Greece: A Done Deal
McCrary, Ernest S., Global Finance
The economic indicators are in, and the green light is on for the admission of Greece to European Monetary Union by the start of 2001. Already, Greek banks and other companies are using privatizations and mergers to expand and prepare for the coming fray of Euroland competition.
Greece is just months away from applying for full membership in European Monetary Union, and the outlook for "convergence" has never been more positive. Bankers and economists are calling it a "done deal," and the long-held goal of fuller participation in the broader European economy is finally at hand.
Like Portugal more than a decade ago, Greece has played a tough game of catch-up to bring its economic and fiscal indicators into line with EU standards-and the results have been impressive. Annualized inflation in July was 2.1%, and the target of 2.4-2.5% for all of 1999 will easily meet EU membership requirements. The drachma is strong and actually gaining value against the euro. The budget deficit has been slashed from 7.6% of GDP in 1996 to 1.9% this year. Other reforms are moving ahead, banks and other Greek companies are merging to become more competitive in the European arena-and the stock market is booming.
When EU membership becomes official, perhaps as early as January 1 2001, Greece technically may be the smallest and weakest country in the euro club-but it will be the strongest country in the Balkans. The ability of Greece to provide economic leadership and political stability in this most volatile part of Europe will, in the end, give the country more international clout than it has enjoyed since ancient times when Greece was the known world's cultural and economic epicenter.
With the war in Kosovo ended, and the once feared threat of its extension to neighboring Macedonia and Albania faded, the business mood in Greece is upbeatand the outlook is as hot as the sun that has baked Athens this summer. Throughout July and into August, the Athens Stock Exchange has reflected that exuberance with new records set each day, reminiscent of last year's performance, when the Greek market ranked number one in the world in local currency growth-with an 85% leap in the ASE index-and number two in dollar terms, after South Korea. On August 19 the market closed at 4,885, compared with the 1999 low of 2,763.
"The equities market is definitely in a strong position today, and much of that derives from Greece's increasing integration with the rest of Europe," says Socrates G. Lazaridis, general manager of the Athens Stock Exchange. "Valuations are up, there are plenty of new issues in the pipeline, privatization is going ahead, and foreign investor interest is strong."
Says Demitri Lekkas, managing director of Egnatia Securities:"The sharp drop in interest rates during the past three years has caused a dramatic shift of funds from investments in bank deposits and government debt, toward equities. Total assets of equitylinked funds more than doubled in 1998 and increased another 3.8 times during January-July of this year."
The bull market is driving a crowd of IPOs onto the Athens Stock Exchange. There were 14 new listings in 1997, 24 last year, and 19 in the first seven months of this year, says Lekkas. "More than 60 companies, an unprecedented number, have indicated they want to go public in the near future," he says.
The overriding issue driving market sentiment-and pushing the economy to the healthy 3.2% GDP growth rate forecast for this year-is the EU factor. "That is really what makes the difference," says Dimitrios Maroulis, research economist for Alpha Credit Bank in Athens. "Things have reached the point where everybody is confident that the country will be able to move into the euro market easily."
For now, the banking sector itself is the focus of mergers and consolidation that will give Greece the clout to compete more effectively in the euro zone and the world market. …