Greece

On the road to recovery

Adjustment program success stories,

investment opportunities

& challenges lying ahead

Dr. Platon Monokroussos

Chief Market Economist

Eurobank

July 2014

2

Adjustment program success stories &

socioeconomic costs

Source: ELSTAT, BoG, Eurobank Global Markets Research

Success stories 2009 2013Δ 2013/2009

(improvement)

General government balance (% GDP) -15.6 -3.2 12.4 ppts

General government primary balance (% GDP) -10.5 0.8 11.3 ppts

Interest expense (euro bn) 12.3 7.2 5.1 billion

Current account balance (% GDP) -11.2 0.7 11.9 ppts

Current account excl. oil, ships & net interest payment (% GDP) -2.6 7.1 9.7 ppts

Socioeconomic costs 2009 2013Δ 2013/2009

(deterioration)

Nominal GDP (euro bn) 231.1 182.1 49 bn

Unemployment rate (%, e.o.p) 10.5 27.1 16.6 ppts

Total number of employeed of 15yrs of age and over (thousands) 4,461 3,573 888 thousands

Gross public debt (% GDP) 129.7 175.1 45.4 ppts

Rise in gross public debt due to snowball effect (ppts-of-GDP) 59ppts

3

Real sector developments

Summary of views

improvement in sentiment indicators increasingly reflected in hard economic data

real GDP growth to shift into positive territory from Q3 2014 onwards

upside risks to the troika forecasts for private consumption & imports growth

tourism, energy, manufacturing (food processing), agriculture, retail & whole trade among the main

growth drivers in the coming decade

Risks

negative carry over from last year’s recession (-0.6ppts)

still negative savings rate of households & huge disinvestment in the domestic economy

supply-side constraints to domestic credit

reforms fatigue and resistance from vested interests

4

Tourism sector contribution

16.5% in GDP (GVA); 18.5% of total employment

10.7 11.4 11.3

11.6

10.4

9.6

10.5 10.4

12.2

13.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014f

Travel receipts ( EUR bn)

6.8% 1.7%

4.7%

6.3% 2.5%

18.3%

Albania Australia Switzerland USA Canada Russia

Incoming passengers in 2013 by country of origin (% of total arrivals from non-EU countries)

2014(f): 19mn visitors; >13bn direct revenue

2021 target: 22-24mn visitors; €18-19bn in

direct revenue 34.4

15.2 12.0 8.6 11.3

26.6

9.1

18.0

1.6

34.2

-8.1

53.3

25.7

16.2

3.5

-20

-10

0

10

20

30

40

50

60

Ath

ens

The

ssal

on

iki

Rh

od

es

Ko

s

Her

akle

ion

Ch

ania

Co

rfu

Zaky

nth

os

Ke

falo

nia

San

tori

ni

Ara

xos

Kal

amat

a

Sam

os

Skia

tho

s

Kav

ala

Incoming passenger traffic: January-May 2014, YoY%

Source: SETE, ELSTAT, BoG, Eurobank Global Markets Research

5 Source: ELSTAT, Eurobank Global Markets Research

Industrial sector contribution

Industry (incl. construction) 16% in GDP (GVA);

manufacturing 10% in GDP

35

40

45

50

55

60

Mar

-05

Sep

-05

Mar

-06

Sep

-06

Mar

-07

Sep

-07

Mar

-08

Sep

-08

Mar

-09

Sep

-09

Mar

-10

Sep

-10

Mar

-11

Sep

-11

Mar

-12

Sep

-12

Mar

-13

Sep

-13

Mar

-14

Greek Manufacturing PMI (3mma)boom-bust threshold

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

Mar

-01

No

v-0

1

Jul-

02

Mar

-03

No

v-0

3

Jul-

04

Mar

-05

No

v-0

5

Jul-

06

Mar

-07

No

v-0

7

Jul-

08

Mar

-09

No

v-0

9

Jul-

10

Mar

-11

No

v-11

Jul-

12

Mar

-13

No

v-13

Industrial & manufacturing output (YoY, %, 3mma)

Total industry

Manufacturing

-50

-40

-30

-20

-10

0

10

20

Ap

r-9

7

Fe

b-9

8

Dec

-98

Oct

-99

Au

g-0

0

Jun

-01

Ap

r-0

2

Fe

b-0

3

Dec

-03

Oct

-04

Au

g-0

5

Jun

-06

Ap

r-0

7

Fe

b-0

8

Dec

-08

Oct

-09

Au

g-1

0

Jun

-11

Ap

r-12

Fe

b-1

3

Dec

-13

Industrial Confidence Indicator

Greece Eurozone

6 Source: ELSTAT, Eurobank Global Markets Research

Trade contribution

Retail & wholesale19% in GDP (GVA) &18% in total

employment; retail 7% in GDP

-50

-40

-30

-20

-10

0

10

20

30

40

50

-20

-15

-10

-5

0

5

10

15

20

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Retail trade indicators

Turnover, YoY%, 3mma

Volume, YoY%, 3mma

Confidence index (r.s)

-80

-60

-40

-20

0

20

40

Jan

-07

May

-07

Sep

-07

Jan

-08

May

-08

Sep

-08

Jan

-09

May

-09

Sep

-09

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Road Motor Vehicles (%, YoY)

-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

Ap

r-9

3

May

-94

Jun

-95

Jul-

96

Au

g-9

7

Sep

-98

Oct

-99

No

v-0

0

Dec

-01

Jan

-03

Fe

b-0

4

Mar

-05

Ap

r-0

6

May

-07

Jun

-08

Jul-

09

Au

g-1

0

Sep

-11

Oct

-12

No

v-13

Retail Trade Confidence Indicator

Greece Eurozone

7

Construction sector contribution

GVA: 3.5% vs.16.3% in 2006

0

10,000

20,000

30,000

40,000

50,000

60,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Gross investment components (EURmn, s.a., 2005=100)

Other

Other construction

Dwellings

Transportequipment

Metal productsand machinery

Source: BoG , Eurobank Global Markets Research

-40

-30

-20

-10

0

10

20

Jul-

90

Au

g-9

1

Sep

-92

Oct

-93

No

v-9

4

Dec

-95

Jan

-97

Fe

b-9

8

Mar

-99

Ap

r-0

0

May

-01

Jun

-02

Jul-

03

Au

g-0

4

Sep

-05

Oct

-06

No

v-0

7

Dec

-08

Jan

-10

Fe

b-1

1

Mar

-12

Ap

r-13

May

-14

Construction Confidence Indicator

Euro area Greece

Baseline Adverse

2008 0.3 0.3

2009 -4.2 -4.2

2010 -7.0 -7.0

2011 -6.7 -6.7

2012 -12.8 -12.8

2013 -9.3 -9.3

2014(f) -5.9 -9.0

2015(f) 1.0 -3.9

2016(f) 2.9 0.9

Eurobank Research VECM model for explaining residential housing

prices in Greece

(realizations & forecasts, YoY %)

8

Eurobank GDP NOWcasting model

Q2 2014 estimate & short-term forecasts

Source: EL.STAT., Eurobank

GDP Nowcasting Model estimates based on the following

high-frequency indicators:

"RS","AUTO","UNEMPL","NOFEMP","HIRES","CPI","BUILD","IP","MA

NF","MANORDER","IPTURN","CREDIT","REERCPI",

"REERULC","ECONSENT","ASEVOL"

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

2Q

20

14

4Q

20

13

2Q

20

13

4Q

20

12

2Q

20

12

4Q

20

11

2Q

20

11

4Q

20

10

2Q

20

10

4Q

20

09

2Q

20

09

4Q

20

08

2Q

20

08

4Q

20

07

2Q

20

07

Real GDP realised (QoQ %, s.a.)

Nowcasting model fitted values

-1.1

%

-2.5

%

-6.6

%

-9.2

%

-8.3

%

-8.0

%

-4.3

%

-8.0

%

-7.8

%

-7.4

%

-7.7

%

-4.9

%

-6.0

% -

4.0

%

-3.2

%

-2.3

%

-0.9

%

-0.3

%

1.1%

-13.0%

-11.0%

-9.0%

-7.0%

-5.0%

-3.0%

-1.0%

1.0%

3.0%

5.0%

Q1

20

10

Q2

20

10

Q3

20

10

Q4

20

10

Q1

20

11

Q2

20

11

Q3

20

11

Q4

20

11

Q1

20

12

Q2

20

12

Q3

20

12

Q4

20

12

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

13

Q1

20

14

Q2

20

14

Q3

20

14

Real GDP YoY growth (realizations & short-term forecasts)

-35.0%

-25.0%

-15.0%

-5.0%

5.0%

15.0%

25.0%

35.0%

45.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20

01

Q1

20

01

Q4

20

02

Q3

20

03

Q2

20

04

Q1

20

04

Q4

20

05

Q3

20

06

Q2

20

07

Q1

20

07

Q4

20

08

Q3

20

09

Q2

20

10 Q

1

20

10 Q

4

20

11 Q

3

20

12 Q

2

20

13 Q

1

20

13 Q

4

Private Consumption YoY,% (left)

Investments YoY,% (right)

9

Labor market conditions

Unemployment still unacceptably high, but gradual

improvement already underway

Source: EL.STAT, Ministry of Labour , ERGANI, IMF (June 2014), Eurobank Global Markets Research

10

Greek GDP realizations and forecasts

Components, contributions & risks

Source: IMF , EC, ELSTAT, Eurobank Global Markets Research

2.9

-1.1

-4.6 -5.6

-6.7

-4.2

-0.9

1.0 -0.5

0.9

-1.7 -1.0

-1.3

-0.8

-0.8

-0.3

-2.8

-6.0

-1.5

-3.0

-2.9

-1.0

0.7

1.5

0.1

3.0

3.0 2.4 3.8

2.0 1.6

0.7

-11.0

-9.0

-7.0

-5.0

-3.0

-1.0

1.0

3.0

5.0

2008 2009 2010 2011 2012 2013 2014 2015

Net exports GCF

Public consumption Private consumption

Contributors to real GDP growth

(realizations & forecasts)

YoY growth 2008-2012 2013 2014(f) 2015(f) Risks

Private

consumption -20.6% -6.0% -1.8% 1.7%

Public

consumption -18.4% -4.1% -1.7% -2.0%

Investments -81.9% -12.8% 5.9% 9.7%

Exports g&s -13.9% 1.8% 4.1% 5.2%

Imports g&s -46.6% -5.3% -1.3% 2.2%

GDP -22.5% -3.9% 0.6% 2.9%

GDP components & risks

11

Potential sources of long-term economic growth

18.0

9.0

6.5

4.5

4.3

1.9

1.4

1.3

1.0

0.6

0.45

0.1

0.027

Tourism

Energy

Manufacturing - Food processing

Agriculture - Crops agriculture

Retail and wholesale

Manufacturing of generics pharmaceuticals

Aquaculture

Regional Cargo & Logistics hub (tsansshipment and gateway)

Long-term and Elderly care

Waste Management

Medical Tourism (mainly outpatient)

Greek Specialty Foods

Classics hub

Additional annual GVA (in EURbn) over 10-year horizon

---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Rising Stars

Major Sectors

Source: McKinsey & Co, 2012

12

Fiscal developments

Summary of views

fiscal adjustment unpredicted by historical standards

State budget execution data support attainability of full-year fiscal target

full coverage of projected financing gap achievable up to at least 2020

public debt more sustainable now than in 2009

new debt relief (OSI) expected upon completion of next troika review

Risks

recent court decisions to cancel certain wage cuts in 2012 (armed forces & emergency services personnel)

may create the need for offsetting budgetary measures

challenging medium-term primary surplus target (4.0%-4.5%-of-GDP)

13

Fiscal adjustment unprecedented by historical standards

Adjustment mainly driven by the expenditure side

Cumulative improvement in 2009-2013

General gvnt balance: 12.4ppts-of-GDP

General gvnt primary balance: 11.3ppts-of-GDP

Cyclically adj. primary balance: 19.3ppts-of-GDP

-13.6

-6.3

-1.3

2.5

5.7

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

2009 2010 2011 2012 2013

Cyclically adj. primary balance (% potential GDP)

Primary balance (% GDP)

General gvnt balance (% GDP)

-1

0

1

2

3

4

-1

0

1

2

3

4

Pro

per

ty in

com

e

Oth

er c

urr

ent

tran

sfer

s

So

cial

con

trib

uti

on

s

Cap

ital

tra

nsf

ers

Sal

es

Pro

du

ctio

n&

imp

ort

tax

es

Inco

me&

wea

lth

taxe

s

Fiscal Adjustment in Revenues, 2008-13 (percent of potential GDP)

-1

0

1

2

3

4

-1

0

1

2

3

4

Su

bsi

die

s

Oth

er c

urr

ent

tran

sfer

s

Cap

ital

tra

nsf

ers

Gro

ss c

apit

alfo

rmat

ion

Inte

rest

Co

mp

ensa

tio

n o

fem

plo

yees

Inte

rmed

iate

con

sum

pti

on

So

cial

ben

efit

s

Fiscal Adjustment in Expenditures, 2008-13 (percent of potential GDP)

Source: IMF , EC, Eurobank Global Markets Research

14

Public debt more sustainable now than in 2009

That is, despite the rise in the debt ratio by

ca 45.5ppts over the period 2009-2013

Source: IMF , EC, Eurobank Global Markets Research

Evolution of Greek public debt ratio

Scenario analysis based on different assumptions regarding

a) size & degree of persistence of fiscal multipliers; b) size

& profile of fiscal adjustment; c) response of financial

markets to fiscal consolidation

125%

145%

165%

185%

205%

225%

245%

265%

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

No adjustment(nominal IR on debtfixed a 2009 level)

No adjustment (debtrefinancing atconsesional rates)

Full adjustment

Partial adjustment

Gradual adjustment 1

Gradual adjustment 2

Troika baseline DSA

2.0 2.3

2.7 2.8 3.1

3.4 3.5 3.7 3.8 3.9

4.4 4.7

0.0

1.0

2.0

3.0

4.0

5.0

Net

he

rlan

ds

Ger

man

y

Fran

ce

Au

stri

a

Gre

ece

Bel

giu

m

Po

rtu

gal

Slo

vak

Rep

.

Sp

ain

Irel

and

Ital

y

Slo

ven

ia

Nominal interest rate on debt 2013-2018 (%)

1.5 1.7 2.0 2.0

2.4 2.8 3.2

3.3 3.6 4.1 4.3

4.9 5.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Net

he

rlan

ds

Ger

man

y

Au

stri

a

Slo

vak

Rep

.

Fra

nce

Eu

roar

ea

avrg

Slo

ven

ia

Bel

giu

m

Sp

ain

Po

rtu

gal

Irel

and

Gre

ece

Ital

y

Interest payments on debt 2013-2018 (% of GDP)

15 Source: IMF , EC, Eurobank Global Markets Research

Interest expense with & without new debt relief (EURbn)

69.8

126.7

63.2

109.3

0

20

40

60

80

100

120

140

2014-2020 2021-2030

Current projection

After debt relief

Nominal effective interest rate on public debt with & without

new debt relief (EURbn)

175.1

125.0

83.0

0

20

40

60

80

100

120

140

160

180

200

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

troika baseline after new debt relief

Evolution of Greek public debt ratio

0.000.501.001.502.002.503.003.504.004.505.00

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

After new debt relief

Current projection

Eurobank new debt relief proposal:

GLF swap into 50yr amortizing bond with 10yr grace

on interest payments and fixed interest of ca 0.6%

16

Full coverage of projected financing gap attainable

up to at least 2020

without recourse to a new aid package from official lenders

Projected evolution of general government borrowing needs & funding sources

(EURbn, cumulative amounts)

Source: IMF (June 2014), Eurobank Global Markets Research

17

External sector developments & competiveness

Summary of views

Summary of views

surplus CA for the first time on record

improvement mainly driven by huge imports contraction, higher services exports and lower interest

payment on public debt (PSI & DBB)

cumulative losses in post EUR-entry wage cost competitiveness already eliminated

Risks

structural CA still at a deficit of ca 4%-of-GDP

concerns remain as to the performance of merchandise exports excl. fuels

CPI-based REER still overvalued by slightly over 10ppts

improving environment for foreign direct investment, but FDI-to-GDP ratio still lower than EU average

18

-7.8% -7.2%

-6.5% -6.5% -5.8%

-7.6%

-11.4%

-14.6% -14.9%

-11.2%

-10.1% -9.9%

-2.4%

0.7%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Source: BoG, AMECO, Eurobank Global Markets Research

Greece’s current account (% GDP)

Balance-of-payments definition

-20%

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

196

0

196

3

196

6

196

9

1972

1975

1978

198

1

198

4

198

7

199

0

199

3

199

6

199

9

20

02

20

05

20

08

20

11

Current account (right)

Gross natinal saving (left)

Total investment (left)

Greece’s current account as a savings-investment

imbalance (% GDP)

A surplus CA in 2013 for the first time on record

Improvement mainly driven by the sharp contraction of imports,

higher services exports (tourism) and lower interest payments

on public debt (PSI & DBB)

19 Source: BoG, AMECO, Eurobank Global Markets Research

Export & import trends

Lingering concerns as to the performance of merchandise

exports despite the rapid improvement in wage cost

competitiveness

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

Dec

-04

Jul-

05

Feb

-06

Sep

-06

Ap

r-0

7

No

v-0

7

Jun

-08

Jan

-09

Au

g-0

9

Mar

-10

Oct

-10

May

-11

Dec

-11

Jul-

12

Feb

-13

Sep

-13

Ap

r-14

Exports of goods & services

Imports of goods & services

Exports of goods & services (excluding tourism revenue)

Annual growth of export s & imports

(YoY %, 12mma)

Merchandise exports and imports excluding

fuel and ships purchases (% GDP)

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Imports Exports

20

Greece – REER cumulative growth

(vs. 37 major trade partners)

Minimum wage (euros per month)

Source: Eurostat, AMECO, Eurobank Global Markets Research

EUR 684

EUR 877

100250400550700850

1,0001,1501,3001,4501,6001,7501,900

Ro

man

iaB

ulg

aria

Lat

via

Lit

hu

ania

Cze

ch…

Est

on

iaS

lova

kia

Hu

ng

ary

Cro

atia

Po

lan

dT

urk

eyP

ort

ug

alG

reec

e 1H

…M

alta

Sp

ain

Slo

ven

iaG

reec

e 1H

…U

nit

ed…

Un

ited

…F

ran

ceIr

elan

dN

eth

erl

an…

Bel

giu

mL

uxe

mb

o…

Greece

Now

2011

-10%

-5%

0%

5%

10%

15%

20%

25%

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

UCL-based

CPI-based

Wage adjustment has fully offset the wage cost-based

competitiveness losses accumulated post the EUR entry

However, Greece’s CPI-based REER remains overvalued by

more than 10%

Average annual earnings (YoY, %)

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13e

20

14f

Greece Euro area

21

Estimate of the Greek sector

competitiveness

Greece competitiveness

Performance vs. major trading partners (39 exporter EU &

OECD countries as well as 56 others including emerging market

economies)

Estimate of the Greek competitiveness gap by year (%)

22

Financial sector developments

Summary of views

domestic financial conditions improving; deposit rates record significant decline since mid-2012 peak;

loan rates ease, though to a lesser extent than deposit rates

banking system reduces dependency on ECB liquidity measures; ELA funding close to zero

domestic banking system fully-recapitalized, enjoying strong Core Tier 1 capital ratios and unique

market structure (4 systemic banks controlling more than 95% of loans base)

Risks

initial bounce in deposit inflows post the June-2012 election discontinued (still down > 30% from peak)

supply-side constrains risk credit-less recovery (EU-wide phenomenon)

NPLs resolution remains a challenge for the domestic banking system

23

Bank recapitalization, gradual normalization of domestic

liquidity conditions should allow switch to positive credit

creation from 2015/16 onwards *,**

Interest rates on new euro-denominated

deposits with agreed maturity up to 1 year (ppts)

Eurosystem funding to Greek banks

(outstanding amounts in EURbn)

(*) Eurobank’s Monetary Policy Transmission Mechanism Model (Panel Study): A 1ppt increase in domestic bank

loan growth relative to the cross-section average of the PIIGS economies causes, after a quarter, a rise of between

0.2ppts and 0.47ppts in Greece’s real GDP growth above the respective cross-sectional average.

(**) Eurobank’s Greece SVAR model: A decline in the average Greek bank loan interest rate by 1ppt can lead to a

cumulative boost in real GDP growth by around 0.3ppts over a 4-quarter period.

Source: P. Monokroussos & Thomakos D. (2013a) “Monetary Policy Transmission Mechanism & Bank Lending Channel in the euro area –

Greece Case Study”

Source: BoG, Eurobank Global Markets Research Source: BoG, Eurobank Global Markets Research

2.50

3.00

3.50

4.00

4.50

5.00

5.50

Jun

-10

Au

g-1

0O

ct-1

0D

ec-1

0F

eb

-11

Ap

r-11

Jun

-11

Au

g-1

1O

ct-1

1D

ec-1

1F

eb

-12

Ap

r-12

Jun

-12

Au

g-1

2O

ct-1

2D

ec-1

2F

eb

-13

Ap

r-13

Jun

-13

Au

g-1

3O

ct-1

3D

ec-1

3F

eb

-14

Ap

r-14

Households Non financial corporations

24 Sources: IMF, WB, BoG, Eurobank Global Markets Research

Greece’s NPLs ratio

12.3

7.0

31.9

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

AT BE* CA

CY*

CZ

DK EE

FI FR DE

GR

HK

IS

IE*

IT*

JP LU

MT

NL NZ

NO

PT

SK

SI

ES

SE

CH GB US

BA

BG*

HR

HU LV

LT

ME RO

RS

TR

AM

GE

KG MD

RU

UA

WS

KW AE

GA CR SV HN

MX PW VE

y = 0.8088x + 1.3347 R² = 0.3942

0

5

10

15

20

25

30

0 5 10 15 20 25 30

Δ N

PL

RA

TIO

(T

RO

UG

HT

TO

PE

AK

)

CUM GDP CONTRACTION

Cumulative real GDP contraction vs. change in

NPL ratio

from through to peak (2008-2013)

Private sector credit % GDP (end-2008)

0

50

100

150

200

250

300

Slo

vaki

aR

om

ania

Cze

ch R

ep.

Po

lan

dU

SH

un

gar

yL

ith

uan

iaB

elg

ium

Bu

lgar

iaC

anad

aFi

nla

nd

Ital

yS

love

nia

Lat

via

Ger

man

yF

ran

ceA

ust

ria

Est

on

iaL

uxe

mb

ou

rgJa

pan U

KG

reec

eN

eth

erla

nd

sS

wed

enM

alta

Au

stra

liaN

ew Z

eala

nd

Po

rtu

gal

Sp

ain

Irel

and

Den

mar

kC

ypru

s

AVERAGE = 102.4

Rise in Greek NPLs ratio due to recession, rather than

bank lending practices

Of total NPLs 60% corporate (SMEs); 16% consumer; 24%

mortgages

25

Political environment, progress on

structural reforms & upcoming troika review

Summary of views

coalition majority may rise further in the upcoming presidential vote

a number of steps have been taken in fulfilling privatisation targets

prior actions to the June 2014 EFSF loan disbursement fulfilled

Negotiations in the context of next troika review unlikely to conclude before year-end

Risks

Lingering political jitters & reforms fatigue

26

Ruling coalition controlling slim parliamentary majority

Majority of at least 180 in-favor votes needed for the

upcoming election of the President of the Hellenic Republic

Ruling coalition currently controls 2-seat majority in the

300-seat Parliament.

Constitution of Greece (Article 32, paragraphs 3 & 4)

The vote for the election of the President of the

Hellenic Republic should take place at least one

month before the expiration of the tenure of the

incumbent (i.e., 2 February 2015). The relevant

procedure incorporates three separate ballots in

Parliament.

In the first two, a 2/3rd majority of the total 300 MPs is

required (i.e., 200 in-favor votes). If both fail to

produce a decisive outcome, a third ballot takes place

where a majority of 3/5th is needed (i.e., 180 in-favor

votes).

125

71

27

13 16

13 12

17 6

Allocation of seats in the Hellenic Parliament

N.D.SY.RIZ.A.PA.SO.K.Independent GreeksGolden DawnDemocratic LeftK.K.E.Independent Democratic ParliamentariansIndependent MPs

Source: Ministry of Internal Affairs

27

Privatisation program

Progress so far & issue on the agenda in the upcoming

program review

Even if with delays, a number of steps have been taken in

fulfilling privatisation targets

—16 privatisation projects already completed, e.g. sale of 33% of Emma Delta, sale of 66% of DESFA

— 16 privatisation projects currently in progress, e.g. sale

of 67% of Piraeus Port (country’s largest port complex) —16 privatisation projects currently under preparation, e.g.

Public Power Corporation S.A, Hellenic Petroleum —out of a target of 1,000, ca 950 commercially-viable real

estate assets have already been transferred to HRADF; more than 80,000 real estate assets have been initially

assessed (currently, under the management of line ministries and the Public Properties Company)

— relevant law amended to improve governance of HRADF

Steps that need to be taken

Strengthen governance regime of the privatization plan

Bring forward privatisation revenues

1.6 0.0

1.0

1.5

2.2

3.4

2.9

3.0 3.4

3.6

22.3

0.5

4.5

8.5

12.5

16.5

20.5

24.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

20

11

20

12

20

13

20

14 (f

)

20

15 (f

)

20

16 (

f)

20

17 (

f)

20

18 (f

)

20

19 (

f)

20

20

(f)

Greece: Privatization Proceeds (2011-2020)

Yearly Proceeds (EUR bn)

Cumulative Proceeds (EUR bn)

Source: EU Commission, Occasional Papers 192/April 2014, “The

Second Economic Adjustment Programme for Greece, Fourth

Review”

28

Prior actions to the June & July 2014 EFSF tranches

June 2014 EFSF tranche (€1bn) Completed Pending

Adoption of outdoor trade law √

Adoption of investment licensing & spatial planning laws √

Issuance of ministerial decree for integration of debt collection to tax administration √

Update of nuisance charges list √

Adoption of code of conduct for members of Government √

Adoption of legislation entailing reduction in the average profit margin of pharmacists (to 15.7% from 19%) √

Adoption of legislation for non-insured citizens' access to diagnostics centers and use of medicines √

July 2014 EFSF tranche (€1bn) Completed Pending

Adoption of legislation on political parties' funding and on declaration (and monitoring) of their assets √

Adoption of administrative burden legislation √

Abolishment of third party taxes recorded as auxiliary funds revenue√

Clearance of State arrears to PPC and adoption of law for the establishment of "Small PPC" √

Adoption of forestry law√

Adoption of legislation allowing merger of all supplementary pension funds into ETEA√

Legislation for implementation of "No Deficit Clause" & sustainability formulas to all funds not currently in ETEA √

29

Next (5th) program review

Key issues on the agenda

Key issues on the agenda

Measures for the coverage of projected fiscal gaps (1.0%-of-GDP in 2015 & 0.75%-of-GDP in 2016)

Measures for the coverage of projected financing gap (H2 2015 & 2016)

Labor market reform (collective dismissals, industrial actions)

Public sector reform (8k-10k additional layoffs by end 2014, other)

Assesment of the privatisation program

(e.g.issuance of a list of pending actions required for the privatisation of key State entities; (ii) completion of an asessment

of the management and board members of companies in the HRADF portfolio)

Framework for strengthening/restructuring domestic banking system

e.g., (i) BoG approval of the capital-raising plans addessing the adverse scenario already submitted by domestic banks;

(ii) review of personal and corporate insolvency laws

Regulatory framework of product and services markets

(e.g.review of over-the-counter medicine prices & liberalisation of their retail channels)

Review of medical/pharmaceutical spending

(e.g. publication of list of medicine prices based on the lowest prices in three EU member States)

Source: EU Commission (April 2014), IMF Country Report No. 14/151 (June 2014), MTFS (2015-2018), Eurobank Global Markets Research

30

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31

ANNEX 1

Funding gap fully covered on a 12-month forward basis

Strategies sought for the full coverage of the financing gap over the next 12 months

re-access to international capital markets

intra-general government borrowing through short-term repo operations (up to €3 bn )

use of idle resources available in other parts of general government for liquidity purposes

buyback by Pireaus Bank and Alpha Bank of preference shares from the State (€1.7bn )

rollover of 5-yr government bonds owned by the National Fund for Entrepreneurship and Development (ETEAN) that mature

in August 2014 (€1.5bn-€ 0.43bn )

utilisation of the HFSF buffer (ca €11.3bn) after substracting from it any amounts needed to cover potential capital shortfalls

in the domestic banking system identified by a new EU-wide stress test, scheduled to be completed by end- October 2014

32

ANNEX 2

Greece – Disbursements under 2nd adjustment program (EURbn)

Source: EU Commission “ The Second Economic Adjustment Programme for Greece, 4th Review,” (April 2014), Eurobank Global Markets Research

Loan tranches disbursed so

far under 2nd adjustment

program

Pending EFSF loan tranche

following completion of 4th

program review (subject to

fullfilment of certain milestones )

Future disbursements

Total disbursements

under 2nd adjustment

program

March 2012-mid-July 2014August 2014

(initially scheduled for July 2014)September 2014-March 2016 March 2012-March 2016

EFSF 140.9 1.0 2.9 144.8

IMF 11.9 0.0 16.1 28.0

Total 152.8 1.0 19.0 172.8

33

ANNEX 3

Greece – Timeline of key data & events

Source: EU Commission, local press, Eurobank Global Markets Research