FT SPECIAL REPORT

Monday July 7 2014 www.ft.com/reports | @ftreports

Signs of revival after years of pain Inside » Growth worries Economy makes progress but a Then come long-awaited negotia- lasting recovery is Confidence is slowly tions with the EU and IMF on debt the big challenge relief. These are made more compli- returning but hurdles cated by differences over whether Page 2 Greece should be offered another debt still loom ahead, “haircut” on top of its 2012 sovereign debt restructuring as the Fund would Cheaper debt is writes Kerin Hope prefer, or settle for the commission’s proposal of a lower interest rate and a sign of times lengthening of maturities. Return to global he signs of economic crisis “We will be in a room with two are visible everywhere in elephants and we’ll have to tiptoe capital markets , from shuttered shops between them in order to come away marks turnround and graffiti-sprayed public with an agreement,” says a senior buildings to people of all Greek official. “But what matters is to Page 2 Tages ransacking dustbins in wealthier reduce the debt burden for the next neighbourhoods of the capital. generation by one means or another.” Six years of recession, the deepest A third worry for Mr Samaras is the Stumbling on in memory, have taken a heavy toll election by parliament next February on Greece. of a new president to replace the Next few months The country’s output shrank by incumbent Karolos Papoulias, who is will be critical for almost 25 per cent, as tens of thou- retiring. sands of family-owned businesses col- If parliament fails to elect a presi- survival of the lapsed, while pensioners and the dent with the required three-fifths ND­Pasok coalition unemployed suffered a disastrous fall majority, a general election must be in living standards amid deep cuts in held, which pollsters already forecast Page 3 social spending. would lead to the formation of With jobs disappearing at an another coalition government. This unprecedented rate, more than 100,000 would delay the completion of struc- Optimism over skilled Greeks migrated to work in tural reforms aimed at boosting com- Germany, the UK and the Gulf states, petition and making Greece more visitor numbers knowing that it may be years before attractive to investors. Tourism bounces they can resume careers at home. Still to be addressed is the politi- The crisis also pushed desperate cally sensitive question of a new aid back – now for a Greeks into voting for insurgent yet Cup that cheers: fans at the Fifa World Cup in Brazil, where Greece reached the last 16 for the first time AP package for Greece after the current move upmarket backward-looking parties, on EU programme runs out at the end of the far left and the neo-Nazi Golden this year, even though the IMF is to Page 4 Dawn on the right. Both support a by disputes with contractors, and the of 1.5 per cent of national output, be heading for a sustained recovery. disburse another €16bn over the next return to statist policies that triggered increasing availability of loans from before interest payments. This sug- The first is the European Central 18 months. financial collapse and the threat of a newly recapitalised banks. gests that improvements in tax collec- Bank’s stress testing of The “troika” of officials from the “Grexit” – Greek exit – from the euro. Greece’s successful return to inter- tion are being maintained, even banks this year, which is expected to commission, the IMF and the Euro- On FT.com » Yet there are signs that wrenching national capital markets in April has though a small group of politically- give an accurate picture of Greek pean Central Bank have identified a reforms imposed in return for the cur- boosted confidence in the country’s connected Greeks are still able to lenders’ non-performing loan portfo- looming funding gap of some €12bn, Exports bolster rent €172bn bailout by the EU and the medium-term prospects, encouraging avoid paying their full tax obligations. lios, settle a long-running debate yet Greek finance ministry officials International Monetary Fund are hedge funds and private equity groups These developments contribute to about the banks’ recapitalisation claim it is smaller and can be plugged sales at mattress finally starting to bear fruit. to take a closer look at Greek compa- the narrative of a Greek “success needs and lead to writedowns of bad through careful management of the maker Coco­Mat Growth is set to turn positive this nies that have survived the crisis. story” being promoted by prime min- debt on a scale that will prevent public finances and judicious borrow- year and accelerate in 2015, driven by Budget figures for the first five ister and his govern- “zombie” companies from draining ing on international capital markets. www.ft.com/ a boom in tourism, the revival of EU- months show revenues on track to hit ment. However, more hurdles must be funds needed for healthy businesses greece­2014 backed infrastructure projects stalled this year’s target of a primary surplus overcome before Greece can claim to to grow. Continued on Page 3 2 ★ FINANCIAL TIMES MONDAY JULY 7 2014 Greece Credit expansion and loan quality are priorities Cheaper debt

says loans left unserviced This year the four banks lack of liquidity, because at Alpha Bank, says the offered from September, marks change Banks for more than 90 days stood have raised another €8.3bn banks are reluctant to effort to transform Greece’s with banks able to borrow at €77bn or 36 per cent of on international capital extend credit to support a introverted, consumption- at 0.25 per cent provided The ECB stress tests the total portfolio in April. markets to bolster capital recovery. They point out oriented economy into one they meet the ECB’s lend- are focusing minds, Senior Greek bankers say adequacy ratios, following a that credit to the private based on exports and ing target. in fortunes they are expected to peak stress test carried out by sector has been shrinking investment has already Greek banks have lost says Dimitris early next year. the together since 2010, falling another “left many corporate bor- more than €79bn of deposits One of Mr Stournaras’s with BlackRock, an invest- 3.7 per cent in April on an rowers with business mod- since the crisis erupted in Kontogiannis first tasks will be to con- ment management com- annual basis. els based on the old para- 2009, through capital flight Second, evidence has sider whether Greece pany. The fund-raisings Bankers are quick to digm in distress. and withdrawals of savings Capital markets mounted that Greece’s for- Greece’s economy is stabil- should set up a standalone have also allowed banks to reject such criticism. Chris “We shouldn’t expect the by households hit hard by tunes have changed. “We ising after six years of “bad bank” for systemic repay preference shares restructured Greek banking the recession. Until their After the woes of have reached an inflection recession and will need banks’ non-performing held by the Greek state. sector to help revive such recent return to capital four years ago, point,” says George Sarave- credit expansion to achieve loans – which would However, the Interna- companies through liquid- markets, the banks relied los, a Deutsche Bank strate- a sustained revival of require additional funding – tional Monetary Fund says ‘The banks’ role will ity injections. The role of heavily on ECB funding sentiment turns, gist. “The big problem over growth. or rely on pressing the banks may need as much as be to fund ventures banks will be to fund ven- and emergency liquidity the past three years was Yet the country’s four banks’ internal restructur- €15bn in extra capital to tures in extrovert sectors assistance from the Greek says Ralph Atkins that we could not see the systemically important ing units to move faster. write down bad loans more in extrovert sectors that have robust business central bank. light at the end of the tun- banks, recapitalised with Previous efforts to aggressively. It argues that models,” Mr Lianeris says. Petros Christodoulou, In just a few hours one day nel in terms of stability. more than €35bn over the restructure key sectors that an overhang of private debt that have robust However, the banks’ deputy chief executive at in early April, Greece dem- “But at the end of last past year, are taking a cau- have a high percentage of will undermine growth if business models’ capacity to boost lending National Bank of Greece, onstrated just how much year, things stopped getting tious stance ahead of this bad loans – among them the resources remain trapped in will also depend on their the second-largest commer- the tide of global investor worse. It changed percep- year’s European Central hotel, construction and fish- unproductive activities. access to the ECB’s new cial lender, is cautious sentiment had turned in its tions.” Bank stress tests. farming industries – have Some local analysts dis- Megalou, chief executive of programme of cheap loans about TLTRO funding, even favour. Greece has reduced its With one of the world’s been constrained by diffi- agree. Kostas Manolopou- Athens-based Eurobank, known as “targeted long- though it would allow The country’s first foray current account deficit and highest ratios of non- culties in persuading banks los, head of research at says: “The credit contrac- term refinancing opera- banks to provide liquidity into global capital markets is running a budget surplus performing loans, Greek and company owners to co- Investment Bank of Greece, tion is mainly a function of tions” or TLTRO. injections to SMEs. in four years saw about before interest payments. banks are under pressure to operate. says: “The assumptions in weak demand and stricter The four-year programme, He says: “We don’t have €20bn of orders for €3bn of Moreover, the international deal with bad loans more The Greek banks were the Greek central bank’s credit controls.” aimed at investment in non- enough information at this five-year government bonds help it has received since effectively, while continu- initially recapitalised with stress tests were quite con- Mr Megalou says an im- financial, productive sectors point about the kind of col- flood into the banks organ- 2010 means its debt-to-GDP ing to support creditworthy €25bn from bailout funds servative, and banks are proving economic outlook of the economy, is intended lateral required for TLTRO ising the deal. This enabled ratios are less relevant to corporations and house- held by the Hellenic Finan- already overcapitalised.” will drive demand for loans, to benefit small and medi- operations to be able to Greece to borrow at a much investors looking over, say, holds. cial Stability Fund (HFSF), Politicians and business- especially for new invest- um-sized enterprises (SMEs) determine the amount of lower cost than had been the next three to five years. Yannis Stournaras, the plus another €3bn raised people complain the econ- ment projects. that have been starved of liquidity Greek banks could expected – the bonds were Greece’s average debt matu- new central bank governor, privately. omy is being stifled by a Nikos Lianeris, an analyst credit. The loans will be look forward to.” priced to yield just 4.95 per rity is exceptionally long – cent. more than 17 years – and The contrast with the may be extended further. mood at the height of the The government’s return country’s crisis could to debt issuance has more hardly have been greater. than symbolic importance. Concerns linger When Greece’s debt woes Structural reforms are more erupted into a eurozone- efficient when access to wide threat, the cost at capital markets is main- which investors were pre- tained, argues Mr Papa- pared to lend to its govern- dopoulos. ment soared – in effect The debt agency’s strate- on growth as denying it access to capital gic goal is to recreate the markets. Greek bond market’s “yield On five-year bonds, yields curve” – offering a range of – which move inversely bonds of different maturi- with prices – had reached ties in order to increase its IMF calls for 14.5 per cent by May 2010. attractiveness to a range of Greece’s future in the euro- investors. “To attract for- zone was in doubt; its econ- eign direct investment and omy came close to collapse. promote growth in the cur- This year, Greece has rent environment, restoring further reforms come back from the near- proper access to markets dead. “Markets appreciate for both the sovereign and the impressive turnround story that Greece has real- ised so far,” says Stelios ‘At the end of last Economy Business confidence is at a six­year Papadopoulos, director- general of the Public Debt year, things Management Agency. “One high but more needs to be done to make the needs to seize the moment stopped getting and take advantage of recovery sustainable, writes Kerin Hope opportune market trends.” worse. It changed It is not just the govern- perceptions’ ment that has raised funds reece is poised to return to oriented sectors such as energy and Greece in debt markets. Greek growth this year after the infrastructure. Real GDP (rebased) Growth forecasts Unemployment rates (%) banks have taken advan- banks is essential,” Mr longest and deepest reces- The seasonally adjusted jobless rate (annual % change in real GDP) tage of the change in senti- Papadopoulos says. sion since the second world is still high at 26.8 per cent, but has 100 4 30 ment to strengthen balance Alongside the govern- war. edged down from last September’s sheets, raising funds more ment bond issuance was the Eurozone Greece GHowever, more reforms must be record 27.8 per cent of the workforce. cheaply than would have wave of capital raising by implemented before a sustained recov- However, it is unclear whether 95 25 been thought possible a few the country’s banks. 2 ery can take hold. Greece can pull off sustained annual years ago. Before April’s sovereign For the first time since a joint EU- growth rates of about 3 per cent, the 90 20 The success of April’s bond launch, Bank International Monetary Fund pro- level required to increase the primary debt auction did not mean became the first Greek gramme veered off track in 2011 – less surplus to 4.5 per cent of output in 0 investors thought Greece’s bank to return to the capi- than a year after it was launched – 2016 – the target set by international 85 Greece 15 crisis was over. Many tal markets with a €500m the IMF says it is cautiously optimis- creditors – and make a serious dent in Germany remain wary of structural benchmark bond. A few -2 Ireland tic about Greece’s prospects, citing an the country’s bloated public debt. 80 10 weaknesses even in basic weeks afterwards, National “extraordinary fiscal adjustment” and George Pagoulatos, professor of Greece Italy Eurozone areas such as collecting Bank of Greece, the coun- a successful re-entry to international political economy at Athens univer- Portugal taxes as well as the coun- try’s second largest com- Spain capital markets. sity of business and economics, says: 75 -4 5 try’s high debt levels. Pub- mercial lender, borrowed A double-digit budget deficit was “Growth is the key issue...It’s a 2008 10 12 14 2013 14 15 16 2008 10 12 14 lic sector debt will be equiv- €750m at a lower cost than transformed into a primary surplus major concern whether the rate will alent to almost 180 per cent the sovereign. Sources: Thomson Reuters Datastream; IMF (excluding interest payments on debt) be considerably above the level of of gross domestic product Big Greek companies in just four years, thanks to draco- stagnation, whether it’s sustainable, this year, according to the have also increased bond nian spending cuts and an unprece- whether companies can make the Shoppers splash The government has adopted most agency, has already cut this year’s . sales. Total Greek debt issu- dented drive to boost tax collection. export-oriented shift that’s needed.” out: April’s rise in of the 550-odd reforms in a “toolkit” of revenue target from €3.5bn to €1.5bn. “Greece’s debt stock is ance by companies and pub- Finance ministry officials boast that Greece has recovered most of the 30 retail sales was measures prepared by the Paris-based The target will have to be cut again way too large, given its ina- lic-sector institutions has Greece now has the highest “cyclical- per cent drop in competitiveness it the strongest in Organisation for Economic Co-opera- following a recent judgment against bility [to conduct] effective exceeded €10bn so far this ly-adjusted primary balance” in the suffered during the first decade of more than two tion and Development to reduce barri- the sale of the state’s stake in Eydap, taxation and given its year. This compares with eurozone, that is, after taking into euro membership as a result of a years Charlie Bibby ers to competition, yet some measures the Athens water utility, issued by growth dynamic,” warns just €6.4bn for all of 2013 – account the impact of the business steep fall in wages, and reforms that have been delayed or diluted because the council of state, Greece’s highest Michael Hasenstab, global although it remains well cycle on revenues. have opened up the labour market. of pressure from powerful interest administrative court. bond portfolio manager at below pre-crisis rates, The economy is forecast to grow by Individual contracts and part-time groups. The council unexpectedly ruled that Franklin Templeton. according to Dealogic data. 0.4-0.6 per cent this year after six working, once effectively banned by The 12,000-strong union of pharma- water companies should remain under He bought Irish govern- The wave of bank capital straight years of decline, but some unions, have become the rule for new cists, for example, successfully public ownership on grounds that a ment bonds and has raising – in equity as well analysts are confident that a record entrants to the workforce. Employers’ resisted the abolition of a guaranteed for-profit private operator could not invested heavily in Ukraine. as debt markets – has ena- year for tourism could lift growth contributions to IKA, the main social profit margin on drugs, even though be relied on to supply affordable, Yet he warned in a Finan- bled Greece to rebuild its higher, perhaps to 0.9-1.0 per cent. security fund, have been cut and pen- ‘The it has been cut from 35 per cent to 15 high-quality services in the public cial Times interview last financial system after the There are signs that consumers may sions slashed across the board. per cent. interest. month: “The underlying traumas of the past few gradually be regaining confidence. “The economy that’s emerging from economy Objections raised by interest The decision was seen as a blow to fundamentals don’t justify years at a much faster pace Private consumption rose 0.7 per cent the recession is a very different and that is groups, the judiciary and, in some attracting large European entities to an investment in Greece.” than expected. in the first quarter, the first quarterly much healthier animal,” says Michael cases, EU competition regulators, are participate in Greek disposals. Two factors have this That could help the coun- increase in more than four years. Masourakis, chief economist at Alpha emerging deemed responsible for the slow pace Miranda Xafa, chief executive of EF year worked in Greece’s try’s turnround, allowing Retail sales were up 7.3 per cent by Bank in Athens. “A 3 per cent annual of privatisation sales. Consulting in Athens and a former favour, however. First, has the banking system to per- volume in April, the strongest rise in growth rate should be sustainable as from the A target of raising €50bn by 2025 Greek representative to the IMF, says: been the global “hunt for form its core function of more than two years, as Greeks we are starting from a lower base.” recession is from sales of state-controlled compa- “People don’t yet have the confidence yield”. Historically low offi- providing finance to the splashed out for Easter at supermar- The IMF warns, however, that fur- nies, properties and land for develop- to invest here. The main inflows have cial interest rates globally economy. kets and clothing stores. ther structural reforms “are key for a . . . much ment, has been slashed to €25bn as been from hedge funds, so they could have sent international “Greek banks are more The business confidence index hit a the incipient recovery that we hope to healthier the scale of legal and administrative be reversed very quickly. investors searching for risk- confident about expanding six-year high in June, with banks see turn this year into a robust, sus- obstacles became clear. “At the moment, nobody is building ier assets offering higher their balance sheets and reporting increased demand for loans tained recovery over the medium animal’ The Hellenic Asset Development plants or making long-term deci- returns. For some at least, lending,” says Mr Saravelos from companies working in recovery- term”. Fund (Taiped), the privatisation sions,” she adds. Greece fitted the bill. at Deutsche Bank.

Crisis forces rethink as entrepreneurs win funds for their ventures

sity IT departments staffed Aristos Doxiadis, a pri- One early success was “Taxibeat has played a raising $1.5m in a new fund- the economy, have since opportunity to exchange Technology start­ups by US-trained professors vate equity professional, Taxibeat, a smartphone catalytic role for Greek ing round led by Greylock expanded into global mar- ideas and receive feedback, who keep up their Silicon says: “There have never application for hailing cabs start-ups because it was Partners, a Silicon Valley kets. says George Kasselakis, IT experts are using Valley connections turn out been many angel investors that was launched in 2011. such a good story,” Mr Dox- venture capital fund. Incrediblue’s website con- Openfund II’s executive the home market as highly qualified software in Greece and it was hard It made headlines in Athens iadis says. Workable is developing nects yacht-owners and director. engineers. to raise funding at the at a time when taxi services Openfund II has backed cloud-based recruitment crew with customers who Thanos Kosmidis and his a springboard for Now there is a drive to height of the crisis, but were being disrupted by 12 start-ups since its launch software for small and book sailing holidays based partner Alex Giamas work catch up. there’s a community of peo- cabbies resisting reforms of last year and plans to reach medium enterprises. on price, location and at Microsoft’s innovation global success, “The crisis has changed ple here who trust each the transport sector. 25 by the end of 2015. “When a Greek start-up reviews by users, reducing centre in Athens, which writes Kerin Hope things in a positive way,” other, so we managed.” Taxibeat differs from So far, only one company costs in a fragmented mar- supports several start-ups says Marco Veremis, co- He adds: “Now that sev- other taxi-hailing apps by has reached Silicon Valley. The Taxibeat ket where local brokers with technology advice and founder and chief executive eral start-ups have taken enabling customers to Bugsense, which collects hailing app charge high fees. mentoring. With the jobless rate among of Upstream, an Athens- off, there’s growing inter- choose the driver they pre- and analyses crash reports ‘has played a Locish, a smartphone CareAcross, their English- young graduates approach- based mobile marketing est.” fer, based on ratings by from mobile apps, was catalytic role question-and-answer app language website support- ing 40 per cent, the incen- company. Mr Doxiadis is a partner other passengers plus launched in 2010 with a for Greek that has attracted $820,000 ing cancer patients and care tive for skilled Greeks to “There’s a start-up cul- in Openfund II, a €11m extras such as speaking flu- seed investment of $100,000 start­ups’ of funding from two Greek givers, which is financed travel abroad to find work ture that’s buoyant. It’s still operation that provides ent English. from a group of Greek venture capital funds, pro- with €100,000 of private is strong. early days, but people are Greek technology start-ups Considered a good fit for diaspora IT experts working vides travellers with tips funding, is at an early stage Yet several hundred working to produce some- with business tools and European cities with heavy in California. raises funding from an from local residents on of development. young entrepreneurs are thing with value-added.” advice for competing in a tourist traffic and for It was sold last year to international fund, it sends where to eat and drink in “It’s useful to have a testing their abilities by The bulk of financing for global market, from guid- emerging markets where Splunk, a US-based data a clear message to investors Athens, New York and San physical base with a diverse founding technology start- technology start-ups comes ance on pitching for fund- taxi services are less regu- analytics company, for an here,” says Mr Veremis, an Francisco. set of people supporting ups at home. from four venture capital ing to access to 50 interna- lated, Taxibeat has undisclosed amount. angel investor and board Incubators that provide you,” says Mr Kosmidis, Until the crisis struck, funds backed by an EU tional mentors. It is backed expanded in markets across Workable, founded by two adviser to Workable. business space along with who worked for IT compa- Greece had few aspirations regional development pack- by the EU’s European Europe from Bucharest to former Upstream employ- Several start-ups aimed “open coffee” sessions and nies abroad for 12 years to become an internet hub, age covering 70 per cent of Investment Fund and a Paris and also in Latin ees, is tipped as Greece’s at the tourist industry, the weekend meetings give before returning to Greece even though several univer- a seed capital investment. dozen private investors. America. next success story after most important sector of young entrepreneurs an to start as an entrepreneur. FINANCIAL TIMES MONDAY JULY 7 2014 ★ 3 Greece

Signs of revival emerge Coalition faces after six years of pain

Continued from Page 1 critical chapter and they’re willing to try to become entrepreneurs,” she adds. Despite his government’s dogged When it comes to large-scale invest- execution of the current programme, ment, infrastructure projects that Mr Samaras is as keen as Alexis take advantage of Greece’s strategic in its fight for life Tsipras, the Syriza leader, to tell vot- location in southeast Europe are tak- ers that the unpopular “memoran- ing priority. dum”, as the bailout is known in Greece is already involved in the Greece, has expired. Trans-Adriatic Pipeline (TAP) project While some Greek officials accept to transport natural gas from the that a precautionary arrangement of Shah Deniz field in the Caspian Sea to some kind will be needed to maintain central Europe. Construction of the Politics European election turmoil emphasises investor confidence and ensure access Greek segment would provide work Faces of protest: environmental campaigners outside the Greek parliament, to markets, the troika worries that for dozens of small Greek construc- the system’s fragmentation, writes Kerin Hope wearing masks of Antonis Samaras (left) and Getty reform fatigue and the influence of tion companies and more than 1,000 powerful vested interest groups could jobs across the north of the country, lead to weaker implementation or where the unemployment rate exceeds reece’s first coalition gov- ering fewer measures than agreed ing the majority of bailout reforms. ND voters have become the backbone even the reversal of key measures to 30 per cent of the workforce. ernment in more than a with the troika but still enough to Yet Syriza’s win by less than 4 per- of support for the neo-Nazi Golden liberalise domestic markets. Socar, the Azeri state gas company, generation looked wobbly sustain regular disbursements of aid centage points fell short of the margin Dawn party. It has three European Yet if Athens can hold the line on has bought Greece’s gas grid operator from the moment it took from the country’s €172bn second that would have signalled the coali- parliament deputies after winning 8.9 reforms, Greece’s family-run busi- Desfa in a privatisation sale and plans office after a hard fought bailout package. tion’s imminent downfall. per cent of the vote, even though its nesses would have an opportunity to Gelection in June 2012. The next few months, however, will With a combined percentage of 30.73 founder and leader, Nikos Mihalolia- revive the flagging export sector by Relations are tense between Antonis be critical for the government’s sur- per cent for ND and Pasok, against kos, was jailed last year and is await- developing niche markets in food Samaras, prime minister and leader of vival. It will face renewed pressure 26.5 per cent for Syriza, the coalition ing trial on charges of founding and processing, manufacturing and tech- €12bn the centre-right party from the troika to implement meas- could still claim it was backed by a running a criminal organisation. nology, says Mike Efmorfides, co- ‘Funding gap’ identified by the troika (ND) and foreign minister Evangelos ures delayed because of opposition by majority of voters, despite an unprece- The party spokesman, Ilias Kasidi- founder of Coco-Mat, a producer of Venizelos, head of the PanHellenic special interest groups, while at the dented jobless rate and record levels aris, insists is a nation- luxury mattresses. to invest in extending the distribution Socialist Movement (Pasok), the two same time seeking a consensus candi- of taxation in the past two years. alist, not a neo-Nazi, party and denies “We survived the crisis by focusing network to smaller cities across the parties that are held jointly responsi- date for the (mostly ceremonial) post Yet the election underscored the that its black-shirted members have on exports and developing more out- country. ble by voters for plunging Greece into of president of the republic. increasing fragmentation of Greek participated in violent attacks against lets abroad. For a small Greek com- Yet China has emerged as the keen- economic disaster. With Karolos Papoulias, the 85-year- politics, with voters switching to anti- immigrants. Golden Dawn’s 18 depu- pany making a high-quality product, est potential investor in Greece, Their junior partner, the Demo- old incumbent, due to step down next establishment parties, both left and ties in the Greek parliament will all it is the only way to go,” he says. described by premier Li Keqiang dur- cratic Left of Fotis Kouvelis, a February, the hunt is on for a person- right. face charges of belonging to a crimi- Reforms making it easier for young ing a visit to Athens last month as leftwing fringe group, pulled out of ality above politics who can win the Syriza has attracted many former nal organisation, according to the entrepreneurs to set up a new busi- Beijing’s “gateway to Europe”. the coalition last year over a unilat- required three-fifths majority in par- Pasok supporters still nurturing judiciary, but it is unclear whether ness and hire part-time staff, together Shortly before the crisis erupted, eral decision by Mr Samaras to shut liament and avert an early general hopes of a return to the generous pub- the party will be banned. with EU-backed funding for small and the Chinese state shipping operator down – albeit temporarily – the state election. lic sector hiring policies of the 1990s, Then there is To Potami (The medium companies, are making an Cosco won a concession to operate a broadcaster ERT. “The government could pull this off even as the coalition acts to shed jobs River), a pro-reform party founded by impact, even though venture capital container terminal at Piraeus, a suc- Mr Kouvelis’s departure, along with by persuading a clutch of independent in the civil service and privatise state- a popular television journalist, Stav- and bank financing is still in short cessful investment that has since seen serial defections by ND and Pasok deputies to back their candidate, if it controlled corporations. ros Theodorakis and backed by mod- supply. further capacity added. lawmakers opposed to specific struc- can’t find a Greek of international Makis Andronopoulos, an author erates from the centre-left. To Potami “The crisis forced young Greeks to Now Cosco is bidding for the Greek tural measures, has left the govern- stature to try for the job. But noth- and political commentator, says: won 6.6 per cent of the vote at the change their mentality and look for a state’s majority stake in Piraeus port ment with a majority of only three ing’s clear-cut,” says Costas Iorda- “Syriza doesn’t have to move to the European election, only three months new model,” says Mareva Grabowski, authority, the port’s owner. Other seats, making a cliffhanger out of nides, a veteran Athenian political centre to have a chance of winning after it was launched. a former investment banker and Chinese companies are interested in every vote on reforms agreed with the commentator and columnist. power . . . It only has to wait. The con- Its programme is still being shaped founder of the Greek branch of acquiring concessions to operate the “troika” of international lenders: the ND lost the European parliamen- tinuing impact of austerity will bring after a recent congress, yet its sup- Endeavor, a global organisation that state railway company and Athens European Commission, the European tary elections in May to the far-left it many more voters who want to porters are optimistic that Mr Theodo- supports entrepreneurs in emerging International Airport, the city’s only Central Bank and the IMF. Syriza party of , who make a protest.” rakis will become a key player in markets. international gateway, which will Yet the coalition stumbles on, deliv- campaigned on a platform of revers- To the government’s dismay, former Greece’s next coalition government. “Their attitude to risk is different both be up for privatisation next year.

Reform still way short of victory over old habits

economy – was fit to share progress but is way short the same currency as of comprehensive victory Germany. over the forces of inertia The nation plunged into and old habits. The tax calamity because, long system is a case in point. before the euro’s creation In the pre-crisis era, a in 1999, generations of profusion of tax offices in Greek politicians and the geographically remote and Opinion general public had technologically backward Tony Barber preferred to think of the parts of Greece encouraged state not as a disciplined, taxpayers to reduce their impartial dispenser of tax- bills by doing deals with In the bigger scheme of funded public services, but corrupt officials. The Greece’s ordeal by as a pot to be picked clean structure of tax collection financial collapse, it may by patronage and pilfering. was, in itself, an seem a modest triumph for The wake-up call of 2010, impediment to change. good government that its though a shock to the two- Now the authorities have ministers and financial party political order that shut scores of regional tax police are finally getting to had ruled and misruled offices, bringing stronger grips with the timeworn Greece since the collapse centralised control. And scam of welfare cheats in 1974 of a seven-year information technology has claiming pensions on military dictatorship, did enabled more monitoring behalf of deceased Greeks. not immediately result in of tax assessments. About The perpetrators are a improvements. 2,000 audits a week are small minority of Greece’s Entrenched political, conducted at restaurants, 10.8m people, and the sums bureaucratic and trade shops, doctors’ premises recovered – about €40m – union interests proved and other places suspected pale into insignificance masterful at sabotaging of concealing income. Tax next to the public debt of change in the public revenue is rising. about €320bn, equivalent to sector. As unemployment The system has not been 175 per cent of annual raced past 25 per cent of strengthened sufficiently to economic output. the workforce, in the early capture the biggest and Yet the elimination of phase of the crisis the wealthiest tax evaders – a pensions fraud, like the point made by Haris suppression of tax evasion, Theoharis, Greece’s senior lies at the core of the tax collection official, when modernisation programme ‘If these efforts he abruptly resigned in on which Greece embarked falter, the suffering early June, much to the after its first emergency dismay of the nation’s international financial of the past five European partners. rescue in May 2010. According to Mr Theoharis, It is no exaggeration to years will not have 280 investigations of large say that if these efforts been worthwhile’ taxpayers had collected a falter, because of a failure mere €80m in extra to refashion parasitical and revenues. mistrustful attitudes to the private sector bore the This serves as a state that go back to the brunt of the hardship. reminder that the deepest early days of independence Eventually, widespread question that will face in the 1830s, the pain and social distress, the absence Greece in the next 12 suffering that Greek of substantive economic months is not whether its society has endured over reform and the emergence foreign creditors will agree the past five years will not of political extremists on to another debt relief deal have been worthwhile. the left and right, coupled to shore up its eurozone For the Greek crisis was with the fear that Greece membership. always about much more might drop out of the euro Nor is it whether the than sky-high sovereign or renege on its obligations tourism industry, so bond yields, excessive to allies and creditors, important a source of budget deficits, rigid produced an election foreign income, will enjoy labour markets and the victory in June 2012 for a another record-beating cartel-like behaviour of conservative-led coalition. season. It is not even private sector businesses Led by Prime Minister whether the Samaras and professional cadres. Antonis Samaras, the new government will fall and It was about social government saw that the there will have to be an attitudes, respect for the sand in the hourglass was early election. law and the need for a running out. A more Rather, it is whether the proper relationship convincing effort at reform political classes, state between the citizen and was essential in order to employees, business people the state, a bond stripped save the economy, Greece’s and the general public will of suspicion and cleansed international standing and maintain the wrenching of peculation. It was about perhaps democracy itself. effort to place their whether Greece as a state Two years on, the cause country on an irreversible – rather than Greece as an of Greek reform is making path to modernity.

Contributors »

Kerin Hope Dimitris Kontogiannis Steven Bird Athens Correspondent Athens­based journalist Designer

Ralph Atkins Andrew Baxter For advertising details, Capital Markets Editor Commissioning editor contact: Jim Swarbrick, tel +44 (0)20 7775 6220, email Tony Barber Claire Holland [email protected]; or your Europe Editor Picture editor usual FT representative. 4 ★ FINANCIAL TIMES MONDAY JULY 7 2014 Greece

Profile Expansion back Drive upmarket as visitor numbers soar on flight plan at Aegean Air The Greek crisis put paid to Aegean Airlines’ bold ambitions, pushing the Athens­based regional carrier into the Navarino is setting the pace for high- red for three successive years, writes Tourism Capital end tourist development. Kerin Hope. Greece’s biggest privatisation Yet the crisis also allowed Aegean projects point to a project, the €6bn development of the to acquire its ailing rival Olympic Air former Athens International Airport at a knockdown price. brighter future, write site at Hellenikon into a tourism and Aegean, which is controlled by the leisure hub for the east Mediterra- Vassilakis family, the airline’s founder, Dimitris Kontogiannis nean, is finally taking off. Developers and several senior Greek shipowners, warn that it may take 25 years to agreed last year to pay €72m for and Kerin Hope complete the project: the 640-hectare Olympic after the European coastal site is bigger than the princi- Commission withdrew earlier concerns reece is enjoying a record pality of Monaco. that a takeover would result in a year for tourism, with pop- An investor group led by Latsis, a quasi­monopoly on many Greek ular resorts booked to Greek family group, in partnership domestic routes. capacity in July and with the Chinese conglomerate Fosun Eftichios Vassilakis, Aegean’s August and international and Al Maabar, a property company executive vice­chairman, believes the Gcruise ships queueing up to call at linked to Abu Dhabi’s sovereign airline will see the benefits of Aegean Island ports. wealth fund, agreed to pay €915m for consolidation this year, with domestic Visitor numbers jumped by 30 per a 99-year-lease on Hellenikon. traffic reviving and international tourist cent to 1.9m in the first four months Hellenikon has an acclaimed airport arrivals poised to hit a new record. of 2014 compared with last year, terminal designed by Eero Saarinen, “Greece started to recover as a according to SETE, an association of the Finnish-American architect, but tourist destination in late 2012 and Greek high-end hoteliers and tour has lain abandoned since hosting a things have been improving ever operators. Athens saw a 36 per cent handful of events at the 2004 summer since,” he says. “We expect the rise in arrivals, while the Aegean Olympics. A plan being prepared by recovery to continue over the coming notched up a 120 per cent Foster & Partners, the UK-based years, provided small but important increase, thanks to a surge of visitors architectural company, provides for a improvements take place.” over the Easter holidays. Ready for take­off: the former Athens International Airport is to be redeveloped into a tourism and leisure hub Getty 200-hectare metropolitan park, more Aegean turned profitable again in Andreas Andreadis, SETE’s presi- than doubling green space in the 2013, with net earnings of €56.3m on dent, forecasts that Greece will attract greater Athens area. revenues of €683m. This excludes more than 19m visitors this year, up from €12bn in 2013. Mr Andreadis are present. Golf courses, which Hellenic Republic Asset Development Meanwhile, Taiped is working to Olympic’s losses, which were €13.9m beating last year’s record of 17.9m. expects spending per head to show a attract high-spending tourists, are in Fund (Taiped), the country’s privati- boost the quality of tourism infra- last year on revenues of €168m. A recovery in traditional markets modest increase from €650 to €700. short supply. sation agency. The transaction valued structure through the privatisation of Aegean is operating from eight such as the UK and Germany is “Greece is on a par for visitor In spite of having the EU’s longest the Astir property, consisting of three 14 regional airports that handle the bases around Greece this summer, expected to offset a sharp fall in arriv- spending with Italy and Spain, and a coastline and almost 200 inhabited hotels and a marina on a secluded bulk of traffic to the islands. Binding offering 14 new routes, among them als from Russia, Ukraine and the Bal- bit higher than Turkey,” he says. islands, only a handful of Greek mari- peninsula overlooking the Saronic offers are due this month for two sep- three regional cities in Germany and kan countries. There is still plenty of room for nas offer the same standards of serv- Gulf, at €440m, the highest price paid arate clusters of airports. three Middle East destinations, in Another 2.2m visitors are expected Greece’s tourist industry to expand ice as found in Croatia and Turkey, to date for a Greek hotel. A further project, to be awarded by addition to seasonal flights to to arrive on cruise ships, which com- and move upmarket, however. the country’s main rivals for yachting Oaktree Capital Management, a US the transport ministry at the end of Manchester and the south of France. pete in high season for a slot to disem- A study by McKinsey, the consul- tourism. investment fund, has teamed up with this year, covers a concession to build With a market share of less than bark passengers for a stay of a few tancy, suggests that arrivals could So far, only a few international Sani, Mr Andreadis’s family-owned and operate a new international air- 20 per cent of international traffic to hours on the islands of Corfu, San- reach 21m by 2024 with annual reve- funds and tourism operators have hotel company, to create a luxury port on a greenfield site in , the consolidated airline has torini and Mykonos. nue increasing to €18bn (in today’s acquired hotels in Greece or have resort group that plans to invest more to replace an outdated facility plenty of room to grow. “I’m very bullish about the tourism money), provided Greece maintains teamed up with local partners with than €100m in acquiring and upgrad- at Heraklion, the island’s capital. “Our plan is to double our routes industry, I think it will help lift [GDP] political stability and manages to expertise in hotel management. ing existing hotels around Greece. Ioannis Emiris, Taiped’s chief exec- out of Athens by 2017, expanding our growth this year closer to 1 per cent attract substantial private investment One prime Athens property, the The partnership has already utive, says the new regional airport reach and supporting Greek tourism,” compared with the official projection in the tourism sector. Astir hotel at Vouliagmeni south of acquired two properties in Halkidiki, operators will be expected to invest says Mr Vassilakis. of 0.4 per cent,” Mr Andreadis says. The “shoulder” season in spring and the capital, was sold last year to Jer- a northern Greek resort area popular €300m over the next four years. “We Revenues from tourism, Greece’s autumn is still under-developed. myn Real Estate, a fund backed by with Russian visitors. It is considering want to upgrade facilities, security An expanded version of this article is largest foreign exchange earner, are Greece lacks high-end integrated investors from Abu Dhabi, Kuwait another purchase in , where and operations to the high standards available at www.ft.com/greece­2014 projected to reach €13.5bn this year, resorts, while few luxury hotel brands and Turkey in a deal managed by the the Greek-owned luxury resort Costa of Athens international airport.” Donors step in to assist the victims of austerity

Philanthropy In spite of some help, NGOs are reporting worsening poverty and a funds drought, writes Kerin Hope

Christina, an Athenian in her mid-40s, has been living on the streets of the Greek capital since losing her job and her home more than two years ago. “I feel my situation gets more desperate every week,” says the former supermarket employee, Hard times: protesters demand help for the homeless Getty interviewed at a day-care centre in Metaxourgeion, a gritty central neighbour- ists don’t seem interested amounts of funding. There’s hood. The centre is run by enough in alleviating social a need for capacity building Praksis, a Greek non- pain through collective and for education in philan- governmental organisation action. These very high thropy.” working with the country’s poverty rates will have an Praksis, one of Greece’s “new poor”. impact on the environment largest NGOs with 150 paid Christina spends two or and on society, eventually staff, including a full-time three days a week job-hunt- affecting everyone’s quality fundraiser, and an annual ing all over the city. Like of life.” budget of more than €10m, other Greeks left destitute Some hope that as has been a big beneficiary during the country’s deep- Greece’s economy recovers, of the Niarchos programme. est recession on record, she the government will be able In addition to the Athens eats a daily meal at a soup to claw back more funds for day-care centre, Praksis kitchen run by the Athens welfare spending. A €230m operates a mobile medical municipality, and uses the income-support package is clinic in the capital, runs a day-care centre to take a being prepared for Greeks programme to enable shower and wash clothes. with monthly incomes of impoverished families to The Praksis centre is €400 or less who live in stay in their homes, and backed by the Stavros Niar- rented accommodation. has opened a shelter in the chos foundation (named A new round of EU struc- port of Patras for young after the late Greek ship- tural funding is expected to irregular migrants who ping tycoon) as part of a provide €1.3bn of funding arrive in Greece without three-year, €100m pro- for social programmes adult relatives. gramme that funds Greek including retraining for the “The needs are large and NGOs attempting to allevi- varied, because so much of ate high levels of poverty Greece’s middle class has and social exclusion – now been wiped out by the cri- believed to affect about one- ‘Even in the sis,” says Tzannetos Anty- third of the population. provinces, families’ pas, chairman of Praksis. Private donors have Lazaros Papageorgiou, helped plug a yawning wel- resources are founder and director of fare gap caused by a 40 per Artos- (Bread-Action), cent cut in social spending close to being which supplies staple foods as Greece implemented an exhausted’ and serves meals to impov- austerity programme erished families in the agreed with international decaying industrial suburbs lenders. The Niarchos foun- long-term unemployed and of western Athens, says dation came up with the cash for poverty alleviation donations in cash and kind largest single donation, fol- projects that would be man- have fallen by 50 per cent lowed by a €25m grant from aged by NGOs. over the past year even as the international financier Yet private donors will more people seek help. George Soros’s own founda- still be vital to protecting “In spite of better eco- tion. vulnerable groups, Mr Far- nomic figures, we see Greek companies have makis says. “Past experi- increasing demand both for made smaller cash dona- ence shows that disburse- basic foodstuffs and for tions and contributed in ment of funds from EU pro- meals,” he says. kind, supporting social gro- grammes can be delayed for Last year, Artos-Drassi ceries and providing com- three to five years after extended its activities to puters and other equipment they’re approved.” two northern regions of to NGOs. The Greek ship- Niarchos, a global donor Greece, where strong family owners’ union, representing which also supports the support networks and wide- hundreds of Athens-based arts, has set new bench- spread ownership of small- owners, has faced criticism marks for NGO operations holdings to grow food until for delaying a planned in Greece, carrying out rig- now eased problems caused €25m donation because of a orous due diligence before by a jobless rate of more tax dispute with the govern- awarding grants and requir- than 45 per cent. ment. ing strict accounting prac- “Severe poverty is no Epaminondas Farmakis, tices. longer confined to Athens founder of Elpis, an Athens- John Zervakis, the foun- and other big cities,” based consultancy for phi- dation’s chief operating Mr Papageorgiou says. “It’s lanthropists and donors, officer in Athens, says: happened slowly, but even says: “It’s unfortunate that “With a few exceptions, in the provinces, families’ wealthy groups such as Greek NGOs are not in a resources are close to being shipowners and industrial- position to absorb large exhausted.”