Hellenic Statistical Authority ("ELSTAT"), the former National Statistical Service of Greece ("NSSG"), is the Hellenic Republic's official statistical agency and was established as an independent authority supervised directly by the Parliament in March 2010.

        In October 2009, Eurostat expressed a general reservation over the figures notified by the Greek authorities in Greece's October 2009 excessive deficit procedure notification ("EDP notification") due to significant uncertainties over the figures reported and, thus, did not validate the data for Greece. The October 2009 EDP notification included substantial revisions of the government deficit and the debt data for the previous years.

        At the beginning of January 2010, Eurostat published a report that described the main shortcomings in the administrative and operational capacity of the Greek statistical information gathering system and in February 2010, the European Commission initiated infringement proceedings against Greece for its failure to provide reliable budgetary statistics, requesting the Government to take all necessary steps to ensure that the systemic failures and weaknesses identified in the report were corrected. In addition to the legislation setting up ELSTAT, the Government also designed a joint action plan with the Commission to implement the legislation and improve the compilation of reliable data and their wide and timely dissemination.

        In cooperation with Eurostat, which visited Greece a number of times to discuss methodology and assess progress being made in the compilation of reliable statistical information, ELSTAT has completed a major revision of the national accounts system. On this basis, Greece notified revised fiscal data and on November 15, 2010, Eurostat announced that Greece's data was now essentially reliable and lifted its reservation on Greek fiscal data. The analysis in this prospectus is based on the revised data, which are presented in the tables throughout.

        The following table provides main economic indicators relating to Greece for the periods indicated.

17


Table of Contents

PRINCIPAL ECONOMIC INDICATORS

 
  2006   2007   2008   2009   2010(5)  
 
  (euro in millions)
 

GDP current market prices

    211,314     227,134     236,936     235,035     231,888  

Percentage change

    7.8     7.5     4.3     (0.8 )   (1.3 )

Percentage change of GDP at constant market prices with base year 2000

    4.5     4.3     1.3     (2.3 )   (4.2 )

GDP per capita (euro at current market prices)

    18,954     20,293     21,085     20,873     20,552  

Unemployment Rate (percentage of labor force)(1)

    8.5     7.8     7.3     9.0     12.1  

Consumer Price Index (year-on-year percentage change—December on December(2))

    2.9     3.9     2.0     2.6     4.9  

Exports (BOP basis) f.o.b. 

    16,154     17,446     19,813     15,318     13,700  

Percentage change

    13.8     8.0     13.6     (22.7 )   8.4  

Imports (BOP basis) f.o.b. 

    51,441     58,945     63,862     46,085     38,180  

Percentage change

    23.2     14.6     8.3     (27.8 )   (0.1 )

Balance of Merchandise

    (35,286 )   (41,499 )   (44,049 )   (30,767 )   (24,481 )

Balance of Payments— Current Account

    (23,760 )   (32,602 )   (34,798 )   (25,819 )   (19,469 )

International Reserves (at end of period)(3)

    2,169     2,491     2,521     3,857     4,372  

General Government gross external debt (at year end)(4)

    154,660     177,106     191,985     219,546     195,376  

(1)
ESA definition.

(2)
Except for 2010 figure, which presents percentage change November on November.

(3)
New definition of reserves according to ECB rules and following entry into euro area.

(4)
Except for 2010 figure, which is at the end of the third quarter of 2010.

(5)
Provisional data.

Sources: Ministry of Finance, Bank of Greece, and ELSTAT.

Recent Developments and Forecasts

        Upon the Hellenic Republic's entry into the euro area in 2000, access to low-cost credit strengthened domestic demand, which was further supported by pro-cyclical fiscal policies, and in the period from 2000 to 2008, the Greek economy expanded at an average annual rate of about 4%, one of the highest rates in the euro area. While economic activity remained strong in 2008, although decelerating, as real GDP increased by only 1.3% in 2008 compared to 4.3% in 2007, real GDP contracted by 2.3% in 2009. Economic activity is expected to contract further in 2010 (-4.2%) and 2011 (-3%) and to recover slowly thereafter, with positive growth rates expected from 2012 onwards.

    Economic Results for 2008

        The rapid economic expansion achieved over the previous decade came to an end in 2008. In light of adverse international economic developments, including sharp downward revisions in the projections for world growth and continuing uncertainties about the energy market, the real GDP growth rate was 1.3% in 2008, sustaining, however, a 0.7 percentage point positive differential from the euro area average growth rate.

        Economic growth overall remained resilient, mainly driven by private consumption expenditure (+3.2%), which, in turn, was supported by robust credit expansion stemming from a rather stable financial sector. Budgetary overruns in 2007 and measures aimed at sustaining the pace of fiscal

18


Table of Contents


consolidation led to only moderate growth of public consumption by 1.0% compared to growth of 9.2% in 2007. Gross fixed capital formation decreased by 7.6% in 2008 compared to a positive growth rate of 5.4% in 2007. This was due to a pronounced decrease of 18.9% in investment in the construction sector, especially the housing sector, and a slower growth rate of 6.2% in investment in machinery and equipment. Economic and business sentiment indicators tilted downwards in the course of 2008 and increased uncertainty regarding international economic prospects discouraged the realization of investment projects. Towards the end of 2008, the escalating volatility in the interbank markets intensified banks' credit rationing in their business financing, thus further dampening investment growth.

        The economic downturn experienced by Greece's main trading partners had an impact on the economy's external balance. Exports of services at constant prices grew by only 4.1% in 2008 compared to 9.0% in 2007, mainly due to the adverse impact of the economic contraction, particularly in the shipping sector, towards the end of 2008. Exports of goods increased by 3.8% in 2008 compared to 1.5% in 2007 as a result of half of goods' exports being directed towards higher growth European countries and the low technological content of the exported goods. Overall, the growth in the export volume of goods and services was sustained at 4.0% in 2008, down from 5.8% in 2007. On the other hand, in 2008, the increase of imports of goods and services amounted to only 4.0% compared to a 9.8% increase in 2007. Whereas the imports of services in 2008 grew by 13.7% compared to 8.1% in 2007, imports of goods in 2008 merely increased by 2.1%, down from a 10.2% increase in 2007. This reflected lower imports of equipment and reduced investment activity, as well as the effect of the drop in consumption demand. As a result of these developments, the current account deficit on a national accounts basis reached 16.4% of GDP in 2008 compared to 15.6% in 2007.

        Total employment increased by 0.2%, while the unemployment rate was 7.3% in 2008, down from 7.8% in 2007, partly as a result of a reduction in the labor force. Continuing the trend of the fourth quarter of 2007, inflation, as measured by the CPI, accelerated to 4.6% during the first nine months of 2008 as a result of the large increase in international prices for merchandise goods and oil. The average CPI increase was 4.2% in 2008 compared to 2.9% in 2007.

    Economic Results for 2009

        The economic contraction was more severe for the Greek economy during the course of 2009. Cyclical and structural factors contributed to the substantial decline in real GDP growth of 2.3%, while GDP in the EU and the euro area contracted by about 4.0%. In addition, given the limited available fiscal room for maneuver, temporary sectoral measures undertaken in early 2009 were unable to offset the effects of the economic downturn. The delay in the reaction of the Greek economy to the global economic downturn is attributable to the time lag required for the crisis to be transmitted from central European economies to the periphery of the EU, as well as to the Greek economy's small size and its relatively limited outward orientation. Nevertheless, economic developments in 2009 were driven by an adverse export performance, in particular, the pronounced decline in transport and tourism receipts, the constrained credit expansion towards the private sector of the economy, reduced foreign investment activity, and a drop in confidence, which was also influenced by budgetary developments and the increased gross debt financing needs.

        Almost all components of final domestic demand (overall -2.2% in 2009 compared to 0.7% in 2008) contributed negatively to GDP growth in 2009. More specifically, for the first time in ten years, gross fixed capital formation (-11.4% in 2009 compared to -7.6% in 2008) and private consumption (-1.8% in 2009 compared to 3.2% in 2008) were the most important negative contributing factors to growth. The decline in gross fixed capital formation in 2009 reflected a substantial decline of 12.2% in investment growth in equipment and a further contraction in the construction sector, especially housing, of 25.1%. The drop in investment was most apparent in the private sector; general government fixed

19


Table of Contents


investment growth increased by 2.6% in 2009 compared to a 4.5% decline in 2008. Public consumption expenditure increased by 7.6% in 2009 compared to a 1.0% increase in 2008.

        In the external sector, unfavorable economic conditions and reduced trading volumes among EU member states took a heavy toll on the shipping and the tourism sectors. The volume of exports of goods and services declined by 20.1% in 2009 compared to a 4.0% increase in 2008, reflecting an 18.0% reduction in the exports of goods and a 21.5% drop in services exports. On the other hand, the marked contraction in the relevant components of domestic output growth led to a decrease in the volume of imports of goods and services of 18.6% in 2009 compared to a 4.0% increase in 2008 stemming from a decline of 18.5% in the imports of goods and of 19.0% in the imports of services. Overall, the external sector contributed 2.25 percentage points to growth in 2009.

        In line with the shrinking economy and escalating pressures in the labor market, the unemployment rate on a national accounts basis increased to 9.0% in 2009, an increase by 1.7 percentage points compared to 2008. Total employment declined by 0.7% in 2009 compared to a 0.2% increase in 2008. Inflationary pressures were substantially lower in 2009 compared to 2008 as a result of the adverse domestic and external economic developments. The average CPI increased by 1.2% in 2009 compared to 4.2% in 2008.

    Estimated Economic Results for 2010

        In the first three quarters of 2010, real GDP contracted by 2.7% in the first quarter, 4.0% in the second quarter, and 4.6% in the third quarter. For the first quarter of 2010, the reduction in economic activity reflects a substantial decrease of 14.9% in gross fixed capital formation as well as a smaller reduction in final domestic demand (-1.0%). The latter is attributed to shrinking government consumption expenditure (-10.4%), while private consumption increased slightly by 1.4% compared to the first quarter of 2009. In the external sector, exports of goods and services increased by 1.2% while imports of goods and services declined by 9.4% compared to the first quarter of 2009. In the second quarter, private consumption declined by 4.8% and final demand by 5.8%. Policy measures undertaken in the first six months of 2010 to constrain government expenditure led to a further reduction in government consumption of 9.5% in the second quarter of 2010 compared to the second quarter of 2009. Imports of goods and services declined by 12.3%, reflecting lower investment activity and consumption demand, while exports of goods and services declined by 3.7%. In the third quarter of 2010, the reduction in private consumption expenditure was more pronounced (-5.8%), leading to a further decline in imports of goods and services of 17.8%. On the other hand, given the more favorable external environment, exports of goods and services declined only moderately by 1.1%. In addition, the ongoing fiscal consolidation efforts are reflected in the lower public consumption expenditure (-4.7%) in the third quarter of 2010 compared to the third quarter of 2009. The year-on-year decline in gross fixed capital formation of 18.1% in the second quarter of 2010 and 20.0% in the third quarter of 2010 indicates lower investment activity mainly in the construction sector.

        Overall, real GDP is estimated to have shrunk by 4.5% in 2010 compared to a 2.3% reduction in 2009. Economic developments in 2010 were driven by a 4.1% decline in private consumption, a 9.0% reduction in public consumption expenditure, and a 17.4% decline in gross fixed capital formation. Final domestic demand is estimated to have decreased by 7.1% in 2010 compared to a 2.2% decline in 2009. On the other hand, the external sector is expected to have gradually rebounded and to have contributed positively to GDP growth by 3.94 percentage points. Exports of goods and services are expected to have increased by 0.6%, reflecting a 2.0% increase in exports of goods and a decline of 0.6% in exports of services. The decline in private consumption and investment activity are expected to have resulted in a substantial reduction of 12.0% in the imports of goods and services. Specifically, imports of goods are expected to have declined by 15.8%, while imports of services are expected to have increased by 3.7%, due to an increase in transport services.

20


Table of Contents

        The unemployment rate reached 12.1% in the period from January to October 2010 compared to 9.2% in the same period of 2009. For 2010 overall, the unemployment rate is estimated at 12.1% compared to 9.0% in 2009. The policy measures undertaken to increase government receipts (i.e., VAT and excise tax increases) intensified inflationary pressures despite the ongoing reduction in economic activity. The GDP deflator is expected to have increased by 3.0% in 2010, while it is expected to moderate below 2.0% in 2011-2014. In 2010, the CPI increased by 4.7% on average compared to an increase of 1.3% in 2009. Core inflation in 2010 was 3.0% compared to 2.4% in 2009.

        On the fiscal front, the Economic Adjustment Program provides for a frontloaded fiscal consolidation effort, which is expected to have led to a substantial fiscal adjustment of 6.0% of GDP in 2010, corresponding to a decrease of the general government deficit from 15.4% of GDP in 2009 to 9.4% of GDP in 2010.

    Economic Forecasts for 2011

        In 2011, real GDP is forecast to decline by 3.0%, mainly reflecting a 5.5% decline in final domestic demand compared to a 7.3% decline in 2010. Private consumption expenditure is expected to decline further by 4.3% compared to a 4.1% decrease in 2010, while gross fixed capital formation is forecast to shrink by 7.5% compared to a 17.4% decline in 2010. In addition, government consumption expenditure is forecast to decline by 8.5% in 2011 compared to a 9.0% reduction in 2010. Thus, final domestic demand is forecast to contribute negatively to GDP growth by 5.92 percentage points.

        In the external sector, exports of goods and services are expected to rebound strongly, based on improved prospects for the international economic outlook and world trade. Furthermore, the structural reforms initiated in product and labor markets are expected to move economic resources to the more profitable sectors of the economy and thus, an export-led growth model is expected to persist. Exports of goods and services are forecast to increase by 5.1% in 2011 compared to moderate growth of 0.6% in 2010. Exports of goods are forecast to increase by 5.5% compared to an increase of 2.0% in 2010 and exports of services by 4.8% compared to a decline of 0.6% in 2010. On the other hand, imports of goods and services are forecast to shrink further by 6.4% in 2011 following an estimated 12.0% reduction in 2010. This is due to the significant contraction in domestic demand and, in particular, the decline in private consumption and in investment activity. Imports of goods are expected to decline by 7.9% compared to a decline of 15.8% in 2010, reflecting a reduction in imports of equipment and machinery, while imports of services are expected to decline by 1.2% compared to an increase of 3.7% in 2010.

        The negative development of output growth is expected to take a heavy toll on labor market developments, with total employment declining by 2.6% in 2011, coupled with a 0.2% decline in compensation per employee. The unemployment rate is projected to increase to 14.6% in 2011.

        Inflationary pressures are expected to moderate substantially in 2011 due to the continued economic contraction. CPI is estimated at 2.4% in 2011. The GDP deflator is forecast at 1.5% compared to 3.0% in 2010. Inflation is forecast at 0.4% in 2012 and 0.8% in 2013.

        The fiscal outlook is expected to improve as a result of the ongoing fiscal consolidation efforts coupled with the gradual economic rebound projected from 2012 onwards. The general government deficit is projected to decline to 7.6% of GDP in 2011 from 9.4% of GDP in 2010. In the medium term, the fiscal balance is expected to improve further with the general government deficit projected to be 6.4% of GDP in 2012, 4.8% of GDP in 2013, and 2.6% of GDP in 2014. In addition, the general government primary balance is expected to mark a surplus of 0.9% of GDP in 2012 and 3.1% of GDP in 2013, implying a gradual correction in the upward trend in debt ratio dynamics.

21


Table of Contents

Economic Policy

        Among other factors, the protracted economic crisis in 2009 as well as the persistence of structural imbalances adversely affected public finances in 2009, with the general government deficit reaching 15.4% of GDP in 2009 and the debt-to-output ratio reaching 126.8% of GDP. Since the beginning of 2010, in response to deteriorating public finances, sizeable sovereign financing needs and rising financing costs due to worsening market conditions, the Government successively undertook to implement certain policies in order to achieve fiscal adjustment, correct structural weaknesses in the Greek economy, and achieve a more robust economic growth model in the medium term. For more information on the various policy undertakings and related fiscal adjustment measures, both on the revenue and the expenditure side, by the Government in early 2010, see "Public Finance—Excessive Deficit Procedure" and "Public Finance—Central Government Budget—2010 Budget."

        Following the agreement with the Euro Area Member States and the IMF on a financial assistance program in May 2010, the Government's economic policy objectives and policy measures are outlined in the Economic Adjustment Program, which is updated on a quarterly basis. In addition, progress made and policy steps taken to meet the objectives of the Economic Adjustment Program are outlined in Memoranda of Economic and Financial Policies ("MEFP") and Memoranda of Understanding on Specific Economic Policy Conditionality ("MoU"), which are also updated on a quarterly basis in connection with the quarterly progress assessments undertaken by the EU and the IMF under the financial assistance program. For more information on the financial assistance program for Greece, see "Public Finance—Financial Assistance Program."

        Broadly speaking, the Economic Adjustment Program aims to secure fiscal sustainability, safeguard the stability of the Greek financial system and boost potential growth and competitiveness, while ensuring that the adjustment effort remains fair and equitable. Its overarching objective is to durably restore the Hellenic Republic's credibility for private investors.

        Recent structural reform measures undertaken by the Government to implement the Economic Adjustment Program relate to:

    The independence of ELSTAT, which will be subject to control by the Parliament. Law 3832/2010 also sets out the framework for the establishment and proper functioning of the Greek Statistical System.

    The reform of local authorities' public administration ("Kallikratis") to enhance transparency, productivity, and efficiency in the local governance system, among other things, by significantly reducing the number of regions and prefectures, and municipalities.

    A reform of the social security system in light of recent demographic trends and their implications for public expenditures in the future through the adoption of new social security legislation. This includes (a) the overhaul of the Greek private sector pension system in order to ensure its medium- and long-term sustainability and (b) a reform of the public sector pension system to bring it in line with the private sector as well as with the binding decision of the European Court of Justice on the equalization of retirement ages for men and women. For more information, see "—Social Security System."

    The adoption of the Fiscal Management and Responsibility Act, which establishes a new framework for drawing up, executing, and monitoring the government budget by putting in place expenditure caps for state and central government spending, setting transparency standards, and publishing information on government spending. Furthermore, the act reinforces the trustworthiness of Greece's fiscal policy and official data, and creates a framework for the implementation of a medium-term fiscal policy.

22


Table of Contents

    The online publication of all decisions involving commitments of funds in the general government sector.

    The establishment of the Financial Stability Fund (the "FSF") to safeguard the capital adequacy of the Greek banking system. For more information on the FSF, see "Monetary and Financial System—The Greek Financial Sector—Key Financial Sector Policies in Connection with the Financial Assistance Program."

    The allocation of the supervision of the private insurance sector to the Bank of Greece.

    The simplification of the start-up of new businesses.

    A recovery plan for the publicly owned railway company, including a timetable for the implementation of specific measures.

    The implementation of the EU Services Directive, which aims to remove unjustified or disproportionate legal and administrative barriers to the establishment of businesses and the provision of cross-border services in the EU, by removing restrictions to competition, business, and trade in regulated professions.

    The improvement of the absorption of Structural and Cohesion Funds. For further information, see "Public Finance—Transfers between Greece and the European Union."

    The improvement of fiscal transparency through reforming the drafting process of the Central Government Budget and subsequent monitoring of its execution and by introducing performance budgeting and a modern accounting system for Central Government accounts. For more information on the Central Government Budget, see "—Public Finance—Introduction."

    The adoption of a new tax law in April 2010 which aims to simplify and increase the efficiency of the tax system, and to introduce rules and procedures to effectively combat tax evasion. In addition, the new law provides for targeted tax incentives to promote entrepreneurship, safeguard employment, and enhance investment in research. For more information on the main elements of the new tax law, see "Public Finance—Sources of Revenue."

Gross Domestic Product

        The following table sets forth real GDP growth for Greece compared to the average GDP growth of the 27 EU Member States for the years indicated.

REAL GDP RATE OF GROWTH (%)

 
  2006   2007   2008   2009   2010(1)   2011(1)   2012(1)  

Greece

    4.5     4.3     1.3     (2.3 )   (4.2 )   (3.0 )   1.1  

EU (27)

    3.2     3.0     0.5     (4.2 )   1.8     1.7     2.0  

(1)
Forecast.

Source: European Economic Forecast, Autumn 2010.

        Robust GDP growth until 2008 was mainly attributable to the maintenance of high investment growth rates and to sustained growth of private consumption. However, as discussed above under "Recent Developments and Forecasts—Economic Results for 2009", the spillover effects from the international economic crisis as well as fiscal imbalances and structural weaknesses have led to an economic slowdown. Real GDP contracted by 2.3% in 2009, while GDP in the EU and euro area contracted by 4.2% in 2009. Greece's real GDP is forecast to shrink further by 4.2% in 2010 and 3% in 2011 and to rebound in 2012. For a discussion of the factors influencing Greece's historical and projected real GDP growth, see "Recent Developments and Forecasts."

23


Table of Contents

        The following table illustrates the major components of nominal GDP by category of demand for each of the years indicated and their year-on-year percentage change.

GROSS DOMESTIC PRODUCT BY CATEGORY OF DEMAND(1)

 
  2006(2)   2007(2)   2008(2)   2009(2)   2010  
 
  euro in
millions
  %(3)   euro in
millions
  %(3)   euro in
millions
  %(3)   euro in
millions
  %(3)   euro in
millions
  %(3)  

At Current Market Prices(4)

                                                             
 

Private consumption

    153,666     9.2     163,720     6.5     175,557     7.3     174,384     (0.7 )   174,927     0.3  
 

Government consumption

    34,813     4.8     39,350     13.0     41,380     5.2     45,443     9.8     39,581     (12.9 )
 

Gross fixed capital formation

    44,173     13.6     47,536     7.6     45,241     (4.8 )   40,066     (11.4 )   33,988     (15.2 )
 

Increase in stocks and statistical discrepancy

    (435 )   (0.2 )   2,048     0.9     3,819     1.6     (1,631 )   (0.7 )   (1,711 )   (0.7 )
 

Exports of goods and services

    47,535     8.8     51,441     8.2     55,528     7.9     44,286     (20.2 )   46,779     5.6  
 

Imports of goods and services

    (69,833 )   13.9     (78,556 )   12.5     (85,956 )   9.4     (69,502 )   (19.1 )   (63,608 )   (8.5 )
 

GDP at current market prices(5)

    209,919     7.8     225,539     7.4     235,679     4.5     233,046     (1.1 )   229,956     (1.3 )
 

GDP at current market prices (adjusted)(6)

    211,314           227,134     7.5     236,936     4.3     235,035     (0.8 )   231,888     (1.3 )

(1)
Revised figures based on ESA.

(2)
Provisional data.

(3)
Year-on-year percentage change, except for Increase in stocks and statistical discrepancy, which represents percentage of GDP.

(4)
Includes net indirect taxes (indirect taxes (principally VAT) less subsidies (principally agricultural)).

(5)
Columns may not add up due to rounding.

(6)
Adjusted GDP at current market prices is based on the common methodology agreed between ELSTAT and Eurostat and represents the agreed denominator for all data expressed as GDP ratios. The components of adjusted GDP are not currently available.

Source: ELSTAT, National Accounts (ESA), December 2010.

Economic Structure

        The Greek economy was traditionally based on agriculture, with shipping and tourism contributing significantly in the services sector. In recent years, the economy has grown mainly due to an expanding services sector. In 2008, agriculture, forestry, and fishing accounted for 3.2% of Gross Value Added ("GVA") at basic prices, industry for 18.2%, and the services sector for 78.6%. In 2009, the respective shares were 3.2%, 17.9%, and 78.9%. For the period January to September 2010, the GVA shares were 3.5%, 17.5%, and 79.0%, respectively.

        The following table illustrates the GVA of Greece at basic prices, broken down by sectors of origin, GVA by sector of origin as a percentage of total GVA, and GDP at market prices for the years indicated.

24


Table of Contents

GROSS VALUE ADDED AT BASIC PRICES AND GROSS DOMESTIC PRODUCT
AT MARKET PRICES (CURRENT PRICES)(1)

 
  euro in
millions
  %   euro in
millions
  %   euro in
millions
  %   euro in
millions
  %   euro in
millions
  %   euro in
millions
  %  

Primary Sector (Agriculture)

    8,403     4.8     6,996     3.8     6,871     3.5     6,568     3.2     6,622     3.2     5,307     3.5  

Secondary Sector (Industry)

                                                                         
 

Mining and quarrying, manufacturing, energy

    22,494     12.9     23,450     12.7     24,535     12.4     27,170     13.0     27,781     13.3     20,642     13.6  
 

Construction

    10,949     6.3     12,910     7.0     13,012     6.6     10,773     5.2     9,533     4.6     5,820     3.8  
 

Total

    33,443     19.2     36,360     19.7     37,547     18.9     37,903     18.2     37,314     17.9     26,462     17.5  

Tertiary Sector (Services)

                                                                         
 

Trade, hotels and restaurants, transport and communications

    59,449     34.0     64,075     34.6     69,049     34.8     72,050     34.6     68,865     33.1     49,680     32.8  
 

Financial intermediation, real estate, renting and other business activities

    33,129     19.0     34,107     18.4     37,850     19.1     39,753     19.1     41,949     20.1     32,224     21.3  
 

Other services

    40,199     23.0     43,445     23.5     47,151     23.8     51,955     25.0     53,477     25.7     37,678     24.9  
 

Total

    132,777     76.0     141,627     76.6     154,050     77.6     163,758     78.6     164,291     78.9     119,581     79.0  

Gross Value Added (at basic prices)

    174,623     100.0     184,983     100.0     198,468     100.0     208,229     100.0     208,227     100.0     151,350     100.0  

Taxes less subsidies on products

    20,195           24,938           27,072           208,229           24,818                    

GDP at market prices

    194,818           209,921           225,540           235,678           233,045                    

(1)
Revised figures based on ESA. Columns may not add up due to rounding.

(2)
Provisional data.

(3)
Data for 2010 refer to the period January to September.

Source: ELSTAT, National Accounts (ESA), December 2010.

    Agriculture

        Agriculture, forestry, and fishing contributed 3.2% of GVA (at basic prices) in 2009. Agricultural products contributed significantly to the value of Greek exports: in 2009, food and beverages, tobacco, and agricultural raw materials accounted for approximately 24.9% of the value of Greek exports.

        About one-third of Greece's total land area is under cultivation. Agricultural production consists mainly of cereals, olive oil, vegetables, and cotton. In recent years, the list of major products has been expanded with the addition of durum wheat, corn, cotton, tobacco, and fruits. Other agricultural products include livestock, mainly poultry, pigs and sheep, and milk. The main agricultural exports are fresh as well as processed and preserved fruit and vegetables, tobacco, olive oil, and olives. Given the new trends in consumer preferences, government policies have focused on shifting resources to organic production within the new robust environmental protection framework of the EU.

        Farmland in Greece is fragmented into small holdings, a situation which has been an impediment to increased productivity. The small size of most individual holdings has been one of the principal causes for the organization of local rural cooperatives. Greek agriculture has been steadily modernized and the number of people employed in the sector has declined. Continuing harmonization of Greek agriculture with the EU's Common Agricultural Policy ("CAP") entails further investment in infrastructure improvements and increases in farm incomes towards EU levels. Further structural investment projects were realized within the Community Support Framework III ("CSF III"), which covered the period 2000-2006, and are continuing within the Community Support Framework IV ("CSF IV"), which is also referred to as the National Strategic Reference Framework ("NSRF"), and which covers the period 2007-2013. For more information on the funds Greece receives from the EU for

25


Table of Contents


modernization and harmonization purposes, see "Public Finance—Transfers between Greece and the European Union."

    Industry

        The secondary sector is comprised of mining and quarrying, manufacturing, electricity, gas and water supply, and construction. In 2009, the secondary sector accounted for 17.9% of GVA at basic prices.

        The following table sets forth the volume of industrial production on an indexed basis for the period indicated.

INDICES OF INDUSTRIAL PRODUCTION(1)

 
  2006   2007   2008   2009   2010(2)  

General Index

    100.85     103.2     99.0     89.8     85.4  

Mining and Quarrying

    97.1     96.8     92.4     81.8     77.5  

Manufacturing

    102.0     104.2     99.3     88.4     84.5  

Electricity

    98.3     101.7     98.9     94.7     87.2  

Water Supply

    102.4     103.7     106.3     103.0     105.4  

(1)
2005 =100

(2)
Figures refer to the January-October 2010 period.

Source: ELSTAT, Monthly Statistical Bulletin.

        Manufacturing, mining and quarrying, and energy production accounted for 13.3% of GVA in 2009. Manufactured products include foods, beverages and tobacco, building materials, chemicals, and textiles. In the course of 2009, the industrial production index decreased by an average rate of 9.4%, with manufacturing production declining by 11.2%, reflecting decreases mainly in the production of consumer non-durable goods and intermediate goods as well as consumer durable goods and capital goods. Mining products in Greece include lignite, bauxite, iron, nickel, and manganese. Lignite has accounted for approximately 49% of total mining output in recent years. Exports have sustained manufacturing output despite the increase in import penetration following Greece's accession to the EU. Manufacturing contributed approximately 60.6% of the value of exports in 2009. Textiles account for a large portion of manufacturing exports. Electricity decreased by 4.2% and Water Supply by 3.1% in 2009. In January-October 2010, the industrial production index declined by 5.5% compared to the corresponding period in 2009. This mostly reflects a 4.6% reduction in manufacturing and a 6.7% decline in mining, while Electricity also declined by 8.9% year-on-year.

        In 2009, the construction sector accounted for 4.6% of GVA. Traditionally, the majority of this sector's activities relate to private housing with the remainder relating mainly to public works. Housing activity in the period 1981 through 1990 decreased substantially as a result of the stagnation of real private disposable income, high interest rates, limited housing loans, and the increase in housing prices prior to 1991; since 1996, however, it has been recovering rapidly. Public works activity has been increasing at very high rates since 1995 as a result of the rapid implementation of public investment programs financed with EU funding. However, the substantial fiscal consolidation effort that was initiated in 2010 in Greece was coupled with a reduction of the Public Investment Program ("PIP"). In detail, in the January to October 2010 period, PIP disbursements at current prices declined by 30.3% compared to a 19.2% increase in the corresponding period in 2009. In 2009, PIP disbursements declined by 2.8% compared to 2008, while in 2008 there was a 9.3% increase. General government fixed investment at 2000 constant prices declined by 4.5% in 2008 and increased by 2.6% in 2009. In 2010, it is estimated to decline by 14.4%.

26


Table of Contents

    Services

        The largest components of the services sector are trade, transportation and communication, hotels and restaurants, real estate services, health and education, and public administration/defense. The services sector employed approximately 3.3 million persons in 2009, representing 69.3% of Greece's total employment. Furthermore, services accounted for 78.9% of GVA in 2009.

        One of the focal points of the ongoing structural reforms of the Greek economy is the liberalization of the Greek services sector, which has historically been highly regulated. In 2010, restrictions on the road freight sector were removed, which is expected to lead to noticeable price reductions and improvements in the quality of services provided. Changes in legislation in key services sectors such as tourism, retail and education services are planned which aim to facilitate establishment and the provision of cross-border services as well provide legal certainty for service providers. Furthermore, legislation to remove restrictions to trade in certain regulated professions (legal, pharmacy, notary, architects, engineers, auditing services) has been proposed.

        Two important sub-sectors of the services sector are shipping and tourism, which contribute significantly to Greece's foreign exchange receipts.

    Shipping

        The merchant fleet under the Greek flag at the end of November 2010 had a capacity of more than 43 million gross registered tons ("grt"), having increased by more than 48% since 2000. In addition, in the first quarter of 2010, vessels with a capacity of approximately 186 million dead-weight tons ("dwt") were owned by Greek principals and operated under various flags (including the Greek one). This makes the Greek-owned fleet the largest in the world and by far the largest maritime carrier in the EU. The major part of the Greek-owned merchant fleet is employed in cross-trading and, in particular, the dry bulk and oil trades.

        Net receipts from shipping and related activities cover more than a quarter of Greece's trade deficit and represent an important source of income for the Greek economy. Specifically, the receipts from shipping transportation services were approximately €14.2 billion for the period from January to November 2010 representing 41.0% of total receipts from services, incomes, and current transfers or 27.85% of current account credits. Shipping-related activities are an important source of employment for the Greek economy.

        The following table provides tonnage of the Greek shipping fleet and its share of the world fleet at the dates indicated.

GREEK SHIPPING FLEET

 
  2005   2006   2007   2008   2009   2010  

Greek Flag(l)(2) (millions of grt)

    33.1     34.3     37.7     39.2     41.4     43.0  
 

Of which:

                                     
   

Dry Cargo

    14.1     14.3     14.6     15.1     14.9     15.9  
   

Tankers

    17.2     18.4     21.4     22.3     24.8     25.5  
   

Other

    1.8     1.6     1.7     1.8     1.7     1.6  

Share of world Fleet(3):

                                     
   

Greek flag (%)

    6.1     5.0     5.4     5.9     5.2     4.6  
   

Greek owned (%)

    16.5     16.1     16.5     16.4     15.2     14.9  

(1)
Source: ELSTAT.

(2)
Data for 2010 is at November 30.

(3)
Source: Lloyd's Register/Fairplay (based on dwt) first quarter of period. Includes vessels under construction.

27


Table of Contents

    Tourism

        In recent years, Greece has developed into one of the principal destinations in the European tourist market. The majority of tourist arrivals come from the EU, particularly Germany and the United Kingdom. Receipts from tourism reached €10,400 million in 2009.

TOURISM IN GREECE

 
  Foreign Visitors(1)   Foreign Travel Receipts  
 
  Number of
arrivals
(in thousands)
  % Change   Amount
(in € millions)
  % Change  

2005

    14,388     5.3     10,729     3.7  

2006

    15,226     5.8     11,357     5.8  

2007

    16,165     6.2     11,319     (0.3 )

2008

    15,939     (1.4 )   11,636     2.8  

2009

    14,915     (6.4 )   10,400     (10.6 )

(1)
Excluding Greek nationals residing abroad and cruise passengers.

Source: Bank of Greece.

Energy

        In 2008, the latest year for which data is available, 57% of Greece's total energy supply derived from oil, 27% from coal, 11% from natural gas, and 5% from hydroelectric and renewable energy. Since the services sector is by far the most important economic sector, however, the Greek economy overall is not heavily dependent on energy.

        Oil consumption has increased in recent years, but has been outpaced by strong growth in the demand for natural gas. Greece has only minor domestic reserves of oil and natural gas and relies heavily on energy imports mostly from OPEC countries, Russia, Turkey, Algeria, Egypt, and Kazakhstan. However, the planned construction of a new oil pipeline from the Black Sea to Greece's Aegean Sea port of Alexandroupolis, the completion of a gas interconnector with Turkey, and the planned completion of a further gas link to Italy are expected to establish Greece as an important transit route for oil and gas supplies from the energy-rich Caspian region to European markets.

        Lignite is Greece's most significant domestic energy resource and the most important fuel for electricity generation in the country, although the use of natural gas is growing rapidly and renewable energy use is also expected to increase.

        Hydroelectricity is the most economically significant source of renewable energy, contributing 4% of total energy supply, but other sources of renewable energy, such as geothermal, solar, wind, wood, and waste electric power have also been developed. According to EU requirements, 20% of Greece's electricity production must be generated by renewable sources of energy by 2010.

        Liberalization of the energy market is one of the elements of the Government's reform agenda, mainly by opening up lignite-fired electricity generation to third parties, adopting plans for phased transitory cost-based access to lignite-fired generation, managing the hydro reserves, adopting a mechanism to ensure that the energy component of regulated tariffs reflects wholesale market prices, and ensuring that network activities are unbundled from supply activities.

Labor and Employment

        According to the labor force survey conducted by the ELSTAT, the average total labor force in Greece was 4.98 million persons in 2009, 4.5 million of whom were employed. Total employment

28


Table of Contents


decreased by 1.1% in 2009 year-on-year compared to an increase of 1.1% in 2008. In 2009, the unemployment rate increased to 9.5%, after declining to 7.7% in 2008 from 8.3% in 2007. In the first half of 2010, unemployment reached 11.8% on average. The number of unemployed persons increased from 471,000 in 2009 to 590,000 in the first six months of 2010. In the near term, the implementation of the Economic Adjustment Program and the significant fiscal consolidation effort achieved in 2010 (6% of GDP) have weighed heavily on economic activity and, as a result, labor market developments. However, the fiscal consolidation achieved and plans for further fiscal adjustment, in combination with the structural reforms that have already been implemented, are expected to lead to a sustainable growth model, which will substantially improve employment prospects.

        The following table provides average labor force, employment, and unemployment figures for Greece for each of the periods indicated.

GREEK LABOR FORCE

 
  2005   2006   2007   2008   2009   2010(1)  
 
  (in thousands of persons, except percentages)
 

Labor force

    4,846     4,887     4,917     4,937     4,980     5,019  

Employment

    4,369     4,452     4,510     4,559     4,509     4,419  

Unemployment

    478     435     407     378     471     601  

Unemployment rate (%)

    9.9     8.9     8.3     7.7     9.5     12.0  

(1)
Average data for the 2010 January to September period.

Sources: ELSTAT Labor Force Survey. Revised data (new sample), Harmonized Eurostat data (persons 15 years or more).

        Over the last decade, employment in the primary sector (11.9% of total employment in 2009) contracted significantly and the share of employment in the industrial sector (21.2% of total employment in 2009) remained more or less stable. Of the employed workers in 2009, 11.4% were employed in manufacturing and 8.2% in construction. The services sector (66.9% of total employment in 2009) of the economy has increased in significance.

        The following table presents average annual employment figures by sector of economic activity for each of the years indicated.

EMPLOYMENT BY SECTOR OF ECONOMIC ACTIVITY

 
  2005   2006   2007   2008   2009   2010(1)  
 
  Number of
Persons
Employed
  % of Total
Employment
  Number of
Persons
Employed
  % of Total
Employment
  Number of
Persons
Employed
  % of Total
Employment
  Number of
Persons
Employed
  % of Total
Employment
  Number of
Persons
Employed
  % of Total
Employment
  Number of
Persons
Employed
  % of Total
Employment
 
 
  (in thousands of persons, except percentages)
 

Agriculture

    542     12.4     533.3     11.9     519.7     11.5     516.8     11.3     536.6     11.9     555.1     12.6  

Industry of which:

    980     22.4     983.3     22.0     1,015.5     22.5     1,016.4     22.3     955.6     21.2     879.7     19.9  
 

Manufacturing

    561.3     12.4     561.6     12.6     560.6     12.4     538.9     11.8     513.4     11.4     476.7     10.8  
 

Construction

    362     8.3     362.4     8.1     394.7     8.75     395     8.6     368.8     8.2     329.9     7.5  
 

Other

    57     1.3     59.3     1.3     60.3     1.3     82.5     1.8     73.4     1.6     73.1     1.6  

Services

    2,847     65.2     2,935.7     65.9     2,974.7     65.9     3,026.2     66.4     3,016.5     66.9     2.983.6     67.5  

Total employment

    4,368.8     100.0     4,452.3     100.0     4,509.9     100.0     4,559.4     100.0     4,508.7     100.0     4,418.4     100.0  

(1)
Data for 2010 refer to the period January to September.

Sources: ELSTAT Labor Force Survey. Revised data (new sample), Harmonized Eurostat data (persons 15 years or more).

29


Table of Contents

        According to data released in mid-2010 on the public employment census, there are approximately 768,000 civil servants (state, local government, social security, and extra-budgetary funds), representing approximately 17% of the overall working population in Greece.

        Increased emphasis has been placed on raising productivity through human capital development and education system reform (e.g., recent reform in tertiary education) and also by opening up markets to competition and facilitating the spread and adoption of information and communication technologies. In the 2007/8 academic year, the latest date as of which such data is available, 2,157,590 students were enrolled in Greece's educational institutions, of which 148,940 were enrolled in pre-primary institutions, 637,342 were enrolled in primary institutions, 689,431 were enrolled in secondary institutions, including secondary technical schools, 44,254 were enrolled in post-secondary non-tertiary institutions, and 637,623 were enrolled in tertiary institutions, including technological education institutes. In connection with the ongoing structural reforms, the Government is also planning to take measures aimed at increasing the efficiency of the public education system (primary, secondary, and higher education) and achieving a more efficient use of resources.

        Greece has an unemployment fund which was established in 1954. The fund is financed by contributions of employees and employers and pays benefits to the unemployed for a period of 5 to 12 months, depending upon the duration of the beneficiary's previous employment. Benefits range up to around 59% of the beneficiary's past earnings from such employment. Greece has a social welfare system encompassing government benefits and support payments to low-income families and individuals, the elderly, the handicapped, and refugees. Such benefits and payments are provided directly by the Government and through national organizations and local authorities. In connection with the efforts to further reduce general government debt, the Government is planning to introduce a means test for the receipt of unemployment benefits.

        Pursuant to law, minimum wages in Greece are established by national collective labor agreements between the General Confederation of Greek Workers and national employers' organizations. Since 1991, such agreements have generally been valid for two years. Minimum wages established under such agreements are binding for private sector enterprises and public enterprises that employ workers under "private employment contracts", but do not apply to Central Government employees. In 2010, a radical modification in the wage bargaining system was implemented to allow for negotiations to take place at the firm level. A fifth level of agreements has been introduced to complement or substitute (depending on the circumstances) the national general agreement, the occupational, the sectoral and the existing operational agreements. This new level of agreement will be known as "special operational collective agreement" and serves as an important mechanism for firms to adjust to adverse financial or/and market conditions. In case a firm finds itself in an adverse financial situation, it will be able to embark on internal negotiations with employees on wages, working patterns, and other non pecuniary employment aspects. This should enable the conclusion of a mutual agreement between the employer and the employees which is tailored to the specific needs of the firm with a view to maintaining business and securing working positions.

        In 2010, social partners concluded a collective bargaining agreement with a three-year horizon, providing for a pay freeze in 2010. The average rate increase in the private sector in 2011 and 2012 is estimated to be lower than the minimum wage rises in 2011 and 2012 (i.e., in line with the euro area's HICP for the corresponding previous year) due to lower increases in white-collar workers' salaries and reductions in pensions and allowances.

        In line with the Economic Adjustment Program, the Parliament has recently adopted certain labor market reforms with a view to improving external competitiveness through supporting the labor supply and increasing wage flexibility. The reforms include the following:

    The minimum threshold for the applicability of rules on collective dismissals has been raised considerably.

30


Table of Contents

    The legal framework with respect to the rules concerning the settlement of severance payments has been amended in a manner favorable to employers, which has drastically reduced the overall level of severance costs.

    A sub-minimum wage was introduced at 80-85 percent of the minimum limit established by collective bargaining agreements for those aged 25 or younger in order to promote youth employment.

    The rules on compensation for overtime work have been amended to provide for a 20% reduction of overtime compensation.

    The wage bargaining system has been amended to provide that firm-level agreements prevail over those under sectoral or occupational agreements without undue restrictions.

    The probation period for new jobs has been extended to one year.

    The mediation and arbitration system has been revised to guarantee symmetric access for all parties.

    Overtime compensation for part-time jobs has been reduced.

    The temporal restrictions on the use of temporary working agencies have been extended.

        In addition, as part of an overall reform of human resource management in the public sector, a process is underway to establish a simplified remuneration system applicable to all public sector employees, covering basic wages and allowances. In this context, a single payment authority for the payment of all wages in the public sector was established in 2010. The reform is intended to lead to a system where remuneration reflects productivity and tasks and should avoid increases in remuneration for public sector employees as a result of the transition process.

        The Government's austerity and structural reform measures have met considerable opposition from labor unions and the general public in the Hellenic Republic, and have led to an increase in strikes, especially by employees of state enterprises (urban transportation, railway) whose salaries were cut to match average public sector salaries.

Social Security System

        In Greece, social security insurance is compulsory by law. Following the pension reform discussed below, the vast majority of the labor force is insured in the three main social insurance organizations: Social Insurance Foundation ("IKA") (employees' social insurance fund), Social Security Foundation for the Self-Employed ("OAEE") and the Social Security Institution for Agriculture ("OGA"). Public sector employees have their own social insurance scheme. For more information on the financial situation of the major social security organizations, which have continuously run deficits in the past, see "Public Finance—Public Entities."

        In July 2010, the Government implemented an ambitious Social Security Act, and the Parliament passed sweeping pension reforms through two laws, one for the private sector (Law 3863/2010) and another for the public sector (Law 3865/2010), that overhaul Greece's existing private and public pension systems and aim to bring their sustainability in line with the EU average. The reforms are intended to safeguard the systems' medium- and long-term sustainability, as well as a long-term actuarial balance. If left unchanged, public pension expenditures under the previous systems would have doubled from around 12% of GDP in 2010 to 24% in 2050. The new systems aim to cap the increase of public sector spending on pensions over the period from 2010 to 2060 at below 21/2% of GDP.

31


Table of Contents

        Main elements of the private sector pension reform (Law 3863/2010) include the following:

    Uniform rules apply to all insured persons and pensioners, ending the fragmented previous system.

    Pensionable earnings are calculated on a lifetime basis.

    The new system considerably strengthens the link between contributions and benefits and consists of a contributory pension on top of a non-contributory, means-tested pension.

    The previous main pension funds are merged into three funds leading to considerable savings.

    As of January 1, 2011, new employees in the public sector have been integrated into the employees' pension fund.

    40 years of work are required for a full pension entitlement with this variable indexed to life expectancy. A statutory retirement age of 65 years is established for both men and women, eliminating previously existing age differentials between men and women.

    A means-tested pension is introduced for all citizens older than the normal retirement age, providing an important safety net consistent with fiscal sustainability.

    Penalties for early retirement are increased in magnitude and scope.

    There is an average reduction of pension outlays weighing predominantly on persons that are currently in the 25-35 age bracket.

    The list of heavy and arduous occupations, which would justify early retirement, is currently being updated and streamlined.

    Social security benefits are to be indexed on the basis of an annual review to the percentage change of the CPI and the GDP.

    As of October 1, 2010, ad-hoc contributions have been imposed on pensions exceeding EUR 1,400.

    Voluntary exit plans that may have existed in the past and gave employees the opportunity to retire early, were abolished.

    The healthcare sector of the employees' social security fund IKA will be gradually separated from the IKA pension sector.

    Welfare benefits are separated from insurance benefits, aiming at improved transparency in the finances of the benefits in question.

    Important administrative measures to fight contribution evasion are put into place.

        In addition, the public sector pension reform (Law 3865/2010) involved:

    Conforming the pension system for civil servants to the private sector pension system.

    Ensuring a more just and equal treatment of all public sector employees.

    Introducing a unified statutory retirement age of 65 for both male and female public sector employees by December 2013, bringing Greece in line with the binding decision of the European Court of Justice and considerably raising the actual retirement age in the public sector.

        As part of the ongoing structural reform efforts, the Government is also preparing a comprehensive reform of the health care system. The overarching objective of the reform is to improve the cost efficiency of the system, and keep public health expenditure at or below 6% of GDP, while maintaining universal access and improving the quality of care delivery. In the short term, the focus will

32


Table of Contents


be on macro-level discipline and cost control by creating the prerequisites for an effective monitoring and information system, with the aim of fighting corruption, reducing waste and achieving more timely collection of payments.

        Recent and pending reform measures include:

    The adoption of a new legal framework for the procurement of health supplies and drug tenders.

    The establishment of new systems for the management and pricing of pharmaceuticals that promote the increased use of generic medicines, including an integrated system of electronic monitoring of doctors' prescriptions (e-prescription).

    The pooling of all health care funds in order to ensure a uniform and coherent system of provision of health care.

    The establishment of a consortium of social security funds which will act as a single buyer of drugs and health care services.

    The completion of the program of hospital computerization, upgrading of hospital budgeting systems, reforming of management, accounting (including double-entry accrual accounting), and financing systems.

    Measures to ensure greater budgetary and operational oversight by the Ministry of Finance of health care spending by the Ministry of Health.

Prices and Wages

        Inflation developments in Greece in 2008 were dominated by volatile oil and food prices. Inflation, as measured by the CPI, accelerated in the first three quarters and decelerated in the fourth quarter of 2008. The average annual headline inflation, as measured by the CPI, increased by 4.2% in 2008. The deceleration of inflation continued in 2009, reflecting mainly the fall in the international price of oil and oil products; the headline inflation, on a year-to-year basis, as measured by the CPI, was 1.2% on average in 2009. In 2010, CPI increased by 4.7% on average, with the effect of increasing indirect tax rates dominating the pattern of prices, on top of some remaining market inefficiencies. Since the second quarter of 2010, inflation at constant tax rates has fallen below the euro area average, for the first time since the adoption of the euro. Constant-tax inflation is expected to be negative during 2011 and to remain close to zero thereafter. Inflation is likely to decelerate in 2011, as a result of the deceleration of economic activity, the tightening of domestic demand, structural reforms in the product and services market, and the effect of wage developments being detached from price increases. This process is expected to be gradual, however, as it takes time for indirect tax hikes to be absorbed and for consumer spending to adjust fully to disposable income. CPI inflation is expected to decelerate to 2.2% in 2011.

        Core inflation (i.e., the underlying inflationary pressures, as measured by the CPI excluding fresh fruits and vegetables as well as energy) was 3% in 2010, compared to 2.4% in 2009 and 3.4% in 2008. The excess of core inflation over headline inflation points to the direction of structural reforms, both in the product and services market and the labor market, along the lines of reforms already implemented or planned. Core inflation will decline faster than headline inflation in 2011 and is expected to remain below the euro area average in the next two years.

        In 2008, average earnings of employees on a national accounts basis rose by 7.1% and compensation per employee by 6.8%. The respective figures were significantly lower in 2009 (increases of 1.3% and 2.3%, respectively), since one of the measures adopted was the freezing of salary and pension increases for high-income wage earners and pensioners in the public sector. In 2010, average earnings are expected to decline by 4.7% and compensation per employee by 1.8% compared to 2009.

33


Table of Contents


In the private sector, based on the 2008 wage agreements, the average annual increase of private sector contractual wages was 6.2% in 2008 and 5.7% in 2009; actual increases were lower in 2009, however, because of cuts in working time. Taking into account the fact that labor productivity growth (on a national accounts basis) was 1.9% in 2008 and close to zero in 2009, the real unit labor cost (on a national accounts basis) increased by 1.1% in 2008 and by 2.3% in 2009. During 2010, fiscal consolidation measures on the expenditure side have led to a reduction in public sector wages by 15%. The average wage rate increase in the private sector in 2010 is estimated to be lower than the minimum wage rises foreseen for 2011-2012 (i.e., in line with euro area's HICP of the corresponding previous year), due to lower increases in white-collar workers' salaries and a reduction in bonuses and allowances. Real unit labor cost (on a national accounts basis) is estimated to decline by 5.2% and real compensation per employee by 6.1%.

        The following table shows the rate of inflation, as measured by the CPI, the HICP, the producer price index ("PPI"), and the rate of increase in wages according to the index of nominal hourly earnings in manufacturing for the years indicated. The CPI is based on the prices of a basket of goods and services representing the expenditures of an average consumer. The HICP aims to cover the full range of final consumption expenditure for all types of households and provides the official measure of consumer price inflation in the euro area for purposes of monetary policy and assessing inflation convergence as required under the Maastricht criteria. The PPI measures average changes in prices received by domestic producers for their output.

INDICES OF PRICES AND WAGES

 
  2005   2006   2007   2008   2009  

CPI end of period (2005 = 100)(1)

    101.8     104.8     108.8     111.0     113.9  

Percentage change at year end

    3.6     2.9     3.9     2.0     2.6  

HICP end of period (2005 = 100)(1)

    101.9     105.2     109.2     111.6     114.5  

Percentage change at year end

    3.5     3.2     3.9     2.2     2.6  

PPI for the domestic market end of period (2005 = 100)(1)

    103.2     106.9     117.4     113.6     115.8  

Percentage change at year end

    9.1     3.5     9.8     (3.2 )   4.5  

Nominal Hourly Industrial Wages Index
(1967 = 100)(2)

    17,645.3     18,845.2     19,994.0     21,293.6     21,889.8  

Percentage change (annual average)(2)

    5.6     6.8     6.1     6.5     2.8  

Nominal Unit Labor Cost (percentage change)(2)

    3.7     2.3     3.7     5.7     3.9  

Real Unit Labor Cost (percentage change)(2)

    0.9     (0.8 )   0.6     2.4     2.7  

(1)
December on December rates of change.

(2)
Estimate.

Sources: Bank of Greece, Monthly Statistical Bulletin, ELSTAT, and Eurostat.

34


Table of Contents


BALANCE OF PAYMENTS AND FOREIGN TRADE

Balance of Payments

        In recent years, export receipts have financed about one third of import payments on a settlements basis. In 2009, export receipts totaled €15,318.0 million, while import payments reached €46,085.3 million, resulting in a trade deficit of €30,767.3 million. The current account deficit decreased from €34,797.6 million in 2008 to €25,818.7 million in 2009, i.e., to 11% of GDP in 2009 versus 14.8% of GDP in 2008. The reduction of the current account deficit was mainly the result of a decrease in the trade and income deficits. The trade deficit, in particular, has decreased substantially mainly due to considerable decreases in net vessel imports and the net oil import bill. These developments were offset only to a certain extent by a fall in the services surplus. The financial accounts surplus decreased to €24,395.4 million in 2009 from €29,914.2 million in 2008 and together with the capital account surplus provided sufficient financing to the current account deficit. The financial account surplus in both 2008 and 2009 resulted from high net inflows in portfolio investment. In 2009, net foreign direct investment decreased to €274.5 million from €1,420.7 million in 2008.

        In the period from January to November 2010, the current account deficit decreased by 2.6% year-on-year, mainly reflecting a narrowing of the trade deficit excluding oil and ships by 17.6% and a rise of 4.6% in the surplus of the services' balance. These developments more than offset an increase in the net oil import bill by 23.5% year-on-year, an 83.6% fall in the surplus of the current transfers account, an increase of 11.8% in net payments for purchases of ships, and a small increase by 1.7% in the income account deficit. Exports of goods excluding oil and ships on average decreased slightly by 1.4% year-on-year, while imports of goods excluding oil and ships declined by 11.7% year-on-year.

        Concerning the financial account, in the period from January to November 2010, direct investment showed a net inflow of €709 million. Specifically, net inflows of non-residents' funds for direct investment in Greece reached €1.6 billion (compared with a net inflow of €1.7 billion in the corresponding period of 2009), while an outflow of €0.8 billion was recorded under residents' direct investment abroad (compared with €1.1 billion in the corresponding period of 2009). During the same period, a net outflow of €24.1 billion was observed under portfolio investment (against a net inflow of €32.5 billion in the corresponding period of 2009). Specifically, outflows were recorded due to decreases of €34.2 billion and €1.2 billion in non-residents' purchases of bonds issued by residents/Treasury bills and shares of Greek firms, respectively. There was also a €1.2 billion outflow due to a rise in residents' holdings of foreign shares. These outflows were partly offset by inflows of €12.1 billion and €0.4 billion owing to declines in resident credit institutions' and institutional investors' holdings of foreign bonds and financial derivatives, respectively. Under "Other investment," a net inflow of €45.1 billion (against a net outflow of €11.5 billion in the corresponding period of 2009) is mainly attributable to general government net borrowing of €27.5 billion, as well as a €16.0 billion increase in non-residents' deposit and repo holdings in Greece (inflow). There was also a small decrease (inflow) of €0.5 billion in resident credit institutions' and institutional investors' deposit and repo holdings abroad.

        The following table provides abbreviated balance of payments information compiled on a settlements basis for the years indicated. Certain data below may differ in some respects from corresponding data included elsewhere in this document (such as budget data) as a result of different methods of calculation. The balance of payments system uses the conceptual framework of the IMF Balance of Payments Manual (5th Edition).

35


Table of Contents

BALANCE OF PAYMENTS (PROVISIONAL)

 
  2005   2006   2007   2008   2009   2010(3)  
 
  (euro in millions)
 

CURRENT ACCOUNT

                                     

Goods

                                     

Exports

    14,200.9     16,154.3     17,445.5     19,812.9     15,318.0     15,212.5  
 

Non-Oil

    11,943.1     13,214.5     14,408.2     15,558.5     12,254.8     10,955.4  
 

Oil

    2,257.7     2,939.8     3,037.3     4,254.5     3,063.2     4,257.1  

Imports

    41,759.8     51,440.6     58,944.8     63,861.7     46,085.3     42,035.2  
 

Non-Oil

    32,872.9     39,739.5     46,687.9     47,452.7     35,425.5     29,161.7  
 

Oil

    8,886.9     11,701.1     12,256.9     16,409.0     10,659.8     12,873.5  

Goods Total

    (27,558.9 )   (35,286.3 )   (41,499.2 )   (44,048.8 )   (30,767.3 )   (26,822.7 )

Services

                                     

Receipts

    27,253.5     28,364.1     31,337.3     34,066.2     26,983.3     26,740.4  
 

Travel

    10,729.5     11,356.7     11,319.2     11,635.9     10,400.3     9,466.1  
 

Transportation

    13,871.4     14,324.7     16,939.3     19,188.3     13,552.2     14,183.6  
 

Other Services

    2,652.6     2,682.7     3,078.9     3,242.0     3,030.9     3,090.7  

Payments

    11,862.4     13,027.0     14,745.6     16,930.6     14,343.9     13,983.8  
 

Travel

    2,445.7     2,382.8     2,485.7     2,679.1     2,424.6     2,024.8  
 

Transportation

    6,237.7     6,991.3     7,771.3     9,316.0     7,073.4     7,485.7  
 

Other Services

    3,179.0     3,652.9     4,488.6     4,935.5     4,845.1     4,473.3  

Services Total

    15,391.1     15,337.1     16,591.7     17,135.6     12,640.2     12,756.6  

Income

                                     

Receipts

    3,273.5     3,528.9     4,558.5     5,573.2     4,282.9     3,476.0  
 

Compensation of Employees

    287.1     318.1     366.9     344.7     294.6     183.1  
 

Investment Income

    2,986.4     3,210.8     4,191.7     5,228.5     3,988.3     3,292.9  

Payments

    8,949.6     10,738.3     13,844.3     16,216.2     13,267.2     11,763.9  
 

Compensation of Employees

    219.8     280.7     332.6     410.1     411.9     341.0  
 

Investment Income

    8,729.8     10,457.6     13,511.7     15,806.1     12,855.2     11,423.0  

Income Total

    (5,676.1 )   (7,209.4 )   (9,285.8 )   (10,643.0 )   (8,984.3 )   (8,288.0 )

Current Transfers

                                     

Receipts

    6,876.4     6,847.4     6,608.1     6,882.7     5,380.7     4,359.0  
 

General Government

    4,615.5     4,462.4     4,361.2     4,678.8     3,527.9     2,998.9  
 

Other Sectors

    2,261.0     2,385.0     2,246.9     2,203.9     1,852.8     1,360.0  

Payments

    3,776.0     3,447.5     5,017.0     4,124.1     4,088.1     4,162.0  
 

General Government

    2,921.4     2,472.7     3,825.4     2,717.6     2,679.6     2,739.8  
 

Other Sectors

    854.6     974.8     1,191.6     1,406.4     1,408.5     1,422.2  

Current Transfers Total

    3,100.4     3,399.9     1,591.1     2,758.6     1,292.6     197.0  

Current Account Total

   
(14,743.5

)
 
(23,758.7

)
 
(32,602.2

)
 
(34,797.6

)
 
(25,818.7

)
 
(22,157.0

)

CAPITAL TRANSFERS

                                     

Receipts

    2,324.9     3,310.7     4,673.9     4,637.8     2,328.1     1,139.8  
 

General Government

    2,137.1     3,116.5     4,401.4     4,241.9     2,133.2     1,033.6  
 

Other Sectors

    187.8     194.2     272.4     395.9     194.9     106.2  

Payments

    276.3     269.5     341.6     547.0     310.7     259.2  
 

General Government

    22.9     32.2     27.1     192.0     14.4     15.1  
 

Other Sectors

    253.4     237.3     314.5     354.9     296.3     244.1  

Capital Transfers Total

    2,048.6     3,041.3     4,332.3     4,090.8     2,017.4     880.6  

Current Account and Capital Transfers Total

   
(12,694.9

)
 
(20,717.4

)
 
(28,269.9

)
 
(30,706.8

)
 
(23,801.3

)
 
(21,276.4

)

36


Table of Contents

 
  2005   2006   2007   2008   2009   2010(3)  
 
  (euro in millions)
 

FINANCIAL ACCOUNT(1)

                                     

Direct Investment(1)

                                     

Assets

    (1,180.4 )   (3,324.4 )   (3,832.9 )   (1,650.4 )   (1,479.3 )   (844.0 )

Liabilities

    501.3     4,268.8     1,542.7     3,071.1     1,753.8     1,553.2  

Direct Investment Total

    (679.0 )   1,044.4     (2,290.2 )   1,420.7     274.5     709.2  

Portfolio Investment(1)

                                     
 

Assets

    (18,459.7 )   (6,961.2 )   (16,351.1 )   (268.9 )   (3,773.0 )   11,283.8  
 

Liabilities

    25,782.3     15,076.6     33,792.8     16,696.9     31,636.8     (35,365.4 )

Portfolio Investment Total

    7,322.6     8,115.4     17,441.7     16,428.0     27,863.8     (24,081.6 )

Other Investment(1)

                                     
 

Assets

    (6,301.5 )   (5,851.0 )   (16,266.1 )   (27,823.3 )   (23,875.7 )   (552.5 )
 

Liabilities

    12,215.5     17,369.5     29,006.8     39,917.8     20,238.8     44,595.0  
 

Loans of General Government

    (447.0 )   (447.7 )   (2,341.7 )   (572.7 )   (2,335.0 )   27,548.0  

Other Investment Total

    5,914.0     11,518.5     12,740.6     12,094.6     (3,636.9 )   45,147.5  

Change in Reserve Assets(2)

   
49.0
   
(224.0

)
 
(322.0

)
 
(29.0

)
 
(106.0

)
 
167.0
 

Financial Accounts Total

   
12,606.6
   
20,454.3
   
27,570.2
   
29,914.2
   
24,395.4
   
21,942.1
 

Balance

   
88.3
   
263.1
   
699.7
   
792.6
   
(594.1

)
 
(665.7

)

Reserve Assets (Stock)

   
1,945.0
   
2,169.0
   
2,491.0
   
2,521.0
   
3,857.0
   
4,372.0
 

(1)
(+) net inflow/(-) net outflow

(2)
(+) decrease/(-) increase

(3)
Data for 2010 covers period from January to November 2010.

Source: Bank of Greece.

Foreign Trade

        Greece's main trading partners are the EU Member States. Exports from Greece to EU Member States increased from 61.79% of total exports in 2005 to 62.51% in 2009; imports from EU Member States to Greece increased from 58.52% of total imports to 64.26% over the same time period. Exports of goods increased by 23.38% in constant terms over the period from 2005 to 2009. Germany and Italy are Greece's main trading partners.

37


Table of Contents

        The tables below provide data on the composition of Greece's merchandise trade by country.

MERCHANDISE EXPORTS BY COUNTRY

 
  Exports  
 
  2005   2006(1)   2007(1)   2008(1)   2009(1)   2010(1)(2)  
 
  (in % of total exports)
 

EU (27)

    61.79     64.38     65.03     64.05     62.51     64.92  
 

of which Germany

    20.14     17.76     17.75     16.41     17.72     17.73  
 

of which Italy

    17.01     17.68     16.56     18.03     17.66     16.31  
 

of which France

    6.69     6.94     6.41     6.02     5.98     6.22  

THIRD COUNTRIES

                                     

(NON EU-27)

    38.21     35.62     34.97     35.95     37.49     35.08  
 

of which USA

    11.17     9.67     11.49     14.21     13.26     10.12  
 

of which Russia

    4.18     4.26     5.92     6.72     4.34     5.68  
 

of which China

    1.23     1.20     1.84     1.68     1.72     2.66  
 

of which Japan

    0.67     0.79     2.15     0.53     0.54     0.60  

Total

    100.0     100.0     100.0     100.0     100.0     100.0  

(1)
Provisional data.

(2)
Data for 2010 covers period from January to September 2010.

Source: ELSTAT.

MERCHANDISE IMPORTS BY COUNTRY

 
  Imports  
 
  2005   2006(1)   2007(1)   2008(1)   2009(1)   2010(1)(2)  
 
  (in % of total imports)
 

EU (27)

    58.52     57.31     57.90     54.93     64.26     62.73  
 

of which Germany

    22.74     21.91     22.18     21.72     21.47     20.78  
 

of which Italy

    20.90     20.06     20.17     20.76     19.70     19.32  
 

of which France

    9.78     10.40     9.62     9.29     9.47     9.52  

THIRD COUNTRIES

                                     

(NON EU-27)

    41.48     42.69     42.10     45.07     35.74     37.27  
 

of which Russia

    17.57     15.60     13.35     16.29     5.95     7.98  
 

of which China

    8.82     7.93     11.91     12.24     19.85     20.67  
 

of which USA

    7.76     3.89     5.37     6.04     8.65     9.03  
 

of which Japan

    4.80     5.61     5.32     3.36     4.52     3.99  

Total

   
100.0
   
100.0
   
100.0
   
100.0
   
100.0
   
100.0
 

(1)
Provisional data.

(2)
Data for 2010 covers period from January to September 2010.

Source: ELSTAT.

        There were no substantial changes in the geographic distribution of Greek exports and imports during the 2004 to 2010 period. The EU Member States continue to be the destination of more than 50% of Greek exports, about 20% of which are directed towards Eastern Europe and the Balkans. However, Greek exports have not been successful in benefiting from the growth of foreign demand in most international markets and, as a result, have lost market share.

38


Table of Contents

        The tables below provide data on the composition of Greece's merchandise trade by product (excluding the oil bill and vessels). In fact, net oil imports were one of the main contributing factors to the trade deficit decrease in 2009, accounting for about 35% of the trade deficit decrease, mainly due to price effects in 2009, compared to a 115% rise in 2008; conversely, the contribution of net vessel imports to the trade deficit decline was 10% in 2009, compared to a 32% increase in 2008. The remaining 55% of the trade deficit decrease in 2009 was attributable to the remaining product categories.

MERCHANDISE EXPORTS BY PRODUCT (EXCLUDING OIL AND VESSELS)

 
  2005   2006   2007   2008   2009   2010(1)  
 
  (in % of total exports)
 

Agricultural goods

    21.1     19.9     18.3     18.5     21.9     19.6  

Chemicals, plastics

    13.6     13.5     12.1     11.9     13.6     13.0  

Manufacturing (except metallurgy)

    18.6     15.8     15.3     13.4     14.1     13.0  

Metallurgy

    15.0     18.1     19.9     18.5     14.5     16.5  

Machinery and equipment

    6.4     6.6     10.1     8.5     7.6     7.5  

Transportation equipment

    1.7     2.2     3.2     1.4     1.1     1.2  

Goods non-otherwise classified

    23.6     24.0     21.0     27.8     27.3     29.2  
                           

Total

    100.0     100.0     100.0     100.0     100.0     100.0  
                           

(1)
Provisional data covering period from January to October 2010.

Source: Bank of Greece.

MERCHANDISE IMPORTS BY PRODUCT (EXCLUDING OIL AND VESSELS)

 
  2005   2006   2007   2008   2009   2010(1)  
 
  (in % of total imports)
 

Agricultural goods

    14.2     13.7     14.0     14.3     15.9     15.6  

Chemicals, plastics

    16.9     15.8     15.4     15.2     17.3     18.0  

Manufacturing (except metallurgy)

    23.5     22.1     22.2     21.1     21.6     19.5  

Metallurgy

    10.3     11.2     11.5     11.2     8.3     9.8  

Machinery and equipment

    19.2     17.8     18.8     20.1     19.8     18.4  

Transportation equipment

    14.9     15.7     16.9     17.4     15.5     10.3  

Goods non-otherwise classified

    0.9     3.7     1.2     0.7     1.6     8.4  
                           

Total

    100.0     100.0     100.0     100.0     100.0     100.0  
                           

(1)
Provisional data covering period from January to October 2010.

Source: Bank of Greece.

Foreign Investment and Investment Incentives

        A fundamental objective of the Government continues to be the attraction of foreign investment. In pursuit of this objective and in accordance with the Government's policy of fostering free trade within the context of European economic integration, the Government eliminated all general restrictions on inward foreign investment in 1994. Remaining restrictions concern direct investments by residents of non-EU countries in border regions and maritime transportation, the acquisitions of mining rights, investments (including passive investments) by residents of non-EU countries in real estate in border regions, and participations by such persons in new or existing enterprises in the television, radio

39


Table of Contents


broadcasting, and air transportation industries. Foreign investors are entitled to repatriation of dividends and profits and are protected against arbitrary expropriation.

        One objective of the Economic Adjustment Program is to improve the business environment in Greece to unlock potential for investment. In November 2010, fast-track investment legislation was adopted, which is intended to accelerate procedures for large scale projects, and, in particular, foreign direct investment. To support investment more generally, legislation to accelerate licensing procedures for enterprises' physical establishments (in particular, by setting binding deadlines and defining clear standards for applications) is being amended. The Government is also taking steps to eliminate key legal and technical hurdles to the full operation of one-stop-shops by end-March 2011, including adapting IT systems and ensuring compatibility of legislation across the government entities involved. Finally, to promote more competitive markets and help prevent future barriers to entry, the Government expects to propose legislation aimed at reinforcing the independence and effectiveness of the competition authority by the end of 2011.

        The structural framework for investment support in Greece revolves around three institutional pillars: the Investment Incentives Law, the National Strategic Reference Framework 2007-2013, and Public Private Partnerships ("PPP").

        The Economic Adjustment Program calls for measures to facilitate foreign direct investment and investment in strategic innovation. Greece's Investment Incentives Law governs the terms and conditions of direct investment in Greece and provides for incentives, available to domestic and foreign investors, dependent on the sector and the location of the investment. Law 3299/2004 was suspended as of January 2010 and the new law, which was adopted by Parliament as Law 3908/2011 in January 2011, focuses on supporting high-return sustainable investment plans by providing tax relief, favorable loans, and capital assistance to selected productive investment activities.

        The NSRF establishes the broad priorities for Structural Funds Programs in Greece. Greece's NSRF seeks to achieve a balanced development of the country, with 82% of the CSF IV focusing on regional projects. It is expected that the NSRF will lead to an increase in real GDP of up to 3.5% and create up to 20,000 new jobs by 2013. NSRF is expected to contribute €3.3 billion to human capital investment and more than €1.0 billion to research and development. The goal is to increase the share of research and development to 1.5% of GDP by the end of the program period. For more information on the NSRF and community support frameworks, see "Public Finance—Transfers between Greece and the European Union."

        The framework for PPP provides for collaboration between public and private sector organizations for the financing, construction, maintenance, and operation/exploitation of infrastructure projects or for the provision of services.

        With EU support, the Government established the Hellenic Center for Investment ("ELKE"), now known as the Invest in Greece Agency, as a one-stop-shop to seek, promote, and support foreign investment in Greece and international alliances with Greek companies. The Invest in Greece Agency provides immediate assistance and guidance through all phases of the investment process, including advice on making maximum use of the investment incentives offered by both the Government and the EU, assistance in securing the necessary licenses, and information on Greece's legal and institutional framework. The Invest in Greece Agency is also vested with the authority to make specific recommendations for changes to the legal and institutional framework for investment. In connection with the Economic Adjustment Program, the Invest in Greece Agency has been designated to operate as a one-stop shop for strategic investments. As such, it will receive applications from investors, will assess them, deliver its opinion, and conduct the authorization procedures and organize calls for tenders.

40


Table of Contents

        In 2009, gross fixed capital formation (investment) in Greece decreased to 17.2% of GDP at current prices, compared to 19.2% of GDP in 2008 and 22.7% of GDP in 2007; in 2010, according to provisional estimates, it decreased further to 14.8% of GDP. Inward foreign direct investment ("FDI") in Greece increased from €1,692.0 million, or 0.9% of GDP, in 2004 to €4,268.8 million, or 2.0% of GDP, in 2006 before falling to €1,542.7 million in 2007, rising to €3,071.1 million in 2008 and falling again to €1,753.8 million, or 0.75% of GDP in 2009. In January-November 2010, inward FDI amounted to €1,553.2 million. Thus, in 2009, inward FDI showed a 42.9% decrease as a consequence of the international crisis, and then a further 10.5% year-on-year decrease in January-November 2010. During the period 2003-2009, inward FDI totalled €14.0 billion, while outward FDI totalled €12.6 billion, resulting in a €1.4 billion net FDI inflow. Outward FDI is undertaken by companies resident in Greece and mainly concerns investment and acquisitions in Southeast Europe, to some extent in Central Europe, as well as in the Mediterranean region; in this way, Greece is fulfilling an important "bridge function" role in the Balkans.

FOREIGN DIRECT INVESTMENT

 
  2005   2006   2007   2008   2009   2010(1)  
 
  (euro in millions)
 

Greek investment abroad

    1,180.4     (3,224.4 )   (3,832.9 )   (1,650.4 )   (1.479.3 )   (844.0 )

Foreign investment in Greece

    501.3     4,268.8     1,542.7     3,071.1     1,753.8     1,553.2  

Direct investment total

    (679.1 )   1,044.4     (2,290.2 )   1,420.7     274.5     709.2  

(1)
Provisional data covering period from January to November 2010.

Source: Bank of Greece.

41


Table of Contents


MONETARY AND FINANCIAL SYSTEM

The European System of Central Banks and the Bank of Greece

        The Bank of Greece (the "Bank") is the central bank of the Hellenic Republic within the ESCB. Currently, the Hellenic Republic controls 55.2% of the share capital of the Bank, with 45.2% being held by public entities, and 10% by the Hellenic Republic and state-owned commercial and industrial enterprises. The balance of the Bank's shares is widely held by the public. By law, shares of the Bank held by state enterprises and public entities may not be pledged or transferred unless approved by the Governor of the Bank.

        The Bank acts as the depository and financial agent for the Government with respect to its membership in the IMF and manages its gold and foreign currency reserves. It is also entrusted with supervisory and regulatory powers over all banks and non-deposit-taking financial institutions operating, including insurance companies operating in Greece. Further, the Bank is charged with handling international bilateral and multilateral payment arrangements.

        Greek banks are subject to regular audits by the Bank and are required to provide the Bank with all information necessary for statistical and regulatory purposes. Other regulations applicable to the banking industry relate to the banks' adoption of a specified accounting plan, the enforcement of prudential rules with respect to solvency ratios, limits on large exposures, minimum levels of provisions for loan losses, and mandatory contributions to a deposit insurance fund.

        On the European level, the ESCB is responsible for the monetary and financial system. The ESCB comprises the ECB and the national central banks of the 27 Member States, while the Eurosystem consists of the ECB and the national central banks of the 17 Member States that have adopted the euro as their legal currency.

        On January 1, 1999, the Eurosystem assumed responsibility for the single monetary policy for the euro area. Its decision-making bodies are the Governing Council and the Executive Board of the ECB. The national central banks of the Member States that are not part of the Eurosystem are represented in the General Council of the ECB, but have no voting rights in the decision-making process, particularly with respect to monetary policy. The Eurosystem's primary objective is to maintain price stability while supporting the general economic policies of the EU.

Monetary Policy Instruments of the ESCB

        To achieve its operational goals, the ESCB conducts open market operations, offers standing facilities, and requires credit institutions to maintain minimum reserves in accounts with the ESCB. Open market operations play an important role in the ESCB's monetary policy for the purpose of steering interest rates and managing the liquidity situation in the market. Available open market operations are reverse transactions, outright transactions, the issuance of debt certificates or foreign exchange swaps, and the collection of fixed-term deposits. Standing facilities are designed to provide or absorb overnight liquidity, and the imposition of minimum reserve requirements allows the ESCB to stabilize money market interest rates, create (or enlarge) a structural liquidity shortage, and possibly contribute to the control of monetary expansion.

        While its overall monetary policy instruments remained unchanged, the ESCB changed its liquidity framework quite substantially in response to the global economic and financial crisis. The ECB has provided substantial amounts of liquidity to the European financial sector. The liquidity measures have been accompanied by extensive changes in the liquidity framework of the ECB, including an expansion of assets eligible as collateral in the Eurosystem, enhanced open market operations, the provision of U.S. dollar liquidity to Eurosystem counterparties, the provision of euro liquidity to central banks outside the Eurosystem, and changes in the ECB standing facility rates corridor. In addition to these liquidity measures, the ECB lowered its key interest rate from 4.25% in July 2008 to 1.00% in early

42


Table of Contents


May 2009—the lowest interest rate level since the introduction of the euro in 1999. Also in early May 2009, the ECB decided to implement further measures, including the conduct of additional liquidity-providing longer-term refinancing operations, the acceptance of the European Investment Bank as an eligible counterparty in the Eurosystem's monetary policy operations, and the purchase of euro-denominated covered bonds issued in the euro area in a total volume of EUR 60 billion. The purchases were completed in June 2010. In line with its enhanced liquidity operations, the balance sheet of the ECB grew strongly during 2008 and reached EUR 383.9 billion as of December 31, 2008. The reduction of uncertainty in financial markets during 2009 led to a lower demand for liquidity and ECB's balance sheet shrank to EUR 138.0 billion as of December 31, 2009. To address severe tensions that are hampering the monetary policy transmission mechanism in the euro area, the ECB decided in early May 2010 to conduct further interventions in the euro area public and private debt securities markets to ensure depth and liquidity in those market segments that are dysfunctional (the "Securities Markets Program"). In order to sterilize the impact of the above interventions, the ECB will conduct specific operations to re-absorb the liquidity. The measures will not affect the monetary policy stance of the euro area. As of January 21, 2011, the value of accumulated purchases under the Securities Markets Program totaled EUR 76.5 billion. This number includes securities issued by the Hellenic Republic. For information on the ECB's capital increase, see "General—The European Union and European Integration—Monetary Integration—General."

Monetary Policy Strategy and Prices

        The ECB's primary goal is to maintain medium-term price stability, which is defined as a year-on-year increase in the Harmonized Index of Consumer Prices for the euro area of less than 2%. However, the ECB has clarified that, within this definition, it aims at an inflation rate close to 2%. This goal indicates the commitment to provide an adequate margin to avoid the risk of deflation. The stability-oriented monetary policy strategy used by the ECB to achieve this goal is based on two pillars: (1) analysis and assessment of short- to medium-term risks to price stability (economic analysis); and (2) assessment of medium- to long-term monetary developments (monetary analysis).

        For more information on price trends in Greece, see "The Economy—Prices and Wages."

Foreign Exchange Rates and Controls

        The euro is a freely convertible currency. Since its introduction, the euro has become the second most widely used currency internationally. Currency transactions do not require licenses or other permissions. Capital market transactions are not subject to any license or similar requirements. Gold may be imported and exported freely, subject only to the levy of VAT on some transactions.

        The following table sets forth the average exchange rates for selected currencies against the euro for each of the years indicated.

EURO EXCHANGE RATES

 
  2006   2007   2008   2009   2010  

U.S. dollar

    1.2556     1.3705     1.4708     1.3948     1.3257  

Japanese Yen

    146.02     161.25     152.45     130.34     116.24  

British pound

    0.68173     0.68434     0.79628     0.89094     0.85784  

Swiss franc

    1.5729     1.6427     1.5874     1.5100     1.3803  

Source: European Central Bank.

43


Table of Contents

Gold and Foreign Currency Reserves

        The Hellenic Republic's gold and foreign currency reserves are managed by the Bank and take the form of direct holdings by the Bank, membership contributions from Greece to the IMF denominated in foreign exchange and deposited with the IMF, and certain of its facilities and SDRs issued by the IMF to Greece.

        The following table provides the composition of international reserves of the Bank for each of the years indicated:

GOLD AND FOREIGN CURRENCY RESERVES OF GREECE

 
  At December 31,  
 
  2006   2007   2008   2009   2010  
 
  (euro in millions)
 

Foreign Exchange

    310     352     114     138     81  

Gold

    1,734     2,056     2,268     2,771     3,786  

IMF Reserves Position

    97     58     116     186     198  

SDRs

    28     25     23     762     712  
                       

Total

    2,169     2,491     2,521     3,857     4,777  
                       

Source: Bank of Greece.

        At December 31, 2010, international reserves amounted to €4,777 million. Gold is valued by the Bank at the closing market rate at the end of each quarter.

        As of December 31, 2009, the Member States participating in the EMU have transferred foreign reserve assets in an aggregate amount equivalent to approximately €40.1 billion to the ECB, consisting of foreign currency reserves and gold. The ECB manages the foreign reserve assets transferred to it. The foreign reserve assets not transferred to the ECB continue to be held and managed by the national central banks of the Member States participating in the EMU. In order to ensure consistency within the single monetary and foreign exchange policies of the EMU, the ECB monitors and coordinates market transactions conducted with those assets.

The Greek Financial Sector

    Institutions

        The Greek financial sector consists of commercial banks, a specialized credit institution, cooperative banks and non-bank financial institutions. Commercial banks play a dominant role in attracting savings and providing financing to all sectors of the Greek economy, as their total assets account for almost 75% of the financial sector's assets. Non-bank financial institutions, such as insurance companies, investment companies and mutual funds, play an increasingly important role in the Greek financial system. The Bank is responsible for banking supervision, which has been reinforced in connection with the Economic Adjustment Program, to involve more frequent reporting and quarterly stress tests. In addition, also in connection with the Economic Adjustment Program, the Bank has recently been assigned responsibility for the supervision of the insurance sector.

    Securities Market

        The Athens Exchange ("ATHEX") is currently the only official market in Greece for trading shares. Founded in 1867 as a self-regulated government agency, ATHEX is now a societé anonyme (public limited company) governed by a board of directors consisting of seven members who serve for a three-year term.

44


Table of Contents

        Members of the ATHEX eligible to place trading orders are brokerage firms that satisfy specific criteria regarding organization, personnel, capital adequacy, and technical capacity and have obtained a license issued by the Hellenic Capital Markets Commission ("HCMC"). Since 2000, credit institutions may also become members on condition that they have been granted a license by the Bank of Greece and the HCMC. In addition, following the implementation of the Markets in Financial Investments Directive, ATHEX has 15 remote members which are companies from other EU Member States.

        The following types of securities are currently traded on ATHEX:

    registered and bearer shares of the listed companies and their rights;

    bearer government bonds; and

    corporate bearer bonds.

        The majority of transactions involve shares trading on the Integrated Automated System of Electronic Transactions (OASIS), while rather limited activity is observed on other types of securities as government bonds are mostly traded through the Electronic Secondary Securities Market (HDAT) operated by the Bank of Greece, and the corporate bond market in Greece is still in the early stages of development.

        Following an institutional reform effective from the end of November 2005, ATHEX comprises one stock market that is separated into four segments: large capitalization, medium and small capitalization, the special stock exchange segment, and the segment under supervision. In the beginning of 2008 an additional market, the alternative market (ENA), was launched, which is open to small firms that do not qualify for listing in the other market segments. The Central Securities Depository (HELEX) manages the clearing and settlement of transactions. Finally, aside from the stock market, ATHEX also operates a separate derivatives market.

        Stock prices in the euro area recorded a relatively small increase during 2010 as the Dow Jones EURO STOXX 50 index increased by 12.0% following a decline of 22.9% in 2009, resulting from the global financial crisis.

        Share prices, traded value, and traded volume through ATHEX sharply declined as a result of the crisis in 2010. The ATHEX composite share price index fell by 35.6% between December 2009 and December 2010. The daily average volume of transactions reached €139.6 million during 2010, declining by 31.8% compared to 2009, while the value of equity securities traded in 2010 amounted to €54,007 million, compared to €83,447 million in 2009.

        Fundraising through the stock market in 2010 amounted to €3,426 million, mostly attributable to the banking sector (and in particular four credit institutions), compared to €4,295 million in 2009 again mainly attributable to credit institutions.

        Finally, despite financial sector growth in Greece, mutual fund activity declined for the sixth consecutive year. Specifically, the total assets of the 308 mutual funds in September 2010 (305 in 2009) amounted to €8,212 million, recording a 23.1% decline compared to 2009. By individual category, money market funds, accounting for 14% of total mutual fund assets in September 2010 (compared to 19% in 2009) reduced their share in total mutual fund assets, while the shares of bond funds (Sep. 2010: 32%, 2009: 30%), special purpose funds (September 2010: 6%, 2009: 5%), and funds of funds (September 2010: 9%, 2009: 7%) increased. Finally, the shares of mixed funds and equity funds remained constant at 15% and 24%, respectively.

45


Table of Contents

    Policy Response to the Crisis in the Global Financial Markets

        In the fall of 2008, the Government adopted a package of measures to stabilize the Greek financial market consisting of the following three schemes:

    A recapitalization scheme amounting to €5 billion pursuant to which Greek credit institutions may issue preferential shares that are purchased by the Government in exchange for Government bonds with a maturity of three years. This allows credit institutions to strengthen their capital base against potential losses. The preferential shares are treated as non-core tier 1 capital and bear interest at a rate of 10%.

    A guarantee scheme amounting to €15 billion covering new debt (in the form of loans or securities) with a maturity of three months to three years, issued by financial institutions, against remuneration. The guarantees are collateralized by eligible assets of the financial institutions. Subordinated debt and interbank loans are excluded from the scheme. This scheme was increased by a total of €40 billion in 2010 and extended to June 30, 2011.

    A securities scheme amounting to €8 billion, providing government bonds to eligible financial institutions. This enhances financial institutions' access to liquidity mainly via rep operations. Financial institutions borrow the bonds against collateral subject to significant haircuts and pay a fee similar to the remuneration under the guarantee scheme.

        All schemes are open to all credit institutions licensed in Greece. They are limited in time and scope, with entry windows of up to a maximum of six months and budget caps. Beneficiaries are required to pay market-oriented remuneration. The measures target only financially sound institutions; the provision of guarantees and capital and bond allocations are based on solvency and capital ratio requirements.

        Only the measures taken under the first scheme have a direct impact on public debt and the deficit. From the inception of the schemes through December 28, 2010, an amount of approximately €57.5 billion had been absorbed as follows:

    €3.8 billion under the recapitalization scheme in 2009;

    €3.0 billion under the guarantee scheme in 2009, of which €2.0 billion has matured, and €45 billion in 2010;

    €1.9 billion in 2008, €2.8 billion in 2009 and €3.0 billion in 2010 under the securities scheme.

    Key Financial Sector Policies in Connection with the Financial Assistance Program

        Despite the stabilization measures taken in response to the global financial crisis, the Greek financial sector continued to suffer from tight liquidity conditions as Greece's deteriorating fiscal results and the associated loss of confidence led rating agencies to downgrade Greek sovereign bonds, which were widely held by Greek banks. At the end of 2009, banks lost access to international money markets, maturing interbank liabilities were not renewed, and some moderate deposit outflows were recorded in the first few months of 2010. As a result, Greek banks came to rely increasingly on the ECB for liquidity. Furthermore, the weakening performance of the Greek economy resulted in a reversal of credit growth and an increase in non-performing loans leading to increasing concerns about solvency as well. Structural problems with the financial sector, including with regard to supervision, were also identified.

        As part of the Economic Adjustment Program agreed upon in connection with the financial assistance program extended by the Euro Area Member States and the IMF (see "Public Finance—Financial Assistance Program"), Greece, therefore, undertook to implement various reforms of the Greek financial sector, including the establishment of the FSF. The purpose of the FSF is to maintain

46


Table of Contents


the stability of the Greek banking system by providing equity capital to credit institutions authorized to operate in Greece in case of a significant decline of capital buffers.

        The FSF was established in July 2010 as a private law institution with a strong governance structure to ensure independence, transparency and accountability. The board of directors, which was appointed in October 2010, comprises seven members. The European Commission and the ECB each also have a non-voting observer who may attend monthly board meetings. The FSF has a limited duration and will expire on June 30, 2017.

        The FSF can be activated if certain triggering events occur, such as when a bank's capital ratio falls below the legally required capital adequacy requirements. Capital will generally be injected in the form of preference shares with a return on capital determined by the FSF in accordance with EU rules. The preference shares will come with extensive voting and control rights, the distribution of dividends will be restricted, and the management of banks utilizing funds from the FSF will be subject to restrictions on compensation. Capital will be provided on the presentation of an emergency business plan including a timetable and in accordance with EU state aid rules.

        The FSF's total capital will amount to €10 billion, which will stem from funds provided by the financial assistance program and be paid to the FSF in tranches. By December 31, 2010, a total of €1.5 billion had been disbursed. However, according to current projections, banks are not expected to turn to the FSF in the near future. A dedicated account will be opened by the General Accounting Office in which the subsequent tranches of the FSF will be placed until they are needed, allowing the Government to optimize cash management.

        In July 2010, the Committee of European Banking Supervisors carried out Europe-wide stress tests on the major European banks. The largest public bank in Greece, the Agricultural Bank of Greece ("ATE"), failed these stress tests as a result of an accumulation of losses leading to an erosion of its capital base. Because of ATE's poor asset portfolio and rapidly deteriorating capital base, there were concerns regarding its profitability and long-term viability.

        In August 2010, the Ministry of Finance appointed three international investment banks as consultants to carry out a strategic study of the future of the Greek banking sector and to identify options for the Ministry of Finance in relation to its stakes in various state-owned banks, including ATE. The study was completed in November 2010 and concluded that ATE should be thoroughly restructured as a stand-alone institution with reduced lending to public entities and enhanced corporate governance. A recapitalization of the bank is envisaged in 2011, subject to approval from the European Commission. The strategic review also recommended that the Government sell its stake in Post Bank by the end of 2011 and consult with the management of Attica Bank on the Government's sale of its stake in that bank.

        Other financial sector policies launched in connection with the financial assistance program include legislation to address the restructuring of household and corporate debts, measures to enhance the quality of banking supervision, including the methodology of supervisory stress tests, measures to enhance coordination with other national banking supervisors within the EU framework, and efforts to increase bank flexibility so as to allow them to reduce costs, for example, by ending the process by which the employees of public banks benefit from contracts similar to those granted to civil servants.

47


Table of Contents


PUBLIC FINANCE

Introduction

        The fiscal year of the Hellenic Republic is the calendar year. The Ministry of Finance, in close collaboration with the Hellenic General Accounting Office, is responsible for the preparation of the annual budget of the Hellenic Republic (the "Central Government Budget"). According to the Greek Constitution, the Minister of Finance is required to submit the budget for the coming year to Parliament by the end of November each year. Following extensive parliamentary discussions in plenary session, the Parliament usually approves the final budget by the end of the fiscal year. At the time of submission of each annual budget to Parliament, final accounts for the previous year and estimates for the current year are also submitted to Parliament.

        Greece's public sector consists of the administrative public sector (the "General Government") and state-owned enterprises. General Government is comprised of the Central Government, the social insurance organizations, local authorities, and a considerable number of public legal entities. The Central Government Budget is split into two parts, the Ordinary Budget, for all current revenues and expenditures, and the PIP, which comprises capital investment expenditures and specific capital inflows/revenues derived from the EU structural funds. The budget, when submitted to the Parliament for consideration, is accompanied by the Budget Report, which describes and analyses the domestic and international economic environment, current economic developments, and policies and fiscal targets for the coming calendar year.

        The Government has launched two initiatives aimed at improving the quality of public finances. The first is the introduction of Program Budgeting, aimed at improving the effectiveness of public expenditure, facilitating multi-annual budgeting and enhancing transparency in fiscal management. The second initiative is the implementation of a new accounting system on an accrual basis that is expected to produce a more accurate presentation of public finances and effective implementation of the Central Government Budget. In addition, the Ministry of Finance has incorporated special extra-budgetary accounts in the general state budget, further intensified fiscal audits, and required public enterprises to provide accounting reports every six months.

        A new framework (Law 3871/2010) has been adopted for drawing up, executing and monitoring the government budget. The new framework aims at reinforcing the trustworthiness of state fiscal policy via an overhaul reform of the budget process and of the accounting system of the public sector. The new law introduces a medium-term fiscal framework and a compulsory contingency reserve in the budget. The 2011 budget was the first budget drafted under the new framework and contains detailed expenditure ceilings for each line ministry, local governments and social security funds consistent with the general government deficit. In addition, transparency and accountability are enhanced through the creation of a parliamentary budgeting office. Expenditure monitoring mechanisms are strengthened through the creation of a commitment registry intended to register monthly reports of expenditure commitments undertaken by all spending entities.

Sources of Revenue

        The main sources of revenue of the Hellenic Republic are transaction taxes (Value Added Tax) and consumption taxes (excise taxes on fuel and tobacco), capital transfers from EU funds, and income taxes (personal and corporate). For more information on transfers from the EU, see "—Transfers between Greece and the European Union."

        In connection with the Government's fiscal consolidation efforts, a new tax law was enacted in April 2010, which aims to simplify and increase the efficiency of the tax system, and to introduce rules and procedures to effectively combat tax evasion. The new tax law represents a complete overhaul of the Greek tax system with the aim of rendering it simpler, more stable, transparent, fair, and effective

48


Table of Contents


in fighting tax evasion by improving auditing and the exchange of information. The law introduces reforms in four main areas of the Greek tax system: Taxation of personal income; capital and real estate taxes; business and corporate taxation; and tax administration, auditing and combating tax evasion. The new law also provides for targeted tax incentives to promote entrepreneurship, safeguard employment and enhance investment in research.

        The main elements of the new tax law include:

    Introduction of a unified progressive tax scale.

    Abolition of autonomous taxation and most exemptions for personal income.

    Determination of imputed minimum taxable income based on the services, assets, and estates owned or used by the taxpayer.

    Reintroduction of a progressive tax on large property, inheritances, and bequests.

    Introduction of a progressive taxation of transfers and contributions of real estate.

    Increased taxation of Church real-estate holdings and introduction of a tax on Church property income.

    Treatment of dividends as personal income taxed at the progressive tax scale.

    Introduction of incentives to facilitate the repatriation of capital from abroad.

    Move to mandatory fully electronic tax declarations together with e-tax reforms, such as electronic invoicing.

    Increase the tax accountability of off-shore companies and their owners.

    Introduction of incentives for issuing and collecting transaction receipts.

    Extension of VAT obligation to include economic activities currently exempt.

    Radical measures for improving the auditing process through IT-based management system and risk-based approaches.

    Elimination of bargaining in penalty assessment and adoption of a point system.

    Review and strengthening of existing procedures for the cross-checking of tax data.

    Penalties for tax evasion and illicit trafficking.

    Reorganization of tax services.

    Tax incentives to support youth entrepreneurship, investments, research, and environmental protection.

Greece's General Government Deficit

        The following table provides the general government deficit and general government debt as percentage of GDP for Greece and the EU in its current composition for the years indicated as well as projections for the years 2010 to 2012 as set forth in the European Commission's 2010 Autumn Forecast.

49


Table of Contents

GENERAL GOVERNMENT DEFICIT AND GENERAL GOVERNMENT DEBT AS PERCENTAGE OF GDP
(EXCESSIVE DEFICIT PROCEDURE)

 
  2006   2007   2008   2009   2010(1)   2011(2)   2012(2)  
 
  (percentage of GDP)
 

General Government Deficit

                                           
 

Greece

    5.7     6.4     9.4     15.4     9.4     7.4     7.6  
 

EU

    1.5     0.9     2.3     6.8     6.8     5.1     4.2  
 

Euro area

    1.4     0.6     2.0     6.3     6.3     4.6     3.9  

General Government Debt

                                           
 

Greece

    106.1     105.0     110.3     126.8     140.2     150.2     156.0  
 

EU

    61.5     58.8     61.8     74.0     79.1     81.8     83.3  
 

Euro area

    68.4     66.0     69.7     79.1     84.1     86.5     87.8  

(1)
Provisional figures.

(2)
Projected figures.

Source: European Commission, 2010 Autumn Forecasts.

        At 15.4% of GDP, the general government deficit in 2009 surpassed the level of 2008. According to the MEFP, the deficit is expected to fall below the reference value of 3% GDP in 2014, starting with a frontloaded fiscal consolidation effort, which is expected to reduce the general government deficit by 6% of GDP to 9.4% of GDP in 2010. The 2011 Budget adopted in December 2010 foresees a further general government deficit reduction effort of 2.0% of GDP to 7.4% of GDP. For an overview of the measures adopted or planned in connection with the 2010 and 2011 budgets aimed at consolidating public finances, see "—Central Government Budget—2010 Budget" and "Central Government Budget—2011 Budget" below.

Excessive Deficit Procedure

        Under the Pact, Member States participating in the EMU are required to pursue a medium-term objective of ensuring the long-term sustainability of public finances and minimizing the risk of their government deficit exceeding the reference value of 3% of GDP. A Member State participating in the EMU whose general government deficit exceeds the reference value of 3% of its GDP becomes subject to the "excessive deficit procedure." See "General—The European Union and European Integration—Monetary Integration" for a general description of the excessive deficit procedure.

        After the excessive deficit procedure initiated against Greece in 2004 (based on an excessive deficit in 2003) was abrogated by the Ecofin Council in June 2007 based on data notified at the time showing a reduction of the general government deficit to below 3% of GDP in 2006, the general government deficit once again exceeded 3% of GDP in 2007 and 2008. Accordingly, in April 2009, the Ecofin Council decided that an excessive deficit existed in Greece and recommended that the Government take effective action to reduce the excessive general government deficit to below the 3% threshold by 2010. In its decision, the Ecofin Council recommended measures for the correction of the deficit by 2010 and called for continued efforts to improve the collection and processing of government statistical data. A deadline was set for October 2009, to assess whether Greece had taken effective action in response to the Ecofin Council's recommendations of April 2009.

        Greece's October 2009 EDP notification included substantial revisions of the government deficit and the debt data for the previous years, including revisions to the general government deficit for 2008, which increased to almost 73/4% of GDP, up by 4 percentage points compared to the January 2009 SGP Update and 23/4 percentage points compared to Greece's April 2009 EDP notification. In addition, the

50


Table of Contents

October 2009 EDP notification estimated the government deficit in 2009 to amount to 121/2%, compared to the Commission's forecast of 3.7% of GDP.

        On December 2, 2009, the Ecofin Council decided that Greece had not taken effective action in response to its recommendation of April 2009. According to the Ecofin Council, shortcomings in public finance statistics had recurred, and Greek public finances had worsened beyond what could have been expected as a result of the economic downturn. In addition, the Ecofin Council was of the opinion that new measures for the 2009 budget consisted mainly of revenue-enhancing measures, partly temporary, and not permanent measures on the expenditure side as called for by the Ecofin Council.

        On January 15, 2010, the Government submitted the January 2010 SGP Update, which envisaged reducing the budget deficit by 4 percentage points to 8.7% of GDP in 2010 and thereafter to 5.6% in 2011, 2.8% in 2012, and 2% in 2013, to the Commission. The January 2010 SGP Update outlined a package of concrete fiscal consolidation measures for 2010 as well as a number of structural reforms aimed at improving the budgetary framework and the efficiency of public spending, enhancing investment, and improving the functioning of labor and product markets. At the beginning of February 2010, the Government announced further fiscal consolidation measures.

        On February 16, 2010, the Ecofin Council adopted a decision notifying Greece to put an end to its excessive deficit by 2012 at the latest and to adopt a comprehensive structural reform package. The package, which was largely consistent with Greece's January 2010 SGP Update, was aimed at increasing the effectiveness of the public administration, stepping up pension and healthcare reform, improving labor market functioning and the effectiveness of the wage bargaining system, enhancing product market functioning and the business environment, and maintaining banking and financial sector stability. Greece was required to submit a first report in mid-March 2010, detailing the implementation calendar of the measures to achieve the 2010 budgetary targets and was required to be prepared to adopt additional measures if needed. In addition, Greece was required to submit quarterly integrated reports from mid-May 2010 onwards addressing the implementation of the recommendations.

        On March 5, 2010, the Parliament approved a package of additional measures designed to safeguard the achievement of the SGP targets (this package included permanent measures, which were intended to contribute to a further reduction in the fiscal deficit by 2% of GDP).

        On March 16, 2010, the Ecofin Council welcomed the first report by Greece and considered that the additional measures announced by the Greek government at the beginning of March 2010 appeared sufficient to safeguard budgetary targets for 2010, provided that they were implemented effectively, fully, and in a timely manner.

        However, despite the measures Greece was undertaking to correct its excessive deficit, it continued to experience serious difficulties in accessing the financial markets to obtain new borrowings in April 2010 with two-year bond spreads reaching 652 basis points and 10-year bond spreads reaching 430 basis points on April 8, 2010. On April 11, 2010, the Euro Area Member States declared their readiness to take determined and coordinated action if the stability of the euro area as a whole was threatened and agreed to help Greece meet its financing needs.

        Following the Euro Area Member States' declaration of April 11, 2010, Greece requested discussions with the European Commission, the ECB, and the IMF on a multi-year program of economic policies that could be supported with financial assistance if the Greek authorities decided to request such assistance. On April 23, 2010, the Government officially requested financial assistance from the Euro Area Member States and the IMF.

51


Table of Contents

Financial Assistance Program

        The financial assistance program takes the form of pooled bilateral loans from the Euro Area Member States in the amount of up to EUR 80 billion over a period of three years parallel to a stand-by arrangement of credit provided by the IMF in the amount of up to EUR 30 billion.

        The funds from the financial assistance program are disbursed in quarterly tranches and each disbursement of funds requires unanimity among the Euro Area Member States and is subject to strict conditionality, which requires Greece to meet various fiscal consolidation targets, including the reduction of the budget deficit to below 3% of GDP by 2014. In order to meet those targets, the Government, in close cooperation with the European Commission, the ECB, and the IMF, adopted a three-year economic adjustment program on May 2, 2010 (the "Economic Adjustment Program"). In addition to the significant fiscal consolidation it entails, the Economic Adjustment Program also includes specific milestones for the implementation of structural measures relating to the tax system, the budget process, the reform of pensions, labor market reform, the opening up of product markets and closed professions, and reforms in public administration. On May 7, 2010, the heads of state and government of the euro area finalized the procedures to implement the financial assistance program and on May 9, 2010, the Executive Board of the IMF approved the agreement. The implementation of the financial assistance program started immediately, and approximately €20 billion was available to the Greek government in May 2010.

        Under the financial assistance program, the quarterly disbursements of bilateral financial assistance from the Euro Area Member States are subject to quarterly progress assessments of the Economic Adjustment Program for the duration of the arrangement. The release of the tranches is based on observance of quantitative performance criteria and a positive evaluation of progress made with respect to policy criteria in the MEFP and in the MoU, which are updated and further specified in connection with the quarterly reviews.

        The first assessment was successful and resulted in the approval of the second disbursement of €9 billion in September 2010. The Greek government accomplished a series of critical structural milestones, such as the reform of the private and public pension systems together with a major labor law overhaul intended to boost competitiveness, the reform of local and regional public administration, the establishment of a Financial Stability Fund to safeguard the country's banking system, the establishment of a new public finance management framework, and the establishment of a single payment authority for the public sector wage bill.

        The second assessment of the Economic Adjustment Program was completed in November 2010. In a joint statement, European Commission, the ECB, and the IMF stated that the program remains broadly on track and that the end-September quantitative criteria had all been met. They also recognized that significant progress has been made with some landmark reforms, including pension reform. In the fiscal area, although the general government deficit target of 8.0% for 2010 had not been met, the estimated deficit reduction by 6.0% to 9.4% of GDP in 2010 was larger than the initially targeted reduction of 5.5%. The third disbursement of €9 billion was approved in December 2010, meaning that a total of €38 billion had been drawn down under the financial assistance program in 2010.

        The third program assessment was concluded in mid-February 2011. In a joint statement, the European Commission, the ECB, and the IMF concluded that the program had made further progress toward its objectives and that, while there had been delays in some areas, the underlying fiscal and broader reforms necessary to deliver the program's medium-term objectives are being put in place. In order to secure fiscal stability and economic recovery, however, it was necessary to design and implement major reforms to build a critical mass. Subject to formal approval of the conclusions of the third review, a further €15 billion are expected to be disbursed in March 2011. The mission for the next program review is scheduled for May 2011.

52


Table of Contents

Central Government Budget

        The following table sets forth the Central Government Budget (Ordinary and Public Investment Budget) for the years indicated.

CENTRAL GOVERNMENT BUDGET

 
  2006
Outturn
  2007
Outturn
  2008
Outturn
  2009
Outturn
  2010
Budget
  2010
Outturn(1)
  2011
Budget
 
 
  (euro in millions)
 

Ordinary Budget

                                           

Revenue

                                           
 

Tax revenue

    44,991     48,405     51,085     49,722     54,145     51,269     52,860  
 

Revenue of incorporated off-budget accounts

                1,088     1,120     1,136     1,157  
 

Proceeds of the liquidity support plan

                47     280     635     643  
 

Revenues from NATO

                    52     13     40  

Total revenue

    48,685     51,777     55,334     53,498     58,402     56,160     59,360  

Tax refunds (-)

    2,392     2,624     3,654     4,952     4,650     4,979     3,800  

Net revenue

    46,293     49,153     51,680     48,546     53,752     51,181     55,560  

Expenditure

                                           
 

Salaries and pensions

    19,507     20,746     22,835     23,825     26,213     21,542     21,061  
 

Wages

    13,702     14,433     15,409     15,746     16,328     14,146     13,579  
 

Grants to social security funds, social protection and medical care

    9,807     11,155     13,447     17,021     15,555     15,747     16,653  
 

Operating expenditure

    7,555     8,896     8,781     9,269     9,513     8,132     7,798  
 

Returned resources

    4,085     4,313     4,624     6,452     4,855     5,656     5,978  
 

Payments to insurance fund for the persons working in the Public Electricity Company

    420     465     710     758     710     604     600  
 

Tranfers to hospitals for the settlement of past debt Returned resources

                      1,498           375     450  
 

Reserves

                            580  
 

Expenditures financed by abolished off-budget accounts

            38     668     722     602     564  
 

Non-recurring expenditure

                               
 

Non-recurring contribution to the EU (due to GDP revision)

        1,108                        

Total primary expenditure

    41,375     46,682     50,435     59,490     56,846     52,024     53,083  

Interest payments

    9,589     9,796     11,207     12,325     12,950     13,223     15,920  

Total expenditure

    50,964     56,478     61,642     71,816     69,796     65,247     69,003  

Primary surplus

   
4,918
   
2,471
   
1,245
   
(10,945

)
 
(3,094

)
 
(843

)
 
2,487
 

Ordinary budget deficit

    (4,671 )   (7,325 )   (9,962 )   (23,270 )   (16,044 )   (14,066 )   (13,443 )

Amortization

   
16,954
   
16,954
   
26,246
   
29,135
   
19,510
   
19,549
   
28,130
 

Military equipment procurement

    2,076     2,076     2,597     2,129     2,000     1,017     1,600  

Public Investment Program

                                           

Revenue

    3,775     4,875     5,018     2,306     3,860     3,072     3,922  
 

Inflows from EU

    3,563     4,811     4,668     2,106     3,710     2,801     3,722  
 

Other

    212     64     350     200     150     271     200  

53


Table of Contents

 
  2006
Outturn
  2007
Outturn
  2008
Outturn
  2009
Outturn
  2010
Budget
  2010
Outturn(1)
  2011
Budget
 
 
  (euro in millions)
 

Expenditure

    8,184     8,809     9,624     9,588     10,300     8,447     8,500  

Public Investment Program Deficit

   
(4,409

)
 
(3,934

)
 
(4,606

)
 
(7,547

)
 
(6,440

)
 
(5,375

)
 
(4,578

)

Central Government Budget

                                           

Net revenue

    50,068     54,028     56,698     50,585     57,612     54,253     59,482  

Expenditure

    59,148     65,287     71,266     81,403     80,096     73,694     80,339  

Central government deficit

    (9,080 )   (11,259 )   (14,568 )   (30,818 )   (22,484 )   (19,441 )   (20,857 )

Percentage of GDP

    (4.3 )   (5.0 )   (6.1 )   (13.1 )   (9.2 )   (8.4 )   (9.1 )

GDP (Revised)

    211,314     227,134     236,936     235,035     244,233     231,888     228,408  

(1)
Provisional data.

Source: Ministry of Finance—General Accounting Office.

54


Table of Contents

        The following table breaks down Ordinary Budget revenue for each of the years indicated.

ORDINARY BUDGET REVENUE BY CATEGORY

 
  2006
Outturn
  2007
Outturn
  2008
Outturn
  2009
Outturn
  2010
Budget
  2010
Outturn(1)
  2011
Budget
 
 
  (euro in millions)
 

Ordinary revenue

    47,912     51,777     55,334     52,308     56,950     54,376     57,520  

Direct taxes

   
18,704
   
19,832
   
20,863
   
21,431
   
23,725
   
20,265
   
20,880
 

Income tax

   
15,006
   
16,093
   
16,670
   
16,589
   
17,375
   
14,317
   
14,820
 
 

Personal income tax

    9,275     10,161     10,816     10,841     11,400     9,430     10,600  
 

Corporate income tax

    4,438     4,659     4,211     3,813     3,525     3,167     2,800  
 

Other

    1,293     1,273     1,643     1,935     2,450     1,720     1,420  

Property taxes

    464     434     486     526     865     487     910  

Tax arrears

    1,848     1,742     2,077     2,446     2,725     2,890     2,700  

Other direct taxes

    1,386     1,563     1,630     1,870     2,760     2,571     2,450  

Indirect taxes

   
26,287
   
28,573
   
30,222
   
28,291
   
30,420
   
31,004
   
31,980
 

Transaction taxes

    17,692     19,624     20,060     17,872     18,472     18,457     19,290  
 

VAT

    15,825     17,381     18,243     16,582     17,315     17,375     18,030  
   

Fuel

    1,710     1,795     2,299     1,907     2,055     2,653     2,410  
   

Tobacco

    622     673     657     681     755     779     972  
   

Other

    13,493     14,913     15,287     13,994     14,505     13,943     14,648  
 

Other transaction taxes

    1,867     2,243     1,817     1,290     1,157     1,082     1,260  
   

Capital transfers

    1,045     1,322     1,130     831     698     702     828  
   

Stamp duty

    710     682     685     459     458     379     432  

Consumption taxes

    7,469     8,044     9,048     9,569     10,986     11,824     11,640  
 

On insurance premiums

    296     337     345     358     370     404     410  
 

On vehicles

    897     998     842     473     508     249     285  
 

Excise tax on fuel

    2,608     2,868     3,690     4,374     4,655     5,698     5,240  
 

Other excise taxes (tobacco, etc.)

    2,738     2,904     2,836     2,924     3,210     3,382     3,911  
 

Road duties

    794     819     997     1,046     1,600     1,590     1,212  
 

Other

    136     118     338     394     643     501     582  

Tax arrears

    497     383     485     434     485     339     530  

Other indirect taxes

    629     522     629     416     477     384     520  
 

for EU

    267     314     307     245     274     208     230  

Tax revenue

   
44,991
   
48,405
   
51,085
   
49,722
   
54,145
   
51,269
   
52,860
 

From E.U

   
234
   
170
   
579
   
264
   
372
   
320
   
340
 

Other non-tax revenue

   
2,687
   
3,202
   
3,670
   
2,319
   
2,433
   
2,787
   
4,320
 

Non-tax revenue

   
2,921
   
3,372
   
4,249
   
2,583
   
2,805
   
3,107
   
4,660
 

Non-recurring revenue

   
773
   
   
   
1,190
   
1,400
   
1,784
   
1,840
 

Total

   
48,685
   
51,777
   
55,334
   
53,498
   
58,350
   
56,160
   
59,360
 

Tax refunds

   
2,392
   
2,624
   
3,654
   
4,952
   
4,650
   
4,979
   
3,800
 

Net revenue

   
46,293
   
49,153
   
51,680
   
48,546
   
53,700
   
51,181
   
55,560
 

(1)
Provisional data.

Source: Ministry of Finance—General Accounting Office.

55


Table of Contents

        The following table breaks down Ordinary Budget Expenditure for each of the years indicated.

ORDINARY BUDGET EXPENDITURE BY CATEGORY

 
  2006
Outturn
  2007
Outturn
  2008
Outturn
  2009
Outturn
  2010
Budget
  2010
Outturn(1)
  2011
Budget
 
 
  (euro in millions)
 

A. Salaries and Pensions (1+2+3)

    19,507     20,746     22,871     24,487     25,425     22,139     21,593  
 

1. Salaries and pensions of central government personnel

    16,444     17,615     19,517     20,934     21,736     18,920     18,444  
   

Wages and salaries

    11,493     12,125     12,971     13,120     13,538     11,752     11,329  
   

Special financial support

                126              
   

Special benefit to the judiciary

            190     146     140     2      
   

Pensions

    4,576     5,052     5,904     6,487     7,064     6,250     6,258  
   

Other allowances

    368     393     409     393     348     319     325  
   

Productivity bonus financed by incorporated off-budget accounts

            36     662     656     597     532  
   

Non-recurring expenditures

    7     46     7                    
 

2. Salaries for hospital personnel and other government bodies

    3,063     3,131     3,354     3,768     3,662     3,219     3,099  
   

Salaries for hospital personnel, etc. 

    2,660     2,783     2,927     3,205     3,335     2,936     2,803  
   

Special financial support

                24              
   

Clergy and other government bodies

    384     338     419     324     327     283     297  
   

Non-recurring expenditure

    18     10     7                    
 

3. New recruitment

                    27         50  

B. Grants to Social Security Funds, Medical Care, Social Protection (4+5+6+7)

   
9,807
   
11,155
   
13,447
   
17,021
   
14,964
   
15,143
   
16,053
 
 

4. Medical care

    1,043     1,163     1,211     1,383     1,318     1,313     1,312  
 

5. Grants to social security funds

    6,769     7,505     9,644     12,234     10,231     10,376     10,500  
   

Insurance Fund for the Agricultural Sector

    3,050     3,649     4,178     4,563     4,550     4,840     4,600  
   

Wage Earners' Fund

    1,700     1,800     2,404     4,000     2,450     2,485     2,310  
   

Other Grants

    2,019     2,056     3,062     3,671     3,231     3,051     3,590  
 

6. Other Social Ins. and Health expend

                        600     1,200  
 

7. Social protection

    1,995     2,387     2,592     3,404     3,415     2,854     3,041  
   

Complementary pension allowance

    849     924     1,064     1,034     1,142     914     940  
   

Allowances to families with many children

    470     495     710     790     795     792     675  
   

Allowances to disabled persons(2)

    549     596     662                          
   

Grant to National Social Cohesion Fund

                311              
   

Grant to Intragenerational Solidarity Fund

                522     630     560     606  
   

Temporary support for social solidarity

                488     500     113      
   

Other income payments

    123     109     105     119     148     105     320  
   

Non-recurring expenditures

    4     263     51                        
   

Grant to Unemployment Benefit Organization

                140     200     370     500  

56


Table of Contents

 
  2006
Outturn
  2007
Outturn
  2008
Outturn
  2009
Outturn
  2010
Budget
  2010
Outturn(1)
  2011
Budget
 
 
  (euro in millions)
 

C. Operational and Other Expenditures (8+9+10+11)

    7,555     8,895     8,783     9,275     8,830     8,107     7,830  
 

8. Grants to other entities

    2,141     2,372     2,606     2,619     2,657     2,529     2,213  
   

Urban transportation

    220     224     256     273     257     262     446  
   

Other grants

    1,759     1,995     2,287     2,349     2,400     2,237     1,767  
   

Non-recurring expenditures

    162     153     62                    
 

9. Consumption expenditure

    2,396     3,395     2,702     3,209     2,573     2,604     2,255  
   

Operational expenditures

    2,254     2,378     2,628     3,209     2,573     2,604     2,255  
   

Non-recurring expenditures

    143     1,017     74                    
 

10.Conditional expenditures

    2,866     2,891     3,408     3,148     3,394     2,879     3,222  
   

Agricultural subsidies

    694     734     758     664     681     516     735  
   

Payments to E.U. 

    2,172     2,157     2,649     2,484     2,713     2,363     2,487  
   

Non-recurring expenditures

                               
 

11.Non-allocated

    151     237     68     299     407     125     139  
   

New programs

    28     103     62           243         87  
   

Other expenditures financed by incorporated off-budget accounts

            2     6     66     5     32  
   

Electoral expenditures

    124     134         293     50     120     20  
   

Non-ordinary expenditure

                    48          
   

Non-recurring expenditures

                               

D. Returned Resources

   
4,085
   
4,313
   
4,624
   
6,452
   
6,718
   
5,656
   
5,978
 
   

Non-recurring expenditures

                             

E. Payments in exchange of claims for personnel working in the Public Electricity Company

   
420
   
465
   
710
   
758
   
710
   
604
   
600
 

F. Reserve