The Bridge - Issue 1

Reconstructing the Balkans

A quartely review on the Greek presence in S.E. Europe & the S.E. Mediterranean

Q2/2006 - issue 1

The upcoming economic miracle 単 Are we ready for a new identity?

Editor’s note It is the genesis of a new era, a time to boldly go where no Balkan state has trekked before: the 21st century.

Toward growth and prosperity, via roads and other transport infrastructures, energy grids, telecoms, financial and market institutions as well as institutions of political cooperation, via investments and ventures.

A trek toward European integration, in regional concert or each country on its own on the road to Brussels? In unison, chaos, or in a jaunty jazzy rhythm? With or without a new Balkan identity? What type of identity (economic, cultural, historic, political, social, etc)? With or without economic cooperation? With or without leadership? With or without a customs union? With or without a free trade area? Half full or half empty? Is the Balkan region, so mysterious, so volatile, so diverse, even risky in the minds and opinions of some, so familiar and promising for others, an emerging miracle or a self-absorbed chaos in need of a new cohesion fund? Many of those venturers who took a chance on the Balkans (East, West or both), Greeks and others, have already reaped many benefits and are attracting world attention and interest (and shareholder value). Who has the right stuff to trek with reasonable safety and rational expectations within this wonderful region? How will this region navigate its entry into the EU? Are the Balkans being de-balkanized (to some, ‘balkanization’ has come to mean ‘dissolution’) or is the dormant positive energy of the people of a region which is a melting pot of history being re-energized? From the travels of John (‘Jack’) Reed in 1915 to the interests of today’s investors, for example. A melting pot — it sounds both hot and diverse, like Los Angeles. Six years into the 21st century, is the Balkan region, a mosaic of cultures, identities, dreams and history, ready to take a leap into the European and global future? This is the genesis of new era. The process of reconstructing a powerhouse for Balkan energy. Make business, make culture, do politics, make art, as a team or via individual efforts. In such a volatile world of billions of people, the people of SE Europe (as well as the people of the SE Mediterranean) are core capital. They need infrastructures, in energy, in transport, in telecoms, in capitalism, in markets, in creativity, in looking forward. Do you believe in the Balkans? It is all about believing: in the future, in the potential of the people, in cooperation and/or in individualism, in nations and/or in states, in identities and/or in humanity, in the trade-off of (expected) risk and (expected) return. In this world there are no riskless ventures; times are interesting — too interesting for some. When will the day come when all Balkan states are members of the EU? Do the Balkans need (to understand) the EU or does the EU need (to understand) the Balkans? The EU is examining its social models, not sure how wide and how deep it wants to go. To ‘go Lisbon’ or not to go? Some analysts wish the Balkans used a Central or Eastern European regional cooperation model. Understanding the Balkans... They are unique (in their unique way, and the same, in their same old or new way), and so is the SE Mediterranean. Near the meeting point of three continents connected by land, Europe, Asia and Africa, both regions are there to be explored. Without exploration, there is no innovation. Without risk, there is no return. Are the Balkans the LA of Europe? The Balkans can be a miracle in the next 20 years, as Ireland has proven to be a miracle of the last 20. But to happen, miracles need believers.

A leading operator in the Balkans With a strong seven-year track record of creative and successful presence in Greece, COSMOTE, the leading mobile operator in the country, in 2005 laid solid foundations for its transition from a domestic operator into one of the most powerful players in South-Eastern Europe through the acquisition and integration of OTE’s mobile assets in Bulgaria, FYROM and Romania.

Addressing a market of 45 million people, COSMOTE Group today controls five companies — namely COSMOTE Greece, AMC in Albania, GloBul in Bulgaria, COSMOFON in FYROM and COSMOTE Romania — with over 8.2 million customers and works towards becoming a leading operator in the Balkans, further enhancing its growth profile, fortifying its financial performance and promoting its innovative products and services in a market with significant potential and multiple business prospects.

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AMC AMC, in Albania, the leading mobile operator in the country, posts profitability levels among the highest in the sector in Europe, gaining from the increasing local penetration levels.

COSMOTE Greece COSMOTE Greece, despite the intense local competitive landscape, continues to enjoy growth from higher usage due to its attractive and advanced commercial offerings and is dynamically investing in the value added services sector, aiming to sustain growth rates and profitability ratios above the European average while creating increased shareholder value.

COSMOTE's operations in all five regional markets demonstrate continuously improving operational and financial performance.

COSMOTE Romania COSMOTE Romania, which started commercial operations in December after an intensive network rollout period, has already made its presence evident in the domestic market for its competitive pricing, set to fully exploit the attractive prospects of the local market.

COSMOFON COSMOFON, in FYROM, despite the limited time of operation, demonstrates a particularly positive track record, constantly enhancing its market share and is set to continue improving its performance.

GloBul GloBul, the second biggest mobile operator in Bulgaria, continues its impressive course on all fronts gaining momentum and market share, focusing on a robust network and a competitive commercial strategy.

Furthermore, the Greek operator has proven that the deployment of its valuable experience and know-how leads to its rapid establishment as leading player in the markets it operates in.

PUBLI

COSMOTE subsidiaries’ performance, including those at their initial stages of development, can only reinforce the Group’s firm belief that its carefully planned expansion strategy beyond Greece will result to higher returns for COSMOTE and its shareholders.

cover story

Δhe upcoming economic miracle

Are we ready for a new identity? 12 - 13

by Dr Angelos Syrigos A quarterly review on the Greek presence in S.E. Europe & the S.E. Mediterranean

Contact: 118 Kremou Street, Kallithea, 17675 Athens, Greece tel: +30-210.953.3362 fax: +30-210.953.3096 e-mail: bridge@avk.gr Publisher: Stavroula Sourila Editorial team: Vasiliki Nicoloulia Alexandra Fiada Alexia Konachou Simos Ververidis Dionysis Sathakopoulos Kostas Tsaoussis

The Double message of the Balkans 14 -15

by Dr Othon Anastasakis European integration & regional cooperation 16 -17

by Dr Spyros Economides and Dr Vassilis Monastiriotis When talent leaves home 18

by Jorgos Chatzimarkakis A Balkan identity for EU integration 19

by Konstantinos Hatzidakis EU’s crucial role 20 - 21

by Panos Beglitis

Art director: Victor Dimas

The ‘enlarged’ Western Balkans 22 - 23

by Georgios Markopouliotis

Photography & artwork: AVK Dimitris Stergiou Dimitris Papadimitriou Nikos Apostolopoulos

National Bank of Greece & Finansbank: The deal After Milosevic...

Pre-press: Business On Media Advertising Manager: Pinelopi Katagi

themes 26

Montage - Printing: Kathimerini SA The Bridge. quarterly review is also distributed along with the International Herald Tribune (IHT) and Kathimerini English Edition newspapers in Greece, Cyprus and Albania. The content of the magazine does not involve the reporting or the editorial departments of the IHT.

themes 28 - 29

A Euro-Mediterranean economic development

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Toward a major capital market

market 82 - 83

A bolder Balkan strategy interview 50 - 52

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interview 34 - 37

themes 30

© The Bridge.. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Bridge..

Where opinion is expressed it is that of the authors and does not necessarily coincide with the editorial views of the publisher of The Bridge.. All information in this magazine is verified to the best of the authors’ and the publisher’s ability. However, The Bridge. does not accept responsibility for any loss arising from reliance on it.

Rendez vous in THESSALONIKI Greece supports the European orientation of the Balkans

A Greek-Albanian college culture 54 - 55

interview 40 - 43

A hot spot for FDI

interview 46 - 47

culture 60 - 61

‘Funding’ Balkan culture Antigone’s kindred spirits in Tirana interview 62 - 63

culture 66 - 68

A breath of ‘fresh’ energy

market 72

An energy force in SE Europe

market 76 - 77

Capital flows & globalization Hellenic Petroleum and regional cooperation market 91 - 92

Along the path of convergence

market 78 - 81 companies 95 - 96

and more... market 89

contents

Building a European identity Well-known politicians, academics and senior European Union officials were asked to express their views on the first cover story of The Bridge. The following questions were posed as a framework with the aim of examining whether there is today the necessary will and potential to form a new regional identity in the greater Balkan area:

ñ Is it possible for the countries of Southeastern Europe — and, if so, to what extent — to form a new regional identity through their efforts in building supranational communities representing economic and business interests?

ñ To what extent could this regional identity be influenced by the fact that most countries of the area are in the process of integration in international institutions like the EU and NATO?

ñ To what extent will the quest for this new regional identity function in a complementary way toward the generally accepted European identity? Also, to what extent will its formation enhance the common European identity during a period in which the European Union is facing its own crisis as regards its direction, policies, and structures?

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cover story

Spring time for OTE international investments

SERBIA In recent years, OTE's regional expansion strategy has been to become the leading telecommunications operator in Southeastern Europe. In this regard, OTE has made a series of equity investments in the region.

OTE holds a 20% stake, acquired in 1997 for 312 million euros, in Telecom Serbia. The Serbian State holds the other 80%. Since 1997, OTE’s investment had a “rough seas journey” which resulted in the dramatic decrease of the company’s value. OTE had to write off 150 million euros as a consequence of its war damaged infrastructure in Serbia, the loss of its whole infrastructure in Kosovo and the dinar devaluation, coupled with the deterioration of relations between OTE and the Serbian State, following the sale back of the Italian 29% to Serbian government. OTE now looks into a promising future, having

renegotiated its minority rights, receiving dividends and with the desire to invest more, in a country with normalized political environment and an improving economy, aiming at joining N.A.T.O. and E.U. ROMANIA OTE controls 54,01% in Romtelecom the incumbent operator, while RomTelecom holds a 30% in CosmoRom together with Cosmote which owns 70%. The total cash investment for the incumbent’s stake was approximately at 818 million euros and for its mobile subsidiary Cosmorom another 120 million euros through Cosmote.

This investment had also to go through difficult times resulting in a major write off of 257 million euros in OTE’s books. However, sunny days have come at last. Romtelecom has been turned around, foreign investments in Romania are increasing, economy is improving and the country is fast preparing itself in joining EU. Cosmote is now trying to revive the dormant mobile operator. Cosmote Romania (ex CosmoRom) was re-launched in December 2005 while OTE is looking into an already revitalized incumbent with good financial results which will possibly deliver the long waited dividends to its investor. The Romanian state is now planning to liquidate its 46% share part through an I.P.O.

ARMENIA OTE acquired 90% of Armentel’s shares in 1997 for 120 million euros. The other 10% remains with the state. Armentel operates both as a fixed and mobile operator. Following a decrease in the company’s value and a very problematic relationship with the government which resulted in major disputes to come to the front door of the International Court, the

company has been turned around, its mobile part is deployed at a fast pace and the relations with the government have been normalized. Beginning of April, OTE announced that, after consultation with the government of Armenia, it has initiated the process of examining options for the disposal of its 90% stake in Armentel.

BULGARIA/F.Y.R.O.M In both countries, new GSM licences were acquired through a tender process. New companies and network infrastructure started from scratch. Both were recently sold to Cosmote which runs them successfully. More specifically: GloBul launched its commercial operation in Bulgaria in July 2001. Beginning 2003 Cosmote assumed the management. April 2005, GloBul acquired a license for the provision of fixed line telephony services and a month later a UMTS license for the development and commercial offer of 3G services. In August 2005, OTE’s shares in Globul were transferred to Cosmote for 400 million euros.

Cosmofon started its commercial operations in June 2003 owning the 2nd GSM license in FYROM. In August 2005, the transfer to Cosmote of all the shares of OTE in MTS, the 100% holding company of COSMOFON, was also completed.

ALBANIA Cosmote owns 85% and manages the mobile telephony company AMC in Albania.

AMC, which operates since 1996, has been the first mobile telephony company to operate in Albania up to February 2001, when the tender for the 2nd GSM license was held.

AMC’s network operates both under GSM 900 and DCS-1800 systems. In 2005 AMC maintained its market leading position and continued to drive usage and subscriber numbers to higher levels.

PUBLI

OTE is Greece's leading telecommunications organization and one of the pre-eminent players in Southeastern Europe, providing topquality products and services to its customers.

Apart from serving as a full service telecommunications group in the Greek telecoms market, OTE has also expanded during the last decade its geographical footprint throughout South East Europe, acquiring stakes in the incumbent telecommunications companies of Romania, Serbia and Armenia, and establishing mobile operations in Albania, Bulgaria and the Former Yugoslav Republic of Macedonia. At present, companies in which OTE Group has an equity interest, employ over 44,000 people in seven countries, and provide a full portfolio of solutions from fixed and mobile telephony to Internet applications, satellite, maritime communications and consultancy services.

Are we ready

By Dr Angelos Syrigos

The question seems quite simple: What will be the new identity of the Balkans?

In order to provide an answer, two other questions have to be answered first: What is the present identity of the Balkans?

Does the present situation support a new identity for the Balkans?

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Before proceeding with these questions, we have to distinguish between Bulgaria and Romania and the Western Balkans. Bulgaria and Romania will enter the EU in 2007. Both states are still characterized by poverty and corruption. Nevertheless, due to their accession to the EU, Bulgarians and Romanians can be optimistic since they can expect a real improvement in their daily lives in the foreseeable future. Unfortunately, this is not the case for the rest of the area. In addition to poverty and corruption, the main elements that characterize the situation in the Western Balkans are Albanian nationalism, two quasi-international protectorates (Bosnia and Kosovo) and many open questions regarding the future states and their borders. Furthermore, the people of the Western Balkans know very well that the prospect of their entry into the EU is remote. Under these circumstances it is not possible to talk about a new identity in the Balkans. We have first to create conditions of stability in order to be able to speak about a new identity. Stability cannot exist under the present circumstances.

In 1991 the European Community accepted the internal boundaries of old Yugoslavia as the international borders of the new states. This was a serious mistake since these boundaries had been drawn by Tito with the aim of better suppressing his opponents rather than creating stability. Following the EU/EEC decision, a bloody process of creating ethnically homogeneous states started. This process was successful for

two states, namely Slovenia and Croatia. Slovenia managed to enter the EU in 2004 (and get rid of its Balkan identity) and Croatia is the most stable state in the Western Balkans. In contrast, the rest of the countries in the area are still seeking stability.

The interesting thing is that Europe and the US are also concerned about the region’s longterm stability. Regrettably, they are trapped in the notion of multiethnic states and the vague principle of ‘no change of the existing borders.’ These ideas are now materializing in the case of Kosovo, as they did in the past with Bosnia. The example of Bosnia is excellent since it demonstrates the absolute failure of the international community to build a multiethnic state against the will of its citizens. After 10 years of international intervention and the spending of 6 billion dollars (an amount estimated as the highest per capita in recent history not only in Europe but probably anywhere in the world), the country is very far from being a unified state with a sustainable economy and a factor of stability in the area.

It is obvious that the international community wants the whole area of Kosovo to be an independent area. The Serb minority which lives in the region has to stay in the same state as the majority Kosovo Albanians. When the international community talked in the past about human rights, Kosovo Albanian leaders meant independence. Now that the international commu-

for a new identity? nity speaks about an independent, multiethnic Kosovo and respect of the rights of the minorities, Kosovo Albanian leaders eagerly embrace the idea of independence while also dreaming of a 100 percent ethnic Albanian state.

The international community has the naive belief that in the case of an independent Kosovo, the Albanians will suddenly decide to start tolerating the Serbs and will not continue the ethnic cleansing that has been monitored constantly since 1999 by NATO soldiers and thousands of UN, EU and OSCE staff. If Kosovo is going to become an independent state in the near future, this will create more instability both in Serbia and the Former Yugoslav Republic of Macedonia (FYROM).

Stability in the Western Balkans can only be achieved by strong, viable states. Again, the case of Bosnia is indicative. All the international aid to the country was based on the assumption that reconstruction is a financial and technical matter.

On the contrary, Bosnia proved that reconstruction is a political question. Stability cannot be achieved when one of the principal ethnic groups of the area (the Serbs) feel frustrated by the present regime and are dispersed between Serbia, Bosnia, Eastern Kosovo and Croatia. It is obvious that the Serbs will seek the revision of the status quo. The Balkans experienced a similar period in the years 1920-1945, when Bulgaria was the main revisionist power in the area. Now the Serbs are experiencing similar conditions.

The worst thing for stability in the Balkans is that the EU and the USA are turning a blind eye to the strong Albanian nationalism. Stability can-

not be achieved when the Albanian nationalists feel that they are the absolute winners and believe that they can continue and achieve more.

The quest for a new identity in the Balkans presupposes stability. The international community has to accept that the Serbs of Bosnia have the right to be united with Serbia. The same applies for the northeastern part of Kosovo, where the vast majority of the Kosovo Serbs now reside.

This unification will help the possible independence of Montenegro, if this is the will of its people. In reality, it is mainly the international factor that is pushing further for this artificial independence and the survival of a totally corrupt regime which is based on the smuggling of goods. Accordingly, the Croats of Bosnia must have the right to be united with Croatia.

The Albanian element, which is one of the main destabilizing factors in the area due to its nationalism as well as its presence in many different states in the Western Balkans, has to be united within two states. One of the two Albanian states will be Albania. The other will be the greater part of today’s Kosovo, which will also include a part of western FYROM. Albanian nationalists have to realize that this is going to be the

end of their dreams of a Greater Albania. History in the Balkans has proven that nationalism stops only after a defeat. It happened with Greece, Bulgaria and Serbia. If the Albanian nationalism is not stopped, then it will destabilize further Serbia and Montenegro. That is one more reason for the territorial amputation of Kosovo.

Muslim Bosnia and Slav FYROM may continue their independent existence. Their ethnic homogeneity can help them become more stable states and offer them better opportunities to become members of the EU. It is only under these circumstances that we will be able to talk about a new Balkan identity, about preservation of the rich cultural diversity of the area, and about reconstruction of states and cooperation between the various ethnic groups.

The quest for a new identity means liberation from the existing identities of corruption, mismanagement and frustration. The quest for a new identity means a quest for stable states within safe frontiers.

Dr Angelos Syrigos is a lecturer of international law at Panteion University, Athens, Greece.

cover story

The DOUBLE DOUBLE message of the Balkans In the current European context, the European Union is sending double messages to the Balkan countries, some encouraging and some off-putting. Following the French and Dutch referenda, the picture has become more blurred and confusing and, with the possible exception of Bulgaria and Romania where the accession process is irreversible, there is increasing uncertainty regarding future enlargements in Southeast Europe. It is clear that the current constitutional crisis is also the result of post-enlargement fatigue and that the political elites of EU countries from now on will be extra cautious with their publics on matters relating to the widening and deepening of the European Union. This explains why Austria, a country which currently holds the EU Presidency and has special ties and interests in the Balkan region, is showing signs of reluctance and slowing down, despite the initial hopeful expectations and its dynamic contribution in the Croatian commencement of EU accession talks.

Yet, at a more technical EU level, there is some hope and the European Commission is supportive of the enlargement process in Southeastern Europe. Indeed, the Directorate of Enlargement has been quite busy lately in keeping the process on track, trying to reaffirm EU commitments in the region and to move developments since the last major EU-Western Balkan boost at the Thessaloniki Summit in June 2003. Since the autumn of 2005 there have been some significant bilateral advances: The EU started accession talks with Croatia and Turkey, it has offered candidacy to the Former Yugoslav Republic of Macedonia (FYROM), it is concluding a Stabilization

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By Dr Othon Anastasakis

and Association Agreement (SAA) with Albania and has opened SAA talks with Serbia-Montenegro and Bosnia-Herzegovina. The key question is whether this progress reflects a consistent and long-term strategy to bring the Western Balkan countries into the EU soon, or a more incremental and tactical approach to avoid further embarrassments in the security domain, especially at a time when many political questions in the region are still pending.

One cannot fail to notice that there is a great degree of regional uncertainty and unpredictability, which affects EU-Balkan relations. People in the region are overwhelmingly negative about their political and economic status quo and uncertain regarding their future and the role of the European Union. Most importantly, some of the most delicate political decisions are being discussed or are about to be discussed and, probably, will be reached very soon: the resolution on Kosovo’s final status, the relationship between Serbia and Montenegro, the transition from international to local rulers and the constitutional reform in Bosnia-Herzegovina. No one knows

whether Serbia, Montenegro and Kosovo will become one, two or three states. Also there is increasing uncertainty regarding the viability of the current or future mini and small states and the regional spillover. Understandably, this ambiguity affects the resolve of the European Union to put forth clear timetables and benchmarks toward accession.

Faced with the challenge of EU integration, the countries of the Western Balkans are reacting differently and there are diverse national trajectories in this rather small geographic area. Each Western Balkan state is on a different step on the EU ladder, as a result of its different domestic political and economic situation. Croatia is the most advanced case, projecting a more efficient state capacity and a class of knowledgeable technocrats. Its elite, even in the ranks of the Croatian Democratic Union (HDZ) party, is more reformminded, although many are still skeptical about full cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY) or other sensitive national matters. Its economy is in a better shape and reflects the much higher GDP, the higher inflow of foreign direct investment (FDI) and a better business environment.

FYROM, the second in EU line, is a mixed case, where fragile internal politics and a very problematic economy coexist with compliance to external pressures and conditions. In fact, it was compliance with the Ohrid agreement which led the European Commission to express a positive stance on the country’s candidacy despite the negative domestic economic environment, the weak public administration and acute problems

of corruption. Serbia, Montenegro and Kosovo are crucial for the normalization of the region, regarding the unsolved border puzzle of former Yugoslavia.

Serbia has the potential to change, the human capital to deliver and the international experience to negotiate, but not enough political will; its rulers are polarized, its administration is corrupt and its constitutional question remains open. The Serbian economy has the potential to grow and the country’s size can attract FDI, once investors perceive that the local situation is functional and predictable. Similarly, the legal and administrative context will be more inviting once the ambiguities surrounding the constitutional framework are resolved.

Serbia’s relationship with Montenegro has been the major stumbling block in the country’s Europeanization. The EU’s decision to adopt a dual-track approach with regard to the Stabilization and Association process for Serbia and Montenegro illustrates how impossible it was for the two republics to converge with each other on trade or customs matters. Undoubtedly, Kosovo is the weakest regional link, with limited or no experience of self-rule, a heavy-handed international administration and unreformed nationalists as local rulers. It has a very backward and barely self-sustaining economy with unemployment rates of around 60 to 70 percent, the main source of its social instability.

Bosnia-Herzegovina, the microcosm of former Yugoslavia, has survived the Dayton era due to intense international interference and the iron will of its High Representatives. The country is

currently in need of legitimate and functional central structures which will allow it to advance its association with the EU and survive as a normal state. Finally, Albania is not a post-conflict society by Western Balkan standards, but a state with all the predicaments of democratic illiberalism, economic backwardness, an inefficient and corrupt state sector, and a very weak civil society.

In principle, the EU conducts its relations bilaterally by assessing each case according to its own merits. Yet developments in the region are also interconnected and whatever happens to one country affects some other part of the region in a positive or negative way. All the countries demonstrate similar political or socioeconomic features like corrupt administrations, judicial deficits or economic backwardness, while organized crime, informal cooperation and inadequate infrastructure are shared cross-border concerns.

This commonality and interconnectedness of issues has led the EU to adopt a regional strategy, alongside the bilateral frameworks, and impose the condition of regional cooperation. The aim is to enforce some common rules of cooperation which are compatible with the EU and to in-

crease the volume of trade and regional economic integration. The European Commission has also been supportive of cross-border cooperation projects, for the development of border regions, and the funding of regional infrastructure.

But there are limits to how far the EU can act regionally and there are also limits to how far the Balkan countries are willing to overcome their differences and cooperate with each other. In view of this bilateral/regional tension in the Western Balkans, the EU’s major challenge is to manage the different national capacities and multiple speeds of integration in a context of regional inclusion, in order to generate positive spillover and healthy competition toward the goal of EU membership. The European Commission is clearly moving in the right direction of offering short- and medium-term political and economic benefits and keeping the prospect of accession on the table. But, ultimately, the Commission’s impact relies on the commitment of the local actors to work together, the political will of the EU countries to keep the enlargement going and the existence of a long-term vision.

Dr Othon Anastasakis is director of South East European Studies at the University of Oxford (SEESOX).

E-mail address: othon.anastasakis@sant.ox.ac.uk SEESOX website: www.sant.ox.ac.uk/esc/southeasteur.shtml

cover story

European integration & regional cooperation

By Dr Spyros Economides and Dr Vassilis Monastiriotis It is very difficult to think of a Balkan regional identity beyond certain (dubious) stereotypes, which for the most part were imposed on the Balkan area by an unknowing external audience primarily during the wars of Yugoslavia’s dissolution. If it is difficult to conjure up a regional identity which is beyond the banal, then grave doubts are cast on the utility of describing the Balkans as a region. It is a fact that there isn’t even much agreement on what this geographical area should be referred to as. For generations it was called ‘the Balkans.’ This was then questioned, especially in the 1990s, when many turned to the appellation ‘Southeastern’ or ‘Southeast Europe’ to define the area. To this was added the term ‘Western Balkans,’ describing the successor states to federal Yugoslavia, excluding Slovenia but including Albania, and differentiating them from those states that were on their way to EU accession or candidate status, such as Romania, Bulgaria and, more recently, Croatia.

Even within this grouping of the Western Balkans, we have states that are more advanced and are worthy of contractual agreements with the EU through the Stabilization and Association Program and others which have some way to go to even achieve this kind of relationship with the major continental institution to which they all aspire.

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What we could conclude in the first instance is that the Balkans — or whatever we wish to call the area — are shrinking and that it is highly questionable as to whether there ever was any sense of regional identity or even ‘regioness.’

This interpretation runs contrary to much experience in other parts of Central and Eastern Europe which developed a sense of regional identity and affinity, such as the Baltic states or those of the Central European Initiative. It also runs contrary to the attempts made by the EU — and other actors — to coax and prod the states of Southeastern Europe into a more cooperative, regional approach to certain commercial, political and environmental issues. A key condition of the EU’s Regional Approach to Southeastern Europe has been that regional cooperation in a broad range of activities — most importantly in the area of trade — has to be the starting point for national policies.

Brussels has given clear indications that without this level of regional cooperation stipulated by the EU for the region as a whole, but also in the EU’s bilateral agreements with individual Balkan states, the goal of EU membership will become even more distant. Or has it? The case of Croatia shows that political exigencies can always sweep aside the desire to promote a sense and reality of regioness within Southeastern Europe.

In effect, what is occurring is that Southeastern Europe is being ‘balkanized,’ but not necessarily in the old, pejorative sense of the term. The region is being absorbed into an enlarging EU or being drawn closer to its orbit by contractual arrangements.

Despite the presence of a number of potential ‘anchors’ (e.g. Greece, Slovenia, or even Turkey), for a number of not least historical and geopolitical reasons the region has been unable to find a leader that can help forge a regional identity and, consequently, promote regional agendas and, more importantly, regional solutions. Rather, regional problems are largely defined by the process of association/accession to the EU and, naturally, so are the corresponding agendas and policy solutions.

So, in the conceptual and pragmatic reconstruction of the Balkans as a new ‘region’ we are faced with some unique realities not shared by the seemingly comparable experiences of the Baltic states or the Central and Eastern European countries (CEECs). First, the new balkanization of the region: disintegration of existing states and fragmentation into sub-regional groupings. Second, bilateralism: EU accession happening in stages and conditioned mainly on progress in a host of areas governed by bilateral agreements, despite the emphasis — at least on paper — on regional cooperation. Third, and partly as a result, forms of regional cooperation that are either too informal or too weak (e.g. compare the CEEFTA with the Balkan version

of the Memorandum of Understanding for the Facilitation of Trade in Southeast Europe).

Given all this, the region is heading for a process of reintegration, which can only occur on the basis of full European integration. The recent agreements on transport, energy and the environment, which have all been signed through and under the auspices of the EU, are a clear indication of this. If this process of regional reintegration through Europeanization and/or European integration is not reversed (and we fear it cannot be reversed in the absence of radical changes in policy preferences and design), it is almost inevitable that a negative form of regional integration and ‘identity building’ will occur. This will involve the organic evolution, over a lengthier time period, of regional cooperation in specific areas of commercial activity when and where they are needed and largely within the process of integration to the European structures.

This in turn implies that the eventual development of this new Balkan (or Southeast European) identity will happen on the basis of a different set of problems and conditions than the ones characterizing the region (up to) now. Inevitably, this will involve the development in the region of a new European ‘south,’ where the new member states of the region will replace the existing Cohesion countries (except Greece) as the group of countries commanding — and in need of — the largest policy intervention and support to correct the long-lasting

problems of an imbalanced and rushed process of integration into the European Single Market.

Although this may read as a bleak scenario, which need not materialize out of the current process of European association and accession, the existing evidence allows little room for optimism.

Despite the impressive trade liberalization and openness of the countries in the region, trade bases are, if anything, becoming increasingly narrow and more similar, with the implication that the region competes increasingly with itself for a fixed European market. In contrast, trade within the region remains underdeveloped and opportunities — in terms of sharing resources, exploiting economies deriving from (economic and geographical) proximity, and benefiting from policy learning — are not being sufficiently exploited. The relative unconnectedness of the region is not being addressed directly but only on a secondary level as a result of bilateral developments with the EU. It is now becoming increasingly evident that the ability of the CEECs to benefit from European agreements and

the process of integration with the EU is to a large extent attributable, besides their history and ‘initial conditions’ (e.g. the fact the most of these countries had once been integrated in the European ‘core’), to their ability to integrate with themselves and thus delve into the complementarities of their production structures and create the critical market size that could allow them to compete in the enlarged European and global markets. It appears that for the fragmented and quickly re-balkanized Balkans this option is not on offer. Thus, the region seems destined to build its regional identity on the basis of sharing problems and needs that will emerge after the region’s European integration and that will take the form of economic/aid dependence — rather than on the basis of some (fabricated or otherwise) cultural or political exclusivity.

Dr Spyros Economides is senior lecturer at the European Institute and deputy director of the Hellenic Observatory at the London School of Economics and Political Science.

Dr Vassilis Monastiriotis is a lecturer on the political economy of Greece and Southeast Europe and a member of the Hellenic Observatory at the London School of Economics and Political Science.

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When talent leaves home leaves leaves

By Jorgos Chatzimarkakis The brain drain phenomenon is not new.

Much has been said about it and many governments have pledged to act to counter it, yet every year thousands upon thousands of talented young researchers and scientists leave their home countries looking for better opportunities elsewhere. Figures on the actual scale of the brain drain in Southeastern Europe are scarce, but a 2000 survey underlined that 66 percent of Romania’s students are likely to emigrate, while a 2003 study by The Economist showed that about 10,000 highly educated Bulgarians leave their country each year.

West European scientists and researchers leave Europe for the US where they find better working conditions, i.e. higher salaries based on merit, an entrepreneurial spirit and easy fundraising. The high-skilled people leaving Southeastern Europe for EU member states, the US, Canada or Australia are also pushed in this direction by the economic and political instability of their home countries. Most of them are indeed still transition countries recovering from decades of communist rule and some from civil wars, implying decades of underinvestment in education and research. Young people therefore have to look for the excellent education they long for elsewhere.

Is the brain drain damaging? Trying to prevent bright scientists from going abroad would be counterproductive. Indeed, the time they spend in other European or especially American

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universities or research centers provides them with invaluable experience. The issue is therefore not that young minds leave but rather that they often do not return. As our industries — and therefore our economic growth — are today science-based, losing our best brains simply jeopardizes growth, jobs and the sustainability of our economic and social models. In Southeastern Europe even more is at stake. Who will boost the staggering economies of these countries? Who will carry through the political transition processes if those who are educated abroad, those who have experienced democracy and the market economy, those who are likely to push for political and economic systems based on openness and merit do not return?

The Athens Information Technology center

(AIT) is a good example of a step in the right direction in order to tackle the brain drain and its consequences. Established in 2002, the institute offers first-class master’s programs in partnership with the prestigious American Carnegie Mellon Graduate School. Every year a growing number of students from all over the world, be it Greece or Bulgaria, Lebanon, India or the US, enjoy teaching, facilities and a bold innovationfriendly atmosphere that match what the best US universities provide. Privately funded, the center is not constrained as institutes that are solely publicly funded can be. Indeed, education, research and innovation are recognized by all as the key to a prosperous future, but few governments commit the necessary money. Public-private partnerships are a solution to complete the reduced public budgets available for R&D. When talent leaves home, the whole country suffers.

More initiatives like the AIT are needed in Europe to enable young people, whether they come from the EU or Southeastern Europe, to access excellence close to home, where they can bring back the experience and benefits gained. When it comes to the brain drain, we know the cause, we know the remedy, so let’s start acting.

Jorgos Chatzimarkakis is a member of the European Parliament (ALDE), Germany, (FDP).

A Balkan identity for EU integration Southeast Europe, and more specifically the Balkan peninsula, constitutes a multifaceted environment: a political, cultural, social and economic patchwork. In an effort to heal the wounds of their recent conflicts, the Balkan countries have been pursuing the common goal of integration into Euro-Atlantic structures such as the EU, NATO and the WTO. The Balkan countries are currently at different levels of development, institution-building and European integration. This may be seen as a factor limiting cohesion in the region. However, a number of initiatives promoting cooperation provide added value to national efforts, setting the roadmap toward regional integration and ultimately fostering and shaping a regional identity.

The prospect of EU membership and participation in the process of European integration is a factor of stabilization, democratization and prosperity for the entire Balkan region. Regional cooperation is a key requirement set by the EU. Despite political sensitivities, a primary form of regional integration is emerging.

The Energy Community Treaty signed in Athens in 2005 is seen as a ground-breaking initiative which should boost economic development in the region. The extension of the major trans-European transport networks to the neighboring Southeastern European countries and re-

By Konstantinos Hatzidakis gions would also serve the same goal. Regional cooperation within an international framework — including refugee return and the fight against organized crime — is part of the Balkan agenda.

In parallel, ‘local’ initiatives, such as the South East Europe Cooperation Process (SEECP) led exclusively by Southeastern European countries, have developed within the Balkan region.

SEECP is characterized by the political will of its members for cooperation and the setting of common goals. Strengthening SEECP’s role will bring its members even closer. Support and assistance in initiatives deriving from the Stability Pact, such as the creation of a Southeast Free Trade Area, will give its members more political weight in their future discussions with the EU and other international organizations.

From an EU perspective, the Balkans are the next stage in the enlargement process. Even though the EU is currently going through a reflection period, with the EU Constitution put momentarily aside and the EU budget creating tensions

among member states, the Balkans continue to be a priority. Most importantly, further cohesion in the region with the necessary financial support is a political and economic investment not only for the region but also for the EU as a whole. Enlargement fatigue and fears of a renewed identity crisis in Europe may only account for a slow and careful process of EU integration for Southeastern Europe.

Most importantly, the European prospects of the Balkans constitute a new historical era in the region. This will help the countries to overcome long-lasting tensions and conflicts, providing for border stability and respect for minority rights. A new EU reality is offered to Southeast Europe so long as it masters its deficiencies and grasps the opportunity. However, the importance of integrating Southeastern Europe in the EU should be realized by the Balkan states themselves. Participation in initiatives, whether locally or EU driven, needs to be accompanied by the strong political commitment of the region’s leadership. Endorsing the European spirit of coexistence and cooperation will open the road toward European integration. How committed the Balkan states are to the goal remains to be seen.

Konstantinos Hatzidakis is a member of the European Parliament (EPP), Greece (ND).

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Southeastern Europe should no longer be a region of misunderstanding, instability and violence.

It deserves to become a region of cooperation and dialogue, productively integrated in broader international institutions and forming a distinctive part of Europe, where it belongs.

In today’s globalized world, where the interdependence of national economies is gradually increasing, regional and peripheral policies are facilitating the process of economic integration and incorporating the region into the universal system.

Regionalism, while maintaining its own special elements, plays a crucial role in the effective functioning and legitimacy of globalization.

Recent developments in relations between the EU and Southeast Europe have been quite promising and demonstrate the EU’s strategic role in the area. Only a few months ago, two countries — Turkey and Croatia — began accession negotiations with the EU, while two others — Serbia-Montenegro and Bosnia-Herzegovina — started negotiations for Stabilization and Association Agreements. Moreover, the Council of Ministers at its recent informal meeting in Salzburg reaffirmed its full support for the agenda set out at the Thessaloniki Summit in 2003, confirming once again that ‘the future of the Western Balkans lies in the European Union.’

At the same time, important economic initiatives concerning Southeastern Europe are under way. The signing of the Energy Community, the

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crucial role

By Panos Beglitis

natural gas and oil pipelines, the opening of Single European Sky negotiations between the EU and states in the region, and the upgrading of the Trans-European Network of transport corridors through the region are key elements in the process of economic cooperation and infrastructure development based on energy and transport, fundamental for the region’s EU integration.

It is important to note the establishment of the common energy market for Southeastern Europe, signed in Athens last October with the EU’s full support and supervision. The benefits of this initiative are remarkable. The required reforms in the local energy markets and the clear competition rules that will be created will not only attract foreign investors to the area, but will also result in bringing prices down and eliminating shortages in times when energy security is acquiring greater importance and dimensions.

The recent Commission initiative to establish a free trade zone in the area constitutes the latest attempt to strengthen trade and investment. The 31 bilateral trade agreements signed so far in the region have not been fully implemented, hence re-

gional trade remains below expectations. The free trade proposal should not be seen as an alternative to EU integration nor as an excuse to slow down the process of EU accession for the countries that are more advanced. On the contrary, its intention, besides the obvious aim to promote regional cooperation, is to sell the region to European investors and European public opinion, which is either unaware of the prospect of Balkan enlargement or is negative to any further EU expansion. After all, any plan which seeks to promote regional trade must not set aside the critical need to boost foreign investment.

To what extent, though, could we argue that the prospect of EU membership, together with the ever-growing and multifaceted EU presence in the area, will gradually lead to the formation of a new regional identity? Judging from the reserved welcome that the free trade initiative has encountered in the region, one could assume that the notion of regionalism still does not prevail in the Balkans. The development of a Southeastern common identity remains a distant ambition and its achievement requires mostly time and further political determination. For the time being, evidence that past conflicts, animosity and instability have not yet been forgotten is widespread in the region. Unresolved political, border and refugee issues still take priority over the

need for regional cooperation. Moreover, the road to EU accession, although everyone’s ultimate aim, is separate and distinctive for each country of the region. The different speeds among countries create antagonisms and suspicions resulting in the lack of a true sense of a common and united aim.

Unfortunately, stability is still not a given in the region. Negotiations for the final status of Kosovo, the prospect of independence for Montenegro following the May referendum, the implementation of constitutional changes in BosniaHerzegovina and the still-unresolved border and refugee issues represent only the most urgent problems, threatening to trigger a new wave of violence and instability in the region.

The EU’s role at this stage is crucial in closely following and effectively contributing to all the remaining divisive issues in the Balkans with a common and consistent voice. The clear perspective of membership has proven the most powerful incentive so far for maintaining a sense of security and carrying out painful reforms. The EU’s contribution to the strengthening of peace, stability, security and economic prosperity will only be effective if the message is clear: EU membership for the countries of the Western Balkans remains the strategic goal.

Any premature discussion regarding alternative EU membership will harm consistency and will seriously weaken the effectiveness of the European strategy. Enlargement cannot be the victim of the EU’s current institutional crisis.

However, since the process of enlargement still requires time and continuous effort, the EU should

not abandon initiatives to further consolidate stability and promote regional cooperation and trust.

Therefore, at this stage, all its proposals should focus on bringing those countries closer together and eliminating past differences as much as possible.

Apart from economic assistance and the various economic initiatives introduced by the EU in Southeastern Europe, already discussed above, bolder steps are also required. The EU should soon consider the prospect of extending a customs union with the Balkan states, a move that will certainly make a bigger impact on the economic growth of the region, demonstrating at the same time the EU’s real determination to gradually proceed with enlargement, alleviating present concerns and doubts. Moreover, such an initiative acquires further urgency in the light of the imminent EU accession of Bulgaria and Romania and the opening of negotiations with Turkey and Croatia, developments that will affect the Balkans’ attractiveness to foreign investors and businesses.

Another crucial development should be the much-discussed plans to facilitate a visa system for the region. EU institutions should pave the way and begin negotiations with each country in a selective Schengen visa liberalization program for students, academics and the business and trade community, as well as facilitating visa applications for all citizens. Such a gesture will undoubtedly bring tangible benefits to the citizens’ everyday lives and therefore enhance to a great extent the EU’s image in the whole region.

Greece’s double role as an EU and a Balkan state gives it special responsibilities in the accession

process of all countries in the wider region toward EU membership as well as for the gradual adaptation of their economies in the global system. The Greek presence in the region has been very significant for more than a decade now. The Balkan region constitutes the first choice for the expansion of the most competitive Greek companies abroad, transforming Greece into one of the biggest foreign investors in the whole area. At the same time, Greece has led the way for the successful preparation and implementation of the plan for the reconstruction of the Balkans and hosts the European Agency for Reconstruction, whose task is to manage the European Union’s main assistance programs in the region.

In conclusion, good-neighborly relations and cooperation constitute the foundation of development in the area of Southeastern Europe. They are preconditions rather than an outcome of the process of EU integration. The EU has in the past few years played a significant role in promoting regional dialogue and cooperation and it should continue along the same road until it has achieved the successful and complete integration of the whole area in the European framework. At the same time, though, these countries should move forward and realize that the aim of EU integration is indeed a common one and that their common future lies within the EU. The European Union and the process of European integration will remain incomplete without the full accession of the Western Balkan countries into community institutions.

Panos Beglitis is a member of the European Parliament (PES), Greece (PASOK).

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The ‘enlarged’ Western Balkans

By Georgios Markopouliotis

The year 2004 will go down in the history books as the year of the European Union’s biggest, single enlargement. Ten countries joined and two others finished accession talks.

It is hoped that, by the end of the term of this Commission in 2009, many other countries in the region will have moved closer to the European Union. The objective is that in 2009 the EU will have about 27 members, with the Western Balkan countries well on their way to the European Union, as well as Turkey on track, through rigorous reforms.

Enlargement is one of the EU’s most successful policies. The Union has progressively extended its zone of peace and democracy across the European continent. Following the entry of 10 new members in May 2004, the EU stretches from the Atlantic to the Carpathian Mountains, and from northern Lapland down to the Eastern Mediterranean.

The EU’s creation of a rules-based framework which is respected worldwide makes Europe a global actor. The success of European integration has stimulated the creation of many other regional projects, such as ASEAN and Mercosur. The idea at the heart of the European project is a simple one: Create institutions and rules within which coun-

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tries can conduct their business — both political and economic — and other countries will seek to do the same.

The EU’s most effective method of exerting soft power is by persuading countries to integrate themselves into legal frameworks and economic relationships with the Union.

The EU is a community of law, not power. Big and small states live side by side in the EU, where all peoples should be respected. Instead of balance-of-power politics, the rule of law governs the internal and external business of the European Union. It is a community of states which have agreed to pool their sovereignties and obey common laws in order to increase their impact in the world. This principle of rule of law also has to be adopted by any state which seeks to join the EU. An essential part of the Stabilization and Association Process is regional cooperation. The economies of the Western Balkans are small, so regional cooperation is essential for their economic development. This can be best achieved in the European framework, with the legal certainty provided by EU rules. Regional cooperation is vital to attract foreign investment.

The creation of common energy networks, for example, would boost economic development.

The European Union is financially assisting countries on their road to Europe. However, the best use of this assistance depends on actors on the ground being ready to play their part and take the initiative to start productive and useful projects.

Commissioner Andris Piebalgs, responsible for energy, has said that like the European Coal and Steel Community, the forerunner organization of today’s European Union, the Southeast Europe Energy Community, in the development of which Greece plays a very important role, has two main objectives: One is political, the other economic.

The political objective is clear: An enhanced cooperation between the countries in this region will foster the conditions for peace, stability and growth. Experience in Western Europe has shown that, by working together, people can become more familiar with one another and make conflicts impossible, if not unthinkable.

The economic objective is the establishment of an integrated market in natural gas and electricity, based on common solidarity. Southeastern Europe suffers from a number of deficiencies: lack of energy sources, inadequate infrastructure for transporting energy, disruption of electricity supply, absence of competition, and serious environmental problems, to name but a few.

Bearing in mind that energy is key to social well-being as well as to economic growth and industrialization, it is logical to start with the establishment of an integrated energy community in the region. For this to happen, the right conditions for attracting investment must be in place. An environment friendly to investors is essential. It will

allow investment in areas where it is much needed, notably in power generation and transmission networks.

If there is enough investment, there will be jobs. In turn, social and industrial development will help to ensure stability and security.

The creation of wealth and jobs depends ultimately on entrepreneurship and innovation, which can be facilitated but not dictated by the EU. We have to make the European perspective real to the region. The Commission is working with the current Austrian and subsequent Finnish presidencies on further steps to promote greater economic and political integration in the area and to show the region’s citizens that there are clear benefits along the way to the EU. The Western Balkans remain a key EU responsibility and the state of the region is critical to the security and welfare of all citizens. The European Council has confirmed many times that the future of the Western Balkans lies in the EU. The Thessaloniki European Council in 2003 set the EU’s goal for the Western Balkan countries to move from stabilization and reconstruction to sustainable development, association and integration into European structures.

There are many people these days who wish to discuss the borders of Europe. Enlargement policy should not be held hostage to a theological debate about the ideal shape of the perfect Union, or the final borders of Europe.

As Commissioner Olli Rehn, responsible for enlargement, responds to the question ‘Where do Europe’s ultimate borders lie?‘, Europe is defined in the mind, not just on the ground. Geography sets

the frame, but fundamentally it is values that make the borders of Europe.

Let’s respect the principle of Article 49 of the EU’s treaties, which states that any European country that respects and applies European values, especially democracy, human rights, the rule of law and fundamental freedoms, may apply for EU membership.

This does not mean that every European country must apply, or that the EU has to accept every one. But it does mean that we should not take static positions which are written in stone — while the world around us is a most dynamic one.

Georgios Markopouliotis is head of the ‘Communication Priorities and Planning’ unit at the Directorate General for Communication of the European Commission.

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Southeastern Europe:

Toward an era of peace, stability and cooperation

By Stavros Dimas

The region of Southeastern Europe has definitely become more stable. Considerable progress has been made in reconciliation, domestic, political and economic reform and regional cooperation. It goes without saying that the region faces major challenges in the coming period, especially concerning the final status of Kosovo and the constitutional arrangements of Serbia and Montenegro. In spite of this, however, the region is definitely on its way toward joining the European mainstream and moving from the wars of the 1990s to an era of peace, stability and cooperation.

Today, all countries of the region aspire to a European future, but they are not on an equal footing with regard to their European ambitions. Two countries of the region, Bulgaria and Romania, are close to joining the European Union. Important steps have also been taken lately with regard to the Western Balkans. These include, among others, the opening of accession negotiations with Croatia and granting the Former Yugoslav Republic of Macedonia candidate status. A differentiated process of stabilization, association and in-

tegration has been set in motion. Each country is on a different track and will be assessed on its own merits. This overall European process, in its various forms and stages, serves as a strong catalyst for improved regional cooperation among the Southern European countries.

Even more so, regional cooperation and goodneighborly relations are strict criteria and requirements that have to be met by all countries aspiring to make progress on their way toward the EU. Since the Thessaloniki European Council, regional cooperation has progressed on a number of fronts, mainly with the contribution of the Stability Pact, as well as the Southeast Europe Cooperation Process, and a number of other important regional initiatives.

In this context, new forms of advanced cooperation are taking shape that count for some of the most promising developments.

The Energy Community Treaty, the first-ever multilateral treaty in Southeast Europe, was signed in Athens on October 25, 2005. This treaty is an important achievement for the re-

gion and for Europe as a whole, since it will enhance security of supply and give support to a strategically vital sector. The Internal Market for Energy will be extended to the Balkan peninsula as a whole. This means that the relevant acquis communautaire on energy, environment and competition will be implemented in the region.

In the environment field, the Commission is also promoting regional cooperation through the creation of a framework of concrete environmental actions to be pursued at the regional level. This is a key task for those countries that now have a real prospect of accession to the European Union, alongside their major challenge, which is meeting the EU’s environmental requirements.

Overall, good progress has been made in the field of regional cooperation in Southeastern Europe. However, more remains to be done. The momentum should be maintained, with the aim of transforming the region into an area of peace, security and prosperity.

Stavros Dimas is the EU’s commissioner for the environment.

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National Bank of Greece & Finansbank: The deal When Greek banks took their first modest steps in Southeast Europe, in the mid- to late 1990s, international markets and foreign institutional shareholders were either indifferent or hostile. Greece had become a Euro ‘convergence’ story and attention was focused on the consolidation and growth of domestic Greek banking due to the country’s accession to the eurozone. The Balkans had a bad image, what with the succession of wars in ex-Yugoslavia and timid reform efforts in Bulgaria and Romania. Turkey was an inconceivable investment destination because of the assumed political risk. A few years later, however, the situation in the Balkans, if not Turkey, was completely transformed. Bulgaria and Romania had got their acts together, improving their economies and becoming viable EU accession candidates, while the fall of Milosevic meant that, at long last, ex-Yugoslavia was open for business. Greek bank acquisitions in the region and organic growth by the top four — National Bank of Greece (NBG), Alpha Bank, Eurobank, Piraeus Bank — started delivering results, contributing in excess of 5 percent to the overall profitability of these institutions.

Today these Greek banks expect to derive approximately 20 percent of their profits from the region in the years ahead and are aiming

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for a cumulative 15-25 percent market share.

Foreign institutional investors, who own 20-40 percent of the shares of these Greek banks, started rewarding this strategy with higher valuations. Today regional expansion has become one of the main reasons to own Greek banking shares. So much so that the present market value of Greek banks is only justified by the promise of even greater and bolder steps in the region. If international shareholders discouraged Greek banking regionalization seven or eight years ago, today they demand that it takes place at an ever-accelerating pace.

Which brings us to the recent acquisition

by NBG of 46 percent of Finansbank, a private Turkish bank which holds a 7 percent market share in the Turkish banking market, and the largest ever single investment by a Greek bank outside Greece. NBG would not have had the confidence to undertake such a bold step, in Turkey of all countries, had it not been successful in its previous forays in the Balkans.

Equally, it would not have been able to do so if the international markets and investors did not actively support its regional strategy and were not prepared to finance this acquisition in Turkey.

What this tells us is that presently the national, the regional and the global are inter-

twined to an unprecedented degree in our corner of the world. NBG is a ‘national champion’ par excellence, as the largest and oldest Greek bank. Yet its regional strategy has the force to remove the most well-entrenched national taboos, as they relate to Greece’s ageold antagonist Turkey, precisely because it is supported by the bank’s international nonGreek shareholders.

We must also add that what we have described involves states as much as it does markets. NBG’s acquisition in Turkey had the tacit support of the Greek government. NBG’s acquisition renders credible the prospect of Greece benefiting from Turkey’s EU accession path and thus makes it easier domestically to sustain a foreign policy supportive of Turkey’s EU destination. The international community — or some of its most prominent member states, if you will, and their media — also lend implicit and explicit support to NBG’s acquisition in Turkey. After all, rising economic ties between the two countries promise to improve the prospect of stability in the region, in which major international actors, the US most prominently, have huge vested interests.

Through this multi-level interaction between markets and states, the region itself can redefine its identity and the way it is perceived by the world at large: from a querulous and introverted group of countries entangled in obscure disputes to a well-recognized, increasingly important participant in world affairs.

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After Milosevic...

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From his notorious visit to Kosovo in 1987, when Slobodan Milosevic established his Serbian nationalist credentials, to his recent death, almost 20 years have passed. While commentary following his demise focused understandably on Milosevic’s impact on Serbia and ex-Yugoslavia in general during this time period, my emphasis will be different. I will seek to illuminate Greece’s interaction with the Balkans through its relationship with Milosevic and what he came to represent. In particular, I will address three questions: First, how did Greece sympathize initially with Milosevic’s goals and means? At a later stage, how did Greece distance itself from his regime and actually provide vital support to his unseating, namely during the Kosovo campaign?

And, lastly, why is there still residual sympathy in Greece for Milosevic?

By Christian Politis

Initial affinity The collapse of the Eastern bloc produced a risk-averse Greece rather than an opportunityseeking one. On the geographical and decision-making periphery of the EU, Greece was ruled in the 1980s by PASOK, a socialist party which was at least nominally hostile to the ideological underpinnings of the NATO-EU nexus. Not surprisingly, Greece was unprepared and ambivalent about endorsing the reunification of Europe, which was enabled by the unqualified victory of the ‘Capitalist West’ over the ‘Communist East.’

Post-1989, this lack of enthusiasm also created a vacuum in Greece, which was filled by the resurgence of traditional fears and concerns about the territorial integrity of the country and, in particular, of Greek Macedonia.

elite level and among the masses, as will be explained later.

This enabled the ‘Macedonization’ of Greek foreign policy in the region, as the name of the now independent Former Yugoslav Republic of Macedonia consumed Greek policy makers and the public. Milosevic cleverly exploited this Greek deadlock by becoming a legitimate interlocutor for the Greek government as this served his overall goal to be taken by the West as an acceptable player in the shaping of ex-Yugoslavia.

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Consequently, in the early 90s, during the center-right interlude of the New Democracy government, Greek politics and diplomacy demonstrated a bias for the status quo in Yugoslavia as well. By the same token, there was, at best, Greek ignorance regarding EU aims in Central and Eastern Europe and, at worst, outright suspicion of the goals of key EU member states and the USA in the Balkans.

The European Union’s policy and aims were later incorporated within the framework of enlargement.

In that respect, most Greeks did like Milosevic’s intent, if not his tactics. His Serbian hegemonic gambit looked promising in a sense of reinforcing stability at least in those parts of ex-Yugoslavia which were most inclinable to Greek fears, namely in FYROM and Kosovo. At the same time, Milosevic’s rhetorical revival of the malign goals of European powers and those of the US in the region more or less dovetailed Greek prejudices both at the

Growing distance By the mid-90s, as the EU’s enlargement policy in Central and Eastern Europe was picking up steam, Greece was, at the same time, becoming an increasingly successful European state. These two processes complemented each other under the PASOK premiership of Costas Simitis. The country’s effort to join the European Monetary Union was supplemented by an ultimately winning argument on the merits of Greece playing a constructive role in EU-wide deliberations/discussions. Greece was finally perceived as creative player.

The increasingly tangible as well as suc-

cessful efforts on the part of the EU to transform Central and Eastern Europe through the prospect of accession lessened earlier Greek concerns on the ultimate shape of post-Cold War Europe. Additionally, it helped the Greek government to change the terms of the debate in favor of Greece being part of a Europe-wide consensus on what constitutes acceptable behavior in the region. This consensus, needless to say, was severely critical of Milosevic’s conduct/policy. Last, but not least, Greek investments in the region began to acquire a size significant enough to start having an impact on how the elite and the general public perceived the country’s interaction with the region.

Thus, in 1999, Milosevic’s regression to start a war in Kosovo, after the Dayton agreement signed in 1995, exposed the chasm that gradually had been widening in the preceding five years or so between him and Greece. If Greeks could not be sympathetic to NATO’s armed intervention in Kosovo, nor could they continue to support Milosevic’s behavior and its consequences. This is what allowed the Greek government to support the NATO intervention, first indirectly (the Greek air force did not actually participate in the bombardments), and then, in the stabilization phase, by contributing troops directly to the NATO Kosovo Force (KFOR) and allowing Thessaloniki to be used as the logistics base, which provided KFOR with the necessary materiel.

Residual sympathy Still, it is worth reminding ourselves that, according to the polls, over 90 percent of Greeks were against the intervention of NATO in Kosovo, a war that fatally undermined Milosevic’s reign. Furthermore, following his death in a cell at the Hague Tribunal, there were still voices in Greece muttering about the ‘justice of the winners.’

The irony is of course that Greece itself, to the extent that there are ‘winners and losers’ in a war, belongs firmly to the camp of the former. Greece, by virtue of its membership to the

Western alliance that won the war, is participating in the ‘winner’s peace’ that is presently transforming the region and is sharing the gains that this peace has brought. In that respect, the defeat of the Milosevic regime has been instrumental for Greece and the realization of its gains in full, since it has led to the stability and market opening of ex-Yugoslavia, improving the overall prospects of the Balkans.

The opening up of the Balkans under such circumstances raises the ‘returns’ of Greece’s membership in the Western alliance. In this way the political and business forces in Greece who are able to reap the results of their efforts are rewarded. Greece’s interaction with the region facilitates this reward based on intensified economic internationalization. As such, the Balkans today reaffirm this durable feature of Greek political and economic life: namely Greece’s role as the privileged, most extrovert regional interlocutor with the dominant international order of the day.

So what accounts for this durable Greek ‘false consciousness,’ to use this still-pertinent Marxist term, in the way it relates to Milosevic’s legacy and by extension to the region’s evolution?

PASOK’s near-20-year tenure of the government has been associated with the enfranchisement of the losers of Greece’s civil war in 1945-1949. Consequently, PASOK has been an uneasy custodian of the civil war’s legacy, which has been Greece’s enrollment in the Western alliance, first through its NATO membership and subsequently through its joining of the Euro-

pean communities. Furthermore, its centerright adversary and the current governing party, New Democracy, in its long years of opposition during the 1980s and 90s, distanced itself from its historical post-civil war origins as a triumphant and vindictive right. This was necessary in order to accelerate the redundancy of polarization and thus ease New Democracy’s way into power within the framework of a parliamentary democracy devoid of major differences.

That meant that after the collapse of the Eastern bloc there has been no real interest for re-evaluating Greece’s membership in the Western alliance since the end of World War II. But there is another reason which might yet be even more important for the residual sympathy in Greece toward Milosevic’s reign. The opening up of the Balkans, dramatically underlined by the military defeat and subsequent imprisonment of Milosevic, has awarded a leading role to Greece’s corporate elite within Greece itself. Only the protectionisminclined trade union movement, as well as some marginal, non-competitive businessmen, remain opposed to this approach. It is these groups and the intellectuals that represent them who, feeling besieged and diminished by a resurgent, regionalized Greek capitalism, will feel the absence of Milosevic’s retrograde hold on the Balkans most keenly.

Christian Politis is a political scientist.

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A bolder Balkan strategy The Balkans are returning to the top of the EU’s agenda. UN envoy Martti Ahtisaari has begun to negotiate Kosovo's future, while Montenegrins will vote in May on whether to break with Serbia. Both processes could destabilize a region that is suffering an economic crisis.

Unemployment is about 30 percent in Serbia and Montenegro, 40 percent in Macedonia and 50 percent in Kosovo.

The European Commission quite rightly wants to give the entire region a clear perspective of membership, as an incentive for the various governments to carry out painful reforms. The demise of the EU’s constitutional treaty has turned some member states away from the idea of further enlargement. Nevertheless, last year the EU began accession talks with Croatia, declared Macedonia a candidate, and started negotiating ‘stabilization agreements’ with Serbia and Bosnia.

Ahtisaari may well find that Serb and Kosovar leaders cannot agree on the final status of Kosovo. The United Nations and the EU would then be likely to impose a form of independence, with safeguards for the Serb minority. But such a deal could easily trigger the rapid and perhaps violent exodus of Kosovo’s remaining minorities. A major influx of refugees into Serbia could destabilize its politics, notably by putting wind into the sails of the Radicals (the extreme nationalists). They are already capitalizing on the perceived inability of the country’s pro-EU government to deliver. A Radical government in Belgrade would not attack neighbors, but it would create tension in many parts of the region. Meanwhile, an independent Kosovo could turn into a failed state.

So long as its political structures remain weak, and its economy stagnant, organized crime will flourish and politics could turn violent.

The EU can avoid these dangers if, togeth-

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By Carl Bildt

er with its partners, it manages a peace-building process that is based on a broad international and regional consensus. The outcome must be seen as balanced, so that everyone can live grudgingly with the result. The EU’s strategy should be to integrate Serbia through a faster track to membership, while stabilizing Kosovo through a long-term commitment to state-building.

Balkan and EU foreign ministers are due to meet in Salzburg in March. The Commission wants the EU to propose ‘multilateralizing’ the 31 bilateral trade agreements — some poorly implemented — that criss-cross the region, and meshing them into one free trade area.

Trade integration is the key to the region’s economic revival. But the Commission’s proposals are too modest. The EU should take the whole region into a customs union, similar to the one it has had with Turkey for the past 10 years. This would make a bigger impact than a free trade area, forcing the Balkan states to accept the EU’s common external tariffs, usually lower than their own. The EU-Turkey customs union has boosted Turkish economic growth.

Creating one for the Balkans could help to kick-start these economies.

Negotiating such a customs union could take years. Entrenched interests would fight to maintain high tariffs on sensitive products. But if the Balkan states are serious about entering the EU, the real question is whether they join the customs union — an intrinsic part of membership — sooner or later. The EU should offer them a straightforward deal that allows few special cases or exemptions.

To its credit, the Commission plans to propose visa facilitation agreements for the

Balkans — the EU is currently offering more liberal visa regimes to neighbors such as Russia and Ukraine. Unfortunately, some of the larger member states seem likely to block these moves. They should think again: Easier travel would be a tangible benefit for the people of the Balkans (in the 1980s Yugoslav citizens enjoyed visa-free travel to the EU).

The best thing the EU could do to promote Balkan stability would be to offer an indicative timetable to each state that shows an appetite for reform and a willingness to engage with the Union. For example, the EU could suggest a target date for Serbia to become a candidate, and another date for Macedonia and Serbia to start accession talks. Such an approach could help transform those countries into poles of regional stability. It could also speed up reform in Bosnia, allow Montenegro to plan for an independent future and encourage state-building efforts in Kosovo and the wider Albanian area.

The next few months are crucial for the future of the Balkans. If EU leaders refuse to discuss realistic strategies for enlargement, the region will be more likely to suffer a new cycle of instability than enjoy enduring stability.

Carl Bildt is a former prime minister of Sweden and a member of the CER’s advisory board.

Centre for European Reform © CER 2006 This article is republished from the Centre for European Reform Bulletin (CER), Issue 46, February/March 2006, with the permission of Mr Carl Bildt and the CER.

A traveler’s story Fifteen years ago, an entrepreneur confided to this author his way of seeking cooperation and office space in the Balkan capitals. He used to travel by car from Athens to Sofia, Belgrade, Bucharest and elsewhere closing deals.

Success did not come without risk. His endeavor could lend itself to an adventurous movie scenario. Back then, driving across borders in the Balkans meant coming across different people with different mentalities and who were involved in a bloody geopolitical conflict. But, as he used to say, the risk was paying off. In the early 1990s, business opportunities ‘grew on trees.’ In some sectors, they still do. Office space in downtown areas of Balkan capitals came at a low price and local professionals were willing to work for a less than reasonable amount of money. Our Greek traveler and businessman was very successful; he managed to set up a network of partners who soon became his friends.

In political terms, this is an old story.

Nowadays, the region has already marked a record of relative political and economic stability and risks appear manageable to a significant degree. During the last decade and a half, the Balkans have managed to march toward recovery through a succession of wars, economic crises, as well as cultural and reli-

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By Demetris I. Kamaras

gious juxtapositions. Since then, the road has been easier. For some of these countries the European perspective has provided a powerful incentive for political and economic reform and has encouraged reconciliation among the people of the region.

On the economic front things are improving as well. As is stated in a World Bank document about the region, the initial output collapse induced by the transition to market economies was followed by a gradual recovery in the second half of the 1990s, when output growth gained further strength in most countries of the area. Still, on the path toward economic recovery, most of the new countries experienced further growth interruptions owing to delayed structural reforms, financial crises and macroeconomic imbalances related to unsustainable economic policies.

In their course toward advancement, the region’s countries have profited from external openness and closer economic integration with the EU. Greece, being the only EU member state in the region, has played a significant role.

In less than 10 years, Greek direct investment activity in Southeast Europe has exceeded the amount of 10 billion dollars. According to the Hellenic Fed-

eration of Industries, more than 3,500 Greek companies expanded north, creating 200,000 jobs and acquiring a major share of the market of the 55 million inhabitants of the Balkans. On the other hand, in the 1980s and 90s Greece received more than 2 million immigrants from Balkan countries, thereby relieving the internal pressures they were facing during the transition period from a centrally planned economy to a market economy. Today, they constitute 10 percent of Greece’s active population.

Greece is at the center of a fast-developing economic region and its foreign direct investments contribute to the development and stabilization of the Balkan economies. Greece is the leading force in the Former Yugoslav Republic of Macedonia (FYROM), Albania and Serbia-Montenegro, the second-largest investor in Romania, while it is constantly improving its rank in Bulgaria and Bosnia-Herzegovina. The Greek banking sector is performing extremely well in the greater region and its operations are expanding at double-digit growth rates every year, thereby helping businesses operating in the area.

Greece’s Balkan neighbors ‘enjoy high rates of growth, a massive influx of FDI, improving social conditions and are gradually getting accustomed to the requirements of an open economy,’ Greek Minister of Economy and Finance Giorgos Alogoskoufis argued in a speech to the European Institute in Washington, DC. But Greece’s role is not restricted to dynamic FDI action. The country is actively contributing to the political, economic and social stability in the entire region of Southeastern Europe, through the implementation of the Hellenic Plan for the Economic Reconstruction of the Balkans (HiPERB). HiPERB is a five-year 550-million-euro plan that undertakes the financing of projects, investments and activities in six Balkan countries (Albania, Bosnia-Herzegovina, Bulgaria, Serbia-Montenegro, FYROM and Romania). More specifically, almost half of the allocated amount will be channeled to the Federal Republic of Yugoslavia (265 million euros, of which 250 million is for Serbia-Montenegro and 15 million for Kosovo), 74.84 million euros to FYROM, 70.93 million to Romania, 54.79 million to Bulgaria, 49.89 million to Albania and 19.53 million to Bosnia-Herzegovina. HiPERB aims at modernizing infrastructures, promoting productive investments, supporting democratic institutions and the rule of law, strengthening the welfare state, as well as contributing to the training of human resources in the beneficiary countries.

According to the Greek Ministry of Foreign Affairs, the strategic goal of Greece in the Balkans is to create the preconditions for stability, functioning democratic processes and institutions, cooperation, development and

prosperity, as well as the fulfillment of the political criteria, which will allow all the Balkan countries without exception to become members of the EU. The South-East European Cooperation Process (SEECP) is part of a wider strategy that aims at the enhancement of regional politics.

In the Bucharest Declaration issued in May 2005, the leaders of the states participating in the SEECP reaffirmed the importance of further improving regional cooperation in order to ensure lasting peace, stability and economic prosperity and reconfirmed their commitment to act jointly toward achieving the aims and principles embodied in SEECP documents on good-neighborly relations, stability, security and cooperation in Southeastern Europe.

At the Bucharest SEECP meeting, Greek Prime Minister Costas Karamanlis argued that the European Union’s role in the Balkans has proved to act as a catalyst for a sustainable settlement of crises and problems. He stated his belief that the EU integration process is inextricably linked to the values of democracy, freedom and social, political and ethnic inclusiveness. ‘The road to membership, however long, is the driving force for democracy, change and reforms in each individual Balkan country and in the region as a whole,’ the Greek prime minister said.

Also, in a January 2006 European Commission Communique it is recognized that ‘the countries of the Western Balkans have made considerable progress in stabilization and rec-

onciliation, internal reform and regional cooperation.’ As a result, the EC admits that ‘they have moved closer to the EU.’ However, future challenges such as the Kosovo status process and the constitutional arrangements of Serbia and Montenegro have to be met in the near future.

Finally, as regards the region’s economies, their move forward toward the achievement of lasting macroeconomic stability and competitiveness is widely acknowledged; however, national statistics show that progress is uneven and much remains to be done. Sooner or later the economic and social agenda will come to the forefront, as weak economies, high unemployment and inadequate social cohesion are major problems throughout the area. According to the European Commission, EU policies for the region should focus more on equitable and sustained economic development and on extending the benefits of economic growth to vulnerable groups and communities by combating unemployment, social exclusion and discrimination and by promoting social dialogue. As argued, the stability, security and increasing prosperity of the Western Balkans constitute a high priority for the European Union.

Demetris I. Kamaras is an economist and journalist (PhD).

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Δhe upcoming Interview with Vassiliki Nicoloulia

After the recent meeting of the ministers of economy of the SEECP countries in Athens, what is the greatest challenge that Greece is facing in the broader Balkan area today?

Giorgos Alogoskoufis, the Greek minister of economy and finance, has a dream that can come true, if history follows the road of peace, solidarity and prosperity in the Balkans, a region which has proved to be an area of wars, battles and genocide up to the end of the 20th century. It is based on a strong belief that ‘if Ireland is widely considered to be the economic miracle of the last 20 years in Europe... Southeastern Europe, the Balkan peninsula, can be the miracle of the next 20 years.’ The only prerequisite is that Greece, as one of the major economies in the region, plays the game cooperatively and helps the countries of the area eventually become members of the European Union. Furthermore, toward this process, the role of Turkey can prove crucial as one of the major economies of the region not from a demographic perspective, but from a purely economic point of view.

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The greatest challenge for Greece is to become the center of the area since it has the most developed economy of the region as a whole. Furthermore, it has already been a member of the European Union for 25 years and is now a member of the eurozone. Therefore, it is a natural center for the general development of the area. The comparative advantages of Greece are quite different from the advantages of other countries in the area. For example, Greece cannot be the manufacturing center of the area, but it can be the administrative center or the financial center of the area, because, in general, it does have a comparative advantage in the services sector.

In your opinion, is it possible for the countries of Southeastern Europe to form common positions for the promotion of their interests in the European Union? Also, to what extent and in which fields have such cooperation efforts already started?

The main challenge for the area regarding the European Union is to make sure that there will be enough funds to upgrade the infrastructure of the region — for example, transport infrastructure, telecommunications infrastructure and energy infrastructure. To a large extent, the funds for this purpose already exist.

Therefore, in matters which have to do with transport, telecommunications, energy and infrastructure in general, it is also possible to form common positions. However, in the future there will be fields with a divergence of interests; because, when countries of the area become members of the European Union, the emphasis will be on those countries which are less developed than Greece. So, in sharing the prior status of funds there will be a divergence of interests.

economic miracle

Large PPIs can certainly be encouraged, but our new legal framework is mostly directed toward smaller-scale projects, which are not cross-border projects by nature. They are projects for Greece, projects that will improve our infrastructure in the areas of education, justice and in several areas of general public interest. However, what Greece can do after a couple of years, when we will have experience with the application of the tool of PPIs, is share this experience with our neighbors and offer them our expertise. But there is very little scope for small-scale projects to be cross-border projects rather than national projects.

der problem. Therefore, the cross-border cooperation of Bulgaria is needed in order to solve the problem on a permanent basis.

These are the types of projects that can be promoted through these kinds of agreements.

The relatively low wages in the rest of the Balkans have led to relocations of Greek enterprises to the country’s northern neighbors. Do you consider this development inevitable? What can be done to defend the existing jobs and job opportunities in Greece?

I consider this development inevitable, because Greece cannot compete on labor costs any longer. The development of Greece should come not from labor-intensive industries, as it is happening in neighboring countries; it should be based on services and on capital-intensive industries, on technology-intensive industries. This is because we cannot compete on labor costs and we do not want to compete on labor costs. We want to compete in terms of quality — quality of services and quality of products — while the adoption of capital-intensive ©Nikos Apostolopoulos

The Greek government has recently adopted a new law concerning public-private partnerships (PPIs). Do you believe that we can have common projects in the area in the form of PPIs which will interest not only Greece, but the countries of the broader Balkan region in general?

How do you assess the prospects for the development of northern Greece through the inter-regional programs of the European Union? Can you give us examples of specific results of these programs?

In general, there is an acceleration of crossborder agreements, but the main focus, for the moment, is on transport projects. However, environmental projects do also present great interest. For example, the recent floods in the Evros River region are, by nature, a cross-bor-

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©Nikos Apostolopoulos

technologies will allow us to be competitive. In the meantime, of course, there are problems in a number of sectors, labor-intensive sectors like, for example, textiles.

However, the objective is not to defend existing jobs. The government policy is to ease the transfer from labor-intensive industries to industries that can be competitive, like services or capital-intensive and technology-intensive industries. It will be self-defeating if we try to defend existing jobs instead of having a forward-looking strategy for Greece in the future.

Last month the Greek Ministry of Economy and Finance signed a Contribution Agreement with the London School of Economics (LSE). What is the purpose of this agreement?

The purpose of this agreement is to fund high-quality research on economic, but also social and political aspects of the role of Greece in the development of the region.

We feel that the region has a lot of potential and its future development will accelerate economic growth in Europe and in Greece.

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Therefore, we want to have high-quality researchers in a center of excellence like the LSE, to study the opportunities and the challenges and give us an unbiased — I mean politically unbiased — view on what we can do, on what we cannot do and on what we should do. As you know, at the LSE, there is the Eleftherios Venizelos Chair, a very important Center for Hellenic Studies and an ideal environment in Europe to have researchers working on the role of Greece in the development of Southeastern Europe.

Why do you believe that the importance of the economies of Greece and Turkey in the broader Balkan area is of ‘notable importance,’ as you stressed last February in Athens, after your meeting with Mr Ali Babacan, the Turkish economy minister?

It is of notable importance because Greece and Turkey are the two major economies in the region. Turkey is a very fast-growing economy, although it is not a part of the European Union yet, since as a candidate country it has a way to go, maybe a long way to go, before it becomes a member of the EU. But the development of the region will depend greatly on the two largest economies, not from a demographic per-

spective, but from an economic point of view. Therefore, if our two countries cooperate, the opportunities for the growth of the region will be much greater than if Greece and Turkey continue to have relatively underdeveloped economic relations.

In your opinion, toward which fields should this cooperation be directed? Would you like to comment on the recent acquisition of 46 percent of Finansbank by the National Bank of Greece?

First of all, trade should be encouraged. The level of trade between Greece and Turkey is not as high as it could be. Furthermore, through trade, you can get opportunities for developments and cooperation in the services sector in general. For example, in tourism, where there can be common proj-

ects, or in banking, where we already had this very important development of a major Greek bank acquiring a relative big Turkish bank. Of course, we can also cooperate in other areas of common interest. But the easier first step is international trade. We should have much closer economic relations; more Turkish exports should be directed to Greece and more Greek exports should be directed to Turkey.

As is well known, politically, we have very good relations with the Arab countries in the Southeastern Mediterranean and we also have very good relations with Israel.

For this reason, Greece can play a major role in the region. There is already a lot of interest in investments in Egypt from Greek banks and enterprises and the Egyptian market is a large market. Also, the President of the Republic recently visited Libya and Egypt. Therefore, it seems obvious that, politically, there is a lot of good will for cooperation. From there on the economic opportunities exist for Greek firms to invest in North Africa and the Middle East, but also for Arab investments to be directed to Greece. Toward that end, Arab funds recently have expressed interest in participating in a major Greek fund. So, both politically and economically, we have developments taking place. The more Greece participates in the development of the region, the more these opportunities will arise. In general, a policy to make the Greek economy more outward-looking, more open and more friendly to foreign direct investments (FDI) is a policy that will help all these developments.

We support all the initiatives of the EIB to become more active not only in the European Union itself, but more active internationally as well. There was a recent decision by the ministers of economy and finance of the EU (ECOFIN) to encourage the EIB to become more outward-looking and to participate more actively in the development of economies on the periphery of Europe. This is one such initiative. More generally, the EIB is encouraged to be more active in the rest of the world, for example in Asia or in South America. However, we still feel that the ma-

jor role of the EIB is to finance projects in the European Union itself.

What else would you like to add?

I would just like to conclude that if Greece, as one of the major economies in the region, plays the game cooperatively and helps the other countries of SE Europe eventually become members of the European Union, we will be able to have an economic miracle in the area. If Ireland is widely considered to be the economic miracle of the last 20 years in Europe, I believe that Southeastern Europe, the Balkan peninsula, can be the miracle of the next 20 years.

©Nikos Apostolopoulos

What initiatives has Greece take in order to promote the presence and activities of Greek enterprises in the Southeast Mediterranean?

sidiary of the European Investment Bank (EIB), in order to enhance the process of modernization in the Mediterranean countries, within the framework of the ‘Barcelona process’?

Does the Greek government support the idea of the establishment of a Euro Mediterranean Bank, as a sub-

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The SEE prospects Economy ministers of the South-East European Cooperation Process (SEECP) countries acknowledged the enormous economic potential of the region at their recent meeting in Athens (February 23, 2006).

The ministers’ meeting in Athens took place in the context of Greece’s Chairmanship of the SEECP. Austria (which holds the current Presidency of the European Union) and the Office of the Special Coordinator for the Stability Pact in SE Europe were guest participants.

The main theme of the ministerial conference was ‘Economic Prospects for SE Europe.’

The ministers conducted a thorough review of the region-wide economic outlook and examined measures to further improve the environment for economic collaboration, investment and cross-border trade. They stressed the continued economic growth and social progress that has been achieved in SE Europe in the recent past. They noted that foreign direct investment into the region has grown rapidly in recent years and that progress in implementing the network of Free Trade Agreements continues.

The positive outcome for the region is largely due to the successful implementation of broad economic reforms. The closer rela-

tionship with the EU as well as the rapid adoption of the acquis communautaire by SEECP countries which are not current members of the EU have also helped.

During the meeting, Greece reiterated its commitment to assist the SEECP countries in their European Union aspirations. The ministers also welcomed the recent European Commission communication ‘The Western Balkans on the Road to the EU: Consolidating Stability, Raising Prosperity,’ which addressed many of the economic issues, including trade, which were also discussed during the ministers’ meeting. Notably, this EC communication had also been welcomed by the General Affairs Council of the EU. The ministers reaffirmed their position to promote the further opening and liberalization of their economies and recognized the benefits of private sector development for employment creation and trade facilitation.

The main themes addressed by the ministerial conference included:

2)

3)

4) 1) Economic Outlook of the Region for 2006: It was noted that SEE has become one of Europe’s most dynamic regions with high rates of economic growth and declining inflation. Large privatizations have taken

5)

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place, aided by openness of the economies, as well as market liberalization. Future economic prospects appear increasingly promising.

Cross-Border Trade and Trade Facilitation: Steps to simplify the trade regime and boost trade and investment were examined. Consolidation of the network of bilateral free trade agreements will increase transparency, efficiency and costeffectiveness.

Financial Markets: The feasibility of cooperation, through close links of regional stock exchange markets, was discussed, aiming at the elimination of problems of small size and at achieving closer links and cooperation which depend on investment climate and stock markets’ convergence within the region.

Regional Banking: It was identified that inadequate access to finance is one of the main barriers to enterprise development, as banking intermediation is rather limited. The local banking sector must be developed further. The ministers welcomed the notable advances in the privatization of local banks and advances in banking regulations.

Investment Environment and Economic

Growth, where it was agreed that the region is among the most attractive destinations for FDI worldwide and that the prospects of future EU accession for several countries have improved further the investment climate and the business environment.

6) Public-Private Partnerships: It was noted that the implementation of smaller PPP projects, apart from the traditional sectors where they are utilized already, could be beneficial in the SEE region.

The Office of the Special Coordinator of the Stability Pact made a presentation on its activities and how these aim at supporting economic development in SE Europe. In particular, the Stability Pact urged the countries to move at full speed to the conclusion of the free trade agreement.

Private sector development is at the heart of a successful transition process, being essential for reducing unemployment and poverty, and for promoting policies to devel-

op efficient human resources in the labor market. Unemployment creation is already improving. This trend is expected to continue, as competitive wages, combined with geographical proximity to the enlarged EU, could become an incentive for inward foreign direct investments, provided that the business climate remains attractive and that privatization programs continue.

It was noted that the economic benefits from FDI are neither guaranteed nor diffused equally to all regional partners. National economic policies affect the degree of success in attracting inward investments and in utilizing their economic benefits. In this respect, the ministers expressed their commitment to the successful continuation of the transition process, through the development of an attractive business environment, easy access to finance and promotion of the efficiency of the banking system. To this end, the ministers acknowledged the benefits of dismantling policy impediments to FDI, developing an experienced and flexible labor force and facilitating foreign trade, through the implementation of the network of free trade agreements and the reduction or elimination of non-tariff barriers. The ministers took note of the Central European Free Trade Agreement (CEFTA) members’ proposal for the speedy establishment of a single free trade agreement through the simultaneous enlargement and amendment of CEFTA. In summary, the ministerial conference in Athens reaffirmed the excellent climate of cooperation between SEECP countries. Its aim,

to explore ways in which member countries can build on existing regional cooperation to boost further sustainable economic growth and employment across the member countries, gave the ministers the opportunity to reiterate their commitment to the SEECP and stress the need for a continuous dialogue in order to overcome existing challenges and to secure a stable environment for economic activity. In this respect, they focused their efforts on enhancing the ongoing process toward European integration and on developing a regional platform of cooperation on various economic aspects designed to raise further foreign and domestic investments.

The ministers expressed their conviction that these economic interlinkages promote economic and political stability and form the foundation of long-lasting prosperity for the people of SE Europe.

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Greece supports the European Interview with Vassiliki Nicoloulia

Evripidis Stylianidis, Greece’s deputy minister of foreign affairs, is a modern, outward-looking politician who believes that Greece can be transformed into the transport hub not only of the Balkans, but also of the Southeast Mediterranean, the Black Sea and Caspian Sea. Responsible for the economic diplomacy of his country, he is also confident that Greeks ‘know how to avoid difficulties and take advantage of opportunities effectively.’ Therefore, ‘whoever chooses to cooperate with Greeks, in order to invest in these regions, will certainly gain time and will avoid the experience of entering directly into highrisk countries.’

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Interview with What are the major challenges facing Greek Vassiliki Nicoloulia foreign policy today in the greater Balkan region?

What Greek economic diplomacy is trying to do is to follow a unified and long-term national strategy, avoiding a piecemeal and sketchy approach. Our strategy was formulated here at the Ministry of Foreign Affairs at the beginning of our administration’s four-year term. We are satisfied to see that all the important partners in this strategy, from the President of the Hellenic Republic, the Ministry of Foreign Affairs and the deputy ministers for foreign affairs to the institutional representatives of the market, follow this same strategy.

Our strategy consists of three main pillars: The first concerns the Balkan market. Our efforts, which started in the 1990s, continue unabated and are producing positive results. However, now there is a special focus on services. So, one can attribute to this the strong performance of the Greek companies doing business in the Balkans and active either in the banking sector, the construction sector, or in new technologies, telecommunications and so on.

The second major pillar concerns the Black Sea and the Caucasus markets, including Turkey. In this particular market Greece is very strong in energy projects and its development assistance presence is widely appreciated.

The third major pillar is our presence in the Mediterranean market, the Arab world, Israel and the countries of the Arab Gulf.

This picture is complemented by our ad hoc efforts to gain access to major markets that determine the international economic environments, such as Japan, China, India and the USA.

What was the result of this strategy in the Balkans?

In recent years Greece has undertaken major investments — mainly after the Olympic Games — in an effort to make the country an investment hub or a business center, in a greater market of 124 million consumers, a market which stretches from the Balkans to the Black Sea area and, of course, Turkey.

orientation of the Balkans This is the reason behind the strong presence, mainly in the Balkans, of so many Greek businesses or Greece-based foreign businesses (about 3,500 firms) which have crossborder activities.

These are mainly Greek groups or joint ventures that have their headquarters and research centers in Greece and which develop productive or commercial activities in neighboring countries.

How much has been invested in the region in Greek funds?

Greek funds invested in the Balkans exceed 12 billion euros; if we include the recent acquisition of Turkey’s Finansbank by the National Bank of Greece, worth 2.7 billion euros, these funds are much larger and turn Greece into a leading power in the banking market of the greater region, with about 1,200 bank branches.

Before this acquisition, the number of branches Greek banks owned in the Balkans was almost 900; the Greek banking sector controlled 20 percent of this particular market. If we add the 200 branches of Finansbank in the Turkish market, as well as a substantial market share in Turkey, i.e. about 1.7 million consumers, this number becomes considerably higher.

The two countries’ bilateral relations and the Greek national economy will certainly benefit from this development. Greece is becoming a leading player in the services sector.

What are the latest developments as regards the cooperation of the countries of the area in the field of energy?

Greece is in the process of being transformed from an energy consumer market into an energy producer and an energy transport hub, through the development of a new pipeline network.

In April 2006 we inaugurated the last section of the natural gas pipeline connecting Alexandroupolis and Komotini to the main natural pipeline grid traversing the country.

This project is part of a greater project for the interconnector pipeline, carrying Azeri natural gas to the South European markets. The pipeline starts from Baku in Azerbaijan, crosses Georgia and reaches Karacabey in the Asian part of Turkey. It then goes underwater through the Sea of Marmara to the European part of Turkey, reaches the Greek-Turkish borders, continues to Komotini, Preveza, and from there, through an underwater connection, reaches Otranto in Italy. According to plans, a second branch of this pipeline will cross the Western Balkans at a later stage.

Another project under preparation is the Burgas-Alexandroupolis oil pipeline, which will be complementary to the main oil transport channel, i.e. the strait. It is an environmentally friendly project as it ensures environmental safety for the Northern Aegean and guarantees fast and cheap oil supply to the Western markets, since delays and accidents that the overuse of the strait

could provoke are now minimized.

Finally, Greece is starting to produce energy from alternative sources by utilizing solar and wind energy. We are taking advantage of new sources of electric power such as biomass (the institutional framework is already in place). In this area, too, Greece has signed a cooperation agreement with all neighboring states and has started to provide the know-how that it has developed in recent years in this area.

Therefore, energy, services, as well as the sound, reliable and strong Greek network in the greater neighborhood, together with Greece’s political opening to the Black Sea (especially following the successful Greek chairmanship-in-office of the Black Sea Economic Cooperation [BSEC] and the election, for the first time, of a Greek secretary-general of BSEC, based in Istanbul), create the ideal conditions for Greek economic diplomacy to promote creative activities in our neighborhood, from which not only the economy of my country, but the economies of the whole region will benefit.

What will be the consequences of the establishment of a free trade zone in the Balkans?

I wish to emphasize here that Greece has always been supportive, at many levels, of the European orientation of all Balkan countries, including the Western Balkans and Turkey.

We strongly believe that the European perspective of the people of these countries will

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guarantee their stability and development and will eventually enhance their democratic institutions.

The policy we have followed by implementing development projects in our greater neighborhood has created new dynamics in the fields of both investment and trade.

What has been the development of the current account balance with our northern neighbors during the last decade?

Over the last seven years, Greece’s exports to the 10 Balkan countries grew slowly, i.e. at an average annual rate of 1.12 percent.

However, during the last 18 months, Greek exports have been growing by 10.16 percent per annum, i.e. a tenfold increase has been recorded. This reflects a stronger extroversion on the part of our businesses.

This is certainly in line with an overall improvement in our export performance, considering that, following a long slump, Greek exports rose by 9.1 percent in 2004, 14.3 percent in 2005 and over 15 percent in the first months of 2006.

A spectacular out-turn was also recorded in our exports to Turkey, which grew by 36.4 percent in 2005; as a result, the export-toimport ratio rose from 1:2 to 1.5:2; thus, the trade deficit vis-a-vis Turkey, which is a large and dynamic market, narrowed by 54 percent. We can see that the trade balance vis-a-vis Turkey is improving markedly, thus creating ideal conditions for the further strengthening of economic relations.

What is the main objective of the Hellenic Plan for the Economic Reconstruction of the Balkans?

The Hellenic Plan for the Economic Reconstruction of the Balkans (HiPERB) is an ambitious plan. It is an idea developed by the previous administration and this is certainly to its credit. The problem is that this idea was never implemented properly, owing to

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economic, technical and institutional weaknesses.

By order of Prime Minister Karamanlis, despite Greece’s financial difficulties, we have strived for the last two years to reactivate it, in an effort to protect the credibility of our country vis-a-vis our neighbors. Thus, we renegotiated the priorities with six counterparts, i.e. with all the countries of the region, and we placed a condition that each project worth financing would have a beneficial element for Greece as well. Moreover, we told them that projects should be productive, i.e. capable of generating benefits and growth.

Thus, despite difficulties, I think we have achieved important results, considering the effort and time spent. During the last two years we have raised the HiPERB’s absorbability from 2.4 percent to 11.5 percent and this year the increase will be even higher.

We have almost completed private investments in Bulgaria, Romania and, shortly, in Albania, and have given a new impetus to investments in the Former Yugoslav Republic of Macedonia (FYROM) and Serbia-Montenegro. The first major projects have already started, first being the Building of Institutions in Sarajevo, renamed the ‘Building of Friendship of Greece and Bosnia-Herzegovina.’ When reconstructed, this building will house the central government of Bosnia-Herzegovina.

In a few days, we are starting the procedure for the construction of Corridor 10, which will connect Thessaloniki with Skopje, Belgrade and Central and Eastern Europe.

What are the main trans-European networks under construction in the broader Balkan area which will improve the transportation network in Southeastern Europe and thus the connection of Greece with the rest of the EU? First, allow me to tell you that no economic policy strategy could be complete without being connected with combined transport.

The first important development is that Greece, after the accession of Bulgaria and

Romania in 2007, will be transformed from an EU ‘island’ in the Balkans into a part of the EU mainland; therefore, infrastructures should be ready by that date.

Hence we have started to implement a number of projects. Earlier I was going to tell you that, in cooperation with Albania and with HiPERB funding, we are planning the connection of Sarande with Konispol.

The role of Thessaloniki as an economic hub and the main port of the Balkans is upgraded, so we plan to make it part of Corridor 10, connecting it to Skopje and Belgrade and from there to Central and Eastern Europe.

At the same time, the Greek government places particular emphasis on completing the infrastructures of the Thessaloniki port.

Recently we discussed with the Chinese government the possibility of Chinese products entering the Balkan market not only through Piraeus, but also through the Thessaloniki port. The Thessaloniki-Sofia railway link was tested and upgraded. We also plan to upgrade Axis 4, i.e. the Thessaloniki-Promachonas-Sofia road, which then extends to Romania.

Corridor 4 is parallel to Corridor 10, which will pass through purely EU territory after 2007. We have discussed with the Bulgarian side the possibility of Greek firms participating in a self-financed project for the construction of the part of the road from the Greek-Bulgarian border to Sofia. Discussions are in progress. After a 10-year delay, we completed in just 10 months the project for the vertical axis connecting the Egnatia Highway with Drama-Bulgaria. This project has already become operational and was inaugurated by the presidents of both countries a few months ago.

In 2006 the project to construct a vertical axis connecting Komotini with Nymphaea, Makaza and Kurdzhali in Bulgaria will be tendered out; at the same time, a design study is being prepared for the construction of a vertical axis connecting Xanthi with

Smolyan in Bulgaria.

During the forthcoming visit of the Greek prime minister to Bulgaria this week, we will sign an agreement on the construction of a small border crossing in the IvailovgradKyprinos area, with a view to fostering cross-border trade.

What are the long-term transportation projects that you envisage for the area?

Certainly, the long-term vision of both the EU and the BSEC is the construction of Corridor 9, starting from the port of Alexandroupolis, entering Bulgaria from Ormenio and continuing toward Romania.

It has been suggested that this corridor should take the form of a ring road around the Black Sea (to be combined with the electric grid proposed by President Vladimir Putin to Prime Minister Karamanlis in their meeting in Thessaloniki), thus contributing to the development of trade relations in this region.

As you know, the Egnatia Highway will shortly be completed. We have agreed with Turkey that this highway will be connected with a similar road, currently under construction, from the Kipi border-crossing to Istanbul. In the third joint ministerial meeting, held in Athens last summer, we decided to proceed to the joint construction of a second bridge on the Evros River, which will make the traffic of products and people through this particular border-crossing faster and easier.

Finally, our ministry as well as the Ministry of Merchant Marine are making concerted efforts to implement a coastal connection between Greece and the coast of Asia Minor, notably Smyrna, focusing on voyages

of RO-RO ships from and to Alexandroupolis, Thessaloniki and Piraeus. During the third joint ministerial meeting, we also decided to attempt pilot minor coastal links in the northern Aegean, i.e. the Thracian Sea. On the Turkish side there are the ports of Aenos, the Dardanelles and Imvros and, on the Greek side, the ports of Maronia, Samothrace and Alexandroupolis.

These endeavors show a strong mobility and I believe they can make Greece a transport or transit hub. During the prime minister’s official visit to Egypt in December 2004, we even discussed the possible transit of Egyptian (mainly agricultural) products to the Balkans or Europe, through Greek ports.

What would you like to add?

Addressing Greeks, I would like to say that, these days, actions should be governed by strategic planning rather than a piecemeal and sketchy attitude. This is the approach that the Ministry of Foreign Affairs has been following in recent years.

Turning to our friends abroad, notably the business communities, I would like to say that Greece has changed a lot since the Olympics, and they should see the new characteristics of the country, the new infrastructures, the improved institutional framework (i.e. legislation) and the efforts

to enhance efficiency and transparency in public administration.

They should also see the efforts of the political leadership to promote business, commercial and other partnerships that will take advantage of the opportunities presented in the region’s markets, i.e. the Balkans, Turkey and the Black Sea, using Greece’s natural advantage of being a country characterized by stability, security, modern infrastructures and rich human resources, successfully tested during the 2004 Olympic Games.

Whoever chooses to cooperate with Greeks in order to invest in the region will certainly gain time, because they will avoid the experience of entering directly into highrisk countries, since the Greeks have already had this experience in recent decades and know how to avoid difficulties and take advantage of the opportunities in the most effective way.

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Bulgaria

Bosnia & Herzegovina

Albania

Country

Three projects have been approved for evaluation by the 10th Monitoring Committee of the HiPERB: a) Establishment and equipment supply of a ‘one-day’ surgical unit in the regional hospital of Kardjali. b) Medical equipment for the inter-regional cancer hospital in Vratsa. c) Establishment of a regional cancer disease treatment clinic in Smolyan.

b) The modernization of the Casindo hospital project (total cost over 2.5 million euros) has been approved for evaluation; the process may start as soon as a detailed project study is formally submitted.

The budget has been over-exceeded: 14 projects worth 11,971 million euros.

No particular interest from private investors has been demonstrated so far.

a) The techno-economic evaluation of the rehabilitation/reconstruction of Building 3 — Building of Institutions complex in Sarajevo has been completed successfully and the project has been approved for co-financing under the HiPERB (1).

The total budget of the project is 17 million euros, of which 13.5 million account for the HiPERB contribution. Construction work has started and building completion is scheduled for early 2007. The building has been renamed ‘Building of Friendship of Greece and Bosnia-Herzegovina.’

The budget has been over-exceeded: 15 projects of some 10.707 million euros total cost.

Private productive investments

The upgrading of the road axis Sagiada-Konispol-Agii Saranta is under technical and economic evaluation by technical advisers and experts at the Greek Ministry of Foreign Affairs.

Public projects (Big projects)

121,000 euros have already been allocated to various small projects.

Four projects have already been completed (44,615 euros).

The progress is slower than anticipated.

Small projects

The deadline of the Hellenic Plan for the Economic Reconstruction of the Balkans (HiPERB) has been extended by five years: from 2006 to 2011. The total budget is 550 million euros, financed through Greece’s national budget. The six beneficiary countries are Albania, Bosnia & Herzegovina, Bulgaria, the Former Yugoslav Republic of Macedonia (FYROM), Romania and Serbia & Montenegro.

The Hellenic Plan for

Serbia: 13 projects have been approved (391,452 euros) while a couple of them are already completed.

Montenegro: 3 small projects worth 35,000 euros have been realized.

Serbia: Only 6.5 percent of allocated funds have been utilized to date (three projects totaling 2.97 million euros).

Montenegro: No project requests have been submitted as yet.

Upgrading of the Pan-European Corridor X to motorway standards (2 lanes per direction plus safety lanes) to link the city of Nis to the border of the Former Yugoslav Republic of Macedonia. This is the biggest infrastructure project to be funded through HiPERB funds. Its total cost is estimated to exceed 500 million euros and, should the feasibility studies be finalized shortly, construction work could start toward the last quarter of 2006 (2). The European Investment Bank (EIB) and the EBRD have declared interest in participating in project financing.

135,000 euros have been expended on three small projects while new proposals are under evaluation.

95 percent of the budget has been absorbed for 19 projects amounting to 11.7 million euros.

The following projects have been approved for evaluation by the 10th Monitoring Committee of the HiPERB: a) Development of a regional center for medical emergencies in Targu Mures. b) Site development of archaeological excavations in Istria. c) Refurbishment of the Museum of the 21st Century in Costanta. d) Reconstruction of the tourist port Marina Tulcea.

Some more project requests also submitted by the Romanian authorities will be presented to the next HiPERB Committee for pre-approval.

(2) Due to the particularly high costs involved, Greek Deputy Foreign Minister E. Stylianidis initiated discussions with the EIB (European Investment Bank), in an effort to secure the bank’s financial contribution to the project with an amount of up to 50 percent of the project’s final cost. The participation of the European Agency for Reconstruction in the preparation and upgrading of the project’s feasibility studies has also been secured. Moreover, the EBRD (European Bank for Reconstruction and Development) has recently demonstrated an interest in participating in the project’s co-financing.

ki SA) which entered into a joint venture with Unioninvest (BiH). Project management was assigned to the Greek firm Focal Managers.

(1) Following international tendering procedures in line with the relative EU directives, project construction was awarded to a Greek company (Domotechni-

Serbia & Montenegro

Romania

FYROM

Eight proposals amounting to 365,000 euros have already been approved.

Only 16.5 percent of the available budget has been committed until today: five proposals totaling 2.4 million euros.

The upgrading of the Pan-European Corridor X to motorway standards (two lanes in each direction plus safety lanes) is considered a top-priority project. It concerns two main sections: some 7 kilometers between Tabanovce and Kumanovo and 33km between Demir Kapija and Smokvica. The total budget is estimated at approximately 165 million euros and both the EIB (European Investment Bank) and the EBRD (European Bank for Reconstruction and Development) have demonstrated an interest in co-financing this project.

the Balkans

themes

A hot spot for FDI Interview with Vassiliki Nicoloulia

Your ongoing systematic effort to increase foreign direct investments in your country has set FYROM on a new course regarding growth.

What have been the results of this effort so far?

Minco Jordanov, deputy prime minister of the Former Yugoslav Republic of Macedonia (FYROM), is currently achieving a small miracle with the increase of foreign direct investments (FDI) in his country. A successful businessman himself and the architect of the ‘One-Stop Shop System,’ the official registration of a new company within 15 days, he believes that his country has not only increased the attraction of FDI, but also has raised its potential as an IT cluster, making the economy more competitive.

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Our government is intensively starting and in most cases completing the action plans for the implementation of its economic program. Our economic program aims at improving the business environment and strengthening the stability of ownership issues. It is based on continuous macroeconomic stability and prudent fiscal policy.

Within that framework the demonopolization of the monopolies is being implemented. The appropriate legal framework has been already established by legislative initiatives — energy law, railways transformation law, and telecommunications law — all fully harmonized with the European acquis.

The new labor law ensures the necessary high flexibility of the labor market. We are also changing the company law, the public enterprises law, and the new cadastre law, while the One-Stop Shop project for registering business is starting. Moreover, we are concluding the Stabilization and Association Agreement with the European Union and are signing numerous free trade agreements with our neighbors and other European countries.

Regarding our citizens — our human capital — our government continues to invest in universities and supports new initiatives in the higher education system; this will bring a high level of innovation and creativity to businesses as it increases the potential of our

the red tape and avoid any bureaucratic meddling.

IT cluster and makes our economy more competitive.

All these activities make the country a hot spot for foreign direct investments, which facilitates our economic growth.

You are more or less the person behind the initial concept and launch of the One-Stop Shop System in your country. Do you believe that this decision is a significant factor against bureaucracy?

The One-Stop Shop System aims at the reduction of the procedures and time needed to register a company in the country. The process of registering a business currently consists of 13 procedures and takes 48 days.

By implementing the new One-Stop Shop Law, the central register law, and by amending 17 other legal acts, the registration procedures will be centralized in the central register. The necessary documents are being digitalized and filed in the new electronic system and the necessary software for realizing this project is being tested. Through this new system, companies will now register in one place (One-Stop Shop) and procedures will last 14-15 days. Therefore, we cut

Which sectors of the state economy are growing and expanding with the attraction of foreign investments? Are you focusing on a specific economic sector?

The preconditions being set by our government are increasing investments in infrastructure; a fact that facilitates the trade in goods not only with neighboring countries, but also with the countries of the broader Balkan area.

We are also interested in the case of energy production and transmission.

We are at the crossroads between Corridor 10 (North-South) and Corridor 8 (East-West), so we are continuing with investments in infrastructure and the reconstruction of roads, highways and railroads.

Another sector with potential is the production and processing of health foods, as well as the improvement of our agriculture. Also, we have made significant progress in the metals-processing industry, especially in minerals.

How important do you consider the European prospect of FYROM? Also, in what way do you believe that this possibility affects your economic development?

The harmonization of our laws with the European acquis and the improvements in the abovementioned sectors enable us to meet the Copenhagen criteria.

The presence of Greek businessmen and in general of Greek investments in your country is currently very strong and has been during the last years.

How do you characterize their contribution to your plans?

Most of the Greek investors in our country represent probably the most significant factor for our growth, given the fact that there are only a limited number of speculative investors, especially in the steel-processing industry.

interview

The BLACK SEA Economic On June 25, 2007, the Organization of the Black Sea Economic Cooperation (BSEC) will be celebrating its 15th year since its foundation. Turkey will be hosting a summit of the member states in Istanbul in order to assess what has been achieved throughout those 15 years and to evaluate the future challenges that BSEC will have to face in a constantly changing global environment where energy will be the key issue.

BSEC was founded in June 1992 as a regional initiative with the mission of promoting a lasting and closer cooperation among its member states. It became a full-fledged regional organization after the adoption of its charter in 1998.

Turgut Ozal, the late President of Turkey who had the inspiration of creating BSEC, had the vision to build peace and stability in the Black Sea region through prosperity after the collapse of the Soviet Union.

The areas of cooperation of the 12 member states cover mainly trade and economic development, banking, energy, transport, communications, agriculture, tourism and combating organized crime, terrorism and illegal immigration.

The Council of Ministers of Foreign Affairs is the highest decision-making body and is seconded by a Committee of Senior Officials that coordinate the work between the sessions of the ministers, under the guidance of the rotating six-month chair country in office,

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By Ambassador Leonidas Chrysanthopoulos

with the assistance of the Permanent International Secretariat.

The BSEC-related bodies, which also play an important role in developing regional stability, are the following: the Parliamentary Assembly, the Black Sea Trade and Development Bank, the BSEC Business Council and the International Center for Black Sea Studies, BSEC’s think tank.

Important progress has been achieved so far in the fields of transport and energy. The construction of a Black Sea Ring Corridor is being planned. This will facilitate the overland transport of goods from Europe to Asia and vice versa. It will also encourage tourism in the area. In the energy sector BSEC is working to create a regionally integrated energy market for electricity and natural gas networks in the context of the European markets. It is also

establishing compatible energy action plans aimed at improving and interconnecting the electricity, oil and gas pipeline networks of the member states and linking them in particular to the Trans-European Energy Networks.

This demonstrates how BSEC had foreseen the importance that energy would play in international geo-strategical politics in the near future and prepared itself to face these new challenges effectively.

The active Hellenic Chairmanship of BSEC (November 2004 - April 2005), under the inspired guidance of Deputy Foreign Minister Evripidis Stylianidis, gave new impetus to BSEC by the adoption of important decisions, not only in the fields of energy and transport, but also in those of tourism, good governance and combating organized crime. However, the most important decision adopted during the Hellenic Chairmanship was the one made by the ministers of foreign affairs in Komotini (April 23, 2005), where it was decided to set up a substantial BSEC-EU dialogue. Previously, on April 11, the Hellenic Chairmanship had organized for the first time in the history of BSEC a meeting of the Committee of Senior Officials with the member states of the EU in Brussels. This was repeated by the Romanian Chairmanship in another meeting with positive results between the two sides in Brussels.

In Chisinau, on October 28, 2005, the Council of Ministers of Foreign Affairs mandated

Cooperation

Greece to proceed with exploratory consultations with the relevant EU institutions, with a view of adopting a declaration by the EU Council of Ministers on the enhancement of the BSEC-EU partnership.

Since then, the Greek Ministry of Foreign Affairs has started consultations with the UK and the Austrian presidencies of the EU, as well as with the incoming Finnish presidency.

It has also presented to the competent working group of the Council a comprehensive proposal for the future BSEC-EU partnership and the eventual development of a regional dimension in the wider Black Sea area. The initiative is developing in a positive way and concrete results are expected soon since both BSEC and the EU will benefit from such an enhanced partnership.

In spite of the significant progress made in the last 14 years by BSEC, much more remains to be done. For example, the question has been raised by non-BSEC politicians as to why an organization whose members have such a rich cultural heritage has not yet included cultural cooperation in its agenda. This is an area that is very important, since the importance of culture in bringing peoples and countries closer together is well known and should be included in BSEC’s agenda as soon as possible.

The governments of BSEC member states have the vision to make BSEC relevant to their citizens since very few know about its existence. This is due either to the fact that some of the decisions and resolutions adopted by the BSEC ministers are not implemented or because of a lack of any promotional activities. In either case the result is the same: the lack of knowledge about BSEC by its member states’ citizens. This must change since no regional or international organization can be effective if it does not enjoy the support of its people. By implementing decisions and resolutions, BSEC will promote itself in its member states since it will start making a small but positive difference to the everyday life of the average BSEC citizen, like the EU does today,

but on a smaller scale. And when this happens, then BSEC will flourish and the visions of the founding fathers of the Cooperation will become reality.

We are confident that the incoming Chairmanship of the Russian Federation will work toward that direction.

Ambassador Leonidas Chrysanthopoulos is secretary-general of BSEC.

themes

A Euro-Mediterranean Interview with Vassiliki Nikoloulia

In October 2002, the EIB’s operations in the Mediterranean partner countries were brought together under the Facility for EuroMediterranean Investment and Partnership, or FEMIP. Why was this mechanism necessary?

What are its benefits?

Operating since 1978 in the Mediterranean region, where it has invested over 15 billion euros, the European Investment Bank (EIB) is making a key contribution to the region’s modernization and economic liberalization.

Its activity has been reinforced and identified over the past three years by the Facility for Euro-Mediterranean Investment and Partnership (FEMIP). To support growth in the Mediterranean arena, EIB Vice President Philippe de Fontaine Vive presents FEMIP, an instrument for promoting Euro-Mediterranean economic development.

The creation of FEMIP in October 2002 reflected the political will of the EU member states and the 10 Mediterranean partner countries(1) to give a new impetus to their economic and financial cooperation: not only by increasing the volume of lending and introducing pioneering financial products, but also by stepping up collaboration between the two shores of the Mediterranean.

FEMIP’s main objective is to promote economic development and stability in the Mediterranean region, thus generating em-

ployment, reducing emigration from the southern countries and fostering growth on both sides of the Mediterranean. For this reason, it focuses primarily on private sector development and the creation of a favorable climate for investment.

In three years, FEMIP has established itself as the ‘Euro-Mediterranean development bank,’ with investments totaling more than 7.2 billion euros over the period 2002-2005.

To boost the momentum of the partnership and encourage the participants’ sense of ownership, FEMIP also provides a forum for exchange and dialogue between the two shores of the Mediterranean: through our local offices in Cairo, Rabat and Tunis, we organize meetings and sectoral working groups throughout the year that present their findings to the annual meeting of the finance ministers of the 35 Euro-Mediterranean countries.

This year, Tunisia will host the sixth FEMIP ministerial meeting on June 25 and 26. As last year, this will be paired with a meeting of the Mediterranean ECOFIN Council.

Why has priority been given to the private sector?

In 2005, 51 percent of the 2.2 billion euros lent was channeled into the private sector, either for financing large-scale industrial

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economic development

But doesn’t strengthening the economies of the partner countries also involve the transfer of expertise? projects or supporting SME investment via local banks.

We attach particular importance to this segment as only a strong and dynamic private sector can generate the jobs needed each year to provide the new entrants into the labor market with employment opportunities, thereby transforming the region’s growing population into a genuine asset for its future.

To achieve this, it is not only necessary to provide financing for projects but also to foster the development of an investment-friendly environment by supporting economic reform and modernization and assisting the creation of basic infrastructure. Let’s take for example Tunisia: with the financing of projects such as the dualing of the Tunis-Sousse and TunisGabes railway lines, upgrading of the road networks in Tunis and Bizerte, reinforcement of the national power grid and a host of environmental management schemes including the decontamination of phosphogypsum sites in Tapura. Lastly, we are placing increasing emphasis on investment in the so-called social sectors such as health, education, training and housing. For instance, we have dedicated 110 million euros this year to the modernization of 30 Tunisian hospitals located throughout the country.

Without doubt. That is why we are seeking to diversify FEMIP initiatives beyond traditional lending operations by developing a technical assistance component. Between 2003 and 2005, contracts for nearly 50 operations totaling 70 million euros were signed. These consisted of grants aimed at helping our public and private sector partners to strengthen their medium- and long-term management capacity as well as to improve the quality of their investment and enhance its development impact.

In the current situation, what are the drivers of economic growth in the southern Mediterranean countries?

Private investment clearly harbors the greatest growth potential, and to give it the necessary boost each state must define its priorities and pace of reform according to its own needs, competitive advantages and socioeconomic imperatives. It is FEMIP’s task to under-

pin these developments with diversified financial products and technical assistance. The aim is to enhance the attractiveness of a country and prepare the ground for investors.

To encourage this dynamic, FEMIP focuses on modernizing the banking sector in the partner countries, since the problem of how to tap savings for the long-term financing of the economy is common to them all. We are therefore enabling local banks to build up their capacities with technical assistance, helping them to refinance with medium- and long-term credit lines and supporting their efforts to develop financial products with a strong leverage effect, such as investment capital, leasing, micro-credit, and so on.

There are of course other factors that will contribute to the region’s economic growth, such as the remittances of migrant workers. A study that we recently published (2) showed that over 7 billion euros is ‘officially’ transferred from Europe to the Mediterranean countries every year (or 12 to 14 billion euros if ‘unofficial’ transfers are taken into account), exceeding both foreign direct investment and official development assistance to the region. However, these remittances are not handled by banks, a fact which considerably inflates the transfer costs (up to 16 percent of the amount

interview

sent) and prevents intermediate tapping by the banking system for developing appropriate products for migrants or improving the banks’ refinancing costs. For this reason, we intend to take steps, based on our research, to raise the awareness of the authorities in the partner countries and the banks with which we work, in order to make better use of this windfall to finance the economy. We would welcome Greek banks to join such a common effort.

But in order to achieve this, isn’t greater cooperation between the southern Mediterranean countries necessary?

Yes, indeed, and that brings me to the third aspect that I would like to address, namely South-South integration, which will be a key driver of economic growth. Trade between the southern countries accounts for only 5 percent of their GDP. To give you an example, Algeria is Morocco’s 16th supplier, while Morocco is only Algeria’s 35th! Progress has certainly been made — and here I am thinking in particular of the Agadir Agreement, which is expected to create a market of over 100 million people — but the integration of the region is far from being a reality. In these circumstances, it is essential to develop effectively integrated sub-regional groups (for instance, by extending the trans-European transport, energy and communications networks) and to think in terms of a Euro-

Mediterranean area, whose overall activity accounts for 20 percent of global GDP.

In 1995, the launch of the Barcelona Process signaled the beginning of the Euromed partnership. Ten years later, at the Barcelona Summit in November last year, a number of critics described this meeting as a failure. Do you share this opinion?

I think that in 1995 this initiative was set in the context of great hopes for peace. It is in the area in which we operate — that is, at the economic and financial level — that the process becomes most meaningful and has already made great advances.

FEMIP now provides finance worth 2 billion euros a year. The year 2006 will be one of reflection on its progress and this will in particular be conducted with the Mediterranean countries at the Tunis Ministerial Committee meeting in June. This dialogue is itself an achievement of FEMIP and the partnership, and 2006 will no doubt see a renewed impetus.

So are you optimistic about future EuroMediterranean relations?

Absolutely! Each of my visits to the region and each of my meetings with the economic operators there strengthens this conviction.

This region has enormous potential for development in terms of both its human and natural resources and its extremely rich cultural

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heritage, and we have succeeded in creating vital momentum.

Our economic and financial achievements with our Mediterranean partners so far, together with the clear determination on both sides, show that we have the means to move toward a genuine Euro-Mediterranean economic community. We must now endeavor to maintain and intensify this process of convergence between the northern and southern economies. This is clearly a major challenge for our societies, but one which we are ready to meet.

(1) Algeria, Egypt, Gaza/West Bank, Israel, Jordan, Lebanon, Morocco, Syria, Tunisia and Turkey.

(2) Available on the EIB’s website: http://www.eib.org/publications/publication.asp?publ=244

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culture

Rendez vous in

THESSALONIKI 54

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In June 2006, the city of Thessaloniki will become a significant cultural crossroad between Greece and other Balkan countries. In reality, it’s the beginning of an inter-Balkan cultural axis which will transform into the first Balkan Performing Arts Market (BPAM).

From June 1-4, in a cultural four-day performance event, performers from the Balkans — dancers, actors and musicians — will have the chance to present their work and at the same time explore new cooperation schemes and inhabit a culture beyond local geographical boundaries. This innovative initiative, undertaken by the Hellenic Cultural Organization and the Greek Ministry of Culture, is aimed at opening an artistic discussion between the counties of the Balkan peninsula.

Albania, Bosnia-Herzegovina, Bulgaria and Greece are among the 12 Balkan countries, along with Croatia, Cyprus, the Former Yugoslav Republic of Macedonia (FYROM), Moldova, Romania, Serbia-Montenegro, Slovenia and Turkey, that will have the opportunity to perform in major European and world festivals and arts centers. This is the scheme’s main goal — to give the Balkan artists the opportunity to exhibit their work and forge new collaborations.

Art directors, production companies, agents and producers from around the world will also be invited to participate in these cultural fairs. Inside this dynamic but as yet unknown environment a cultural dialogue will unfold. This procedure will provide the right conditions for the participants to present their work. The Hellenic Culture Organization aims to promote creativity in the Balkan region, according to Mrs Georgia Iliopoulou, managing director of the organization, as an integral and feasible support to the European and international prespective of the Balkan performing arts sector. Taking into account the recorded experience so far, she added, ‘we recognized the need for prompt action.’

‘The Greek minister of culture, Mr Giorgos Voulgarakis, enthusiastically embraced our proposal, providing the HCO with all the necessary support for the successful implementation and outcome of this initiative. So we have initiated the Balkan Performing Arts Market, a unique opportunity to promote and mobilize the performing arts, as much for the Greek as for the Balkan field, by triggering a great effort to create potential and open communication channels with the large European and international festivals as well as art centers.’

The BPAM is the testing ground for the Balkan performing arts’ creativity and value, and should be considered a first vital step toward creating a potential remedy mechanism to ease the various artistic, promotional and, mostly, financial concerns of Balkan artists. Thus, more than 700 arts programming decision-makers from all over the world have been invited to witness the Balkan artists perform.

The structure of the BPAM, consists of a ‘Live’ (showcase), a ‘Meeting’ (booths) and a ‘Discussion’ (conference) section. The participants are able to choose one of them or a combination of all. However, it is important to underline that this is the first time an organization is sponsoring all the participants in the market, the showcase program and the conference with free booths, free entry and free attendance.

As Mrs Iliopoulou underlined: ‘Δhe fundamental aim of the Hellenic Culture Organization is to develop international cultural initiatives with Global-European-Mediterranean-Balkan reach in order to contribute to the shaping of a culture of freedom based on the principles of cooperation, exchange, mobility, mutual understanding and creativity. The idea to establish a Balkan Performing Arts Market in Greece came as the result of long experience in the private art sector, involving the daily struggle to present or to discover new prospects and ways to broaden our activities and influence.’

culture

HELLENIC AID: A humanitarian move

By Alexandra Fiada

It is only a few years since Greece joined the international coalition against poverty and Hellenic Aid — the International Development Cooperation and Aid Department of the Greek Ministry of Foreign Affairs — has already distinguished itself by the solidarity intiatives it took in developing countries and by the number of humanitarian and development projects it has undertaken. Diplomatic missions are increasingly becoming missions of compassion and this ‘alternative diplomacy’ seems to be quite the thing in future international relations.

Globalization has made borders permeable and problems international. The ivory tower is no longer an option for any country. Illegal immigration, human trafficking and terrorism are increasingly affecting developed countries, jolting them out of their complacency. However, policing and suppression are not enough to tackle these problems and the developed world can no longer turn a blind eye to their real cause. Poverty, illiteracy, hunger, inaccessibility to drinking water, the HIV/AIDS pandemic and other diseases, authoritarian regimes and civil strife lie at the root of the predicaments worrying developed societies and it is the root that should be dealt rather with than its offshoots.

Hard to choose as it is among such a formidable array of evils, poverty definitely leads the pack and, given its magnitude, it can only be tackled via an international coalition. Of the world’s popula-

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tion of 6.1 billion, 2.8 billion, that is, almost half, live on less than 2 dollars a day.

Although in the past decades living conditions have improved in the greater part of the world, global wealth is increasing by leaps and bounds and there has been spectacular progress in technology and science, the distribution of wealth is still terribly uneven. The income of the richest 5 percent of the world’s population is 114 times higher than that of the poorest 5 percent. Every single day, more than 30,000 children die of diseases that are curable in the developed world, while 840 million people are underfed. And though this number is declining, it will take 130 years at the present rate for poverty to be eliminated.

In a world where the population will rise by about 2 billion in the next 25 years, it is of tantamount importance to achieve the ‘Millennium Goals’ that have been set by the UN, and this can be done only by fighting with all the means at our disposal poverty, disease, illiteracy, hunger and inaccessibility to drinking water, by protecting human rights and by ensuring sustainable development in as many poor countries as possible.

Greek International Development Cooperation and Aid policy After the proclamation of the Millennium Goals in 2000, Greece joined the international coalition against poverty. For the first time in recent history, it became a donor country and not a donee. Proof of its strong commitment to contribute to the war against global poverty is the government’s pledge to increase state aid to 0.56 percent of GDP by the year 2010. Currently, Greece

has raised state aid from 0.20 percent of GDP to 0.23 percent — some 464 million euros per year, which is allocated to various developing countries either bilaterally (government to government) or multilaterally (through international organizations or programs), or even through projects implemented by Greek NGOs in developing countries.

Hellenic Aid, the International Development Cooperation and Aid Department of the Ministry of Foreign Affairs, is the coordinator of Greece’s international development cooperation and aid policy.

It encourages, finances, implements, assigns, supervises and records all financing programs that

are carried out in a number of developing countries by ministries, non-governmental organizations and other agencies. Nineteen countries have been selected on the basis of the UN Millennium Goals, the principles of DAC/OECD and the priorities of Greek foreign policy. For the 2005 program these countries were from the Western Balkans, the Black Sea, the Middle East, North and sub-Saharan Africa, Southeast Asia and Turkey.

Adhering to its principles of transparency and effectiveness, Hellenic Aid established certain requirements for the submission of proposals, so that each NGO had to submit along with its project the following documents, which are necessary for its evaluation by the International Development Cooperation and Aid Department: a written agreement with a reliable local NGO or, failing that, one from a local municipal or state authority;

an official document from a government authority of the donee country on the need to implement the proposed project; and a confirmation from the nearest Greek diplomatic authority that the proposed project has its consent.

Furthermore, the master agreement between the International Development Cooperation and Aid Department and the NGOs has been amended to include three more binding conditions: any project with a budget exceeding 100,000 euros has to be accompanied by a letter of credit from a bank as to its financing; the contractor has to exhibit the designation ‘Hellenic Aid’ on a suitable, conspicuously placed board both during the implementation and after the completion of the project; and the contractor has to mention in all relevant documents that the project is financed by the International Development Cooperation and Aid Department of the Greek Ministry of Foreign Affairs.

A reorganization of the department is also

under way, aiming at the creation of a new framework for development aid, adapted to international standards, while a number of the department’s officers are attending training sessions at the Netherlands International Development Cooperation and Aid Department in Holland and at USAID in the United States. More training sessions are going to take place in the United Kingdom, Ireland and other countries. Meanwhile, all the staff in the department attended training seminars organized with the participation of Europe Aid, in a program that includes dispatching officers of the International Development Cooperation and Aid Department to countries less organized than Greece in this respect — as in the case of the Republic of Cyprus, where officers of Hellenic Aid have supplied the know-how for the establishment of a similar service.

Hellenic Aid’s adherence to the principles of transparency and effectiveness is further demonstrated in the control it exercises over the projects that are at the stage of implementation, mindful of the fact that it is the Greek taxpayer’s money that finances these development or humanitarian projects and therefore it should be spent with circumspection. To this end, the Parliament is always notified of

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the agencies and projects that are being financed, audits are regularly carried out, and the institutional framework has been improved to provide the necessary guarantees of proper and effective implementation of the projects. These include the signing of the agreements between the NGO and the Ministry of Foreign Affairs and the stipulations that the ministry reserves the right to carry out regular audits of the agencies’ operations and also to terminate unilaterally an agreement on a project that is being improperly implemented and to claim a refund.

A modern approach to diplomacy The consolidation of the institutional framework and the strengthening of the role of society in humanitarian work should encourage the establishment of more, and more effectively organized, NGOs, which, by undertaking projects of a humanitarian, educational, cultural, environmental and social nature, supplementary and supportive to the state-sponsored ones, are bound to produce impressive results in what nowadays is called ‘alternative diplomacy.’

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If political diplomacy fosters relations between states and governments and economic diplomacy fosters cooperation between national markets, it is certain that international development cooperation and aid — which Greek foreign policy has embraced with alacrity — by offering succor and know-how to societies in need, could build bridges of good will between the developed and the developing countries and promote a rapprochement between different cultures. Thrown across societies, such a bridge often proves more flexible and effective than the other two and is a great help toward managing crises, establishing stability and consolidating democracy as the need arises. It lays the foundations for sustainable development and promotes peace and cooperation between nations.

What has been done During the last year, following its reorganization, Hellenic Aid took dynamic action wherever local societies were in need of it, whether through humanitarian aid/food programs or through development ones. It has been active in 46 countries around the world, building schools, hospitals, water supply and irrigation networks, as well as all kinds of modern infrastructures that contribute to sustainable development. It has provided know-how for the improvement of democratic institutions and has trained a great number of men, women and children in vocational skills.

Hellenic Aid has striven to be the first foreign rescue team on the ground in areas struck by extraordinary natural disasters, in order to help in rescue operations, the treatment of casualties and the

subsequent reconstruction of the area. It has participated in the reconstruction of the Balkans, Iraq and Afghanistan and it has provided supplies and personnel to flood-stricken Bangladesh, to Iran and Pakistan after they were devastated by earthquakes, to Latin America in the aftermath of Hurricane Ivan, Beslan after the terrorist attack, Morocco following the great fires, and to Southeast Asia after it was hit by the tsunami. It has also sent food, regularly, to sub-Saharan Africa and has implemented both educational and healthcare infrastucture projects.

Furthermore, an information campaign launched by the Greek Ministry of Foreign Affairs aims at raising public awareness of the UN Millennium Goals and promoting Greece’s commitment to them. Part of this campaign was the concert given last June by Nana Mouskouri, prominent singer and UNICEF Goodwill Ambassador, which was broadcast via satellite to 138 countries, bringing to the public’s notice how much Hellenic Aid has accomplished in such a short time since its establishment. This was also evident in the promotional material available at the stand of the International Development Cooperation and Aid Department at the Thessaloniki International Trade Fair, in which the Greek Ministry of Foreign Affairs participated for the first time.

Hellenic Aid’s new strategy In the 2006 program the procedure for the selection of projects to be implemented in the target countries was radically modified to better serve its purpose. The countries to benefit from it are in the Western Balkans, the Black Sea, the Middle East, North and sub-Saharan Africa, and Turkey. The proposals that have been submitted by the various agencies will be evaluated by the International Development Cooperation and Aid Department and its detailed program will be announced by the end of the year.

The integrated strategy formulated by Hellenic Aid takes into account the proposals of the Greek local diplomatic authorities, NGOs, donee countries, various international organizations and other donor countries active in the selected areas. The proposals cover pressing humanitarian and development needs in each country and detail the specialized projects that Hellenic Aid intends to implement within the next two years, mentioning also the reasons the particular projects were selected as a means of achieving specific results, i.e. improvement of crops with a view to sustainable development. Projects that are being implemented by other donors are also taken into account, in order to avoid overlaps.

By embracing ‘alternative diplomacy,’ Hellenic Aid benefits not only countries in need but also Greece itself, because by its actions it promotes the principles and values of Greek culture, creates a strong current of philhellenism in the societies of the countries that receive its aid, and strengthens Greece’s status and influence in the international community.

Its policy could be represented by three intersecting circles: the Millennium Goals, as determined by the United Nations; the European Union’s set of priorities, as determined by the Council of Ministers of Development Cooperation; and aspects of Greek foreign policy. A typical example of how these three

are combined in real life is the establishment of the Homer school in Korce, Albania: a Millennium Goal is covered (combating illiteracy) in an eligible DAC country (Albania), implementing one of the priorities set by the European Union (supporting reconstruction in the Western Balkans) and pursuing one of the goals of Greek foreign policy (promoting the effective exercise of educational freedom among the Greek minority in Albania).

So, in Korce, Homer, the first bilingual Greek-Albanian school since 1928, serves as a bridge of understanding between the two cultures and of cooperation between the two peoples, promoting peace, stability and development in the area.

In the past year, Hellenic Aid has distinguished itself by the solidarity initiatives it took in developing countries and has won the kudos of UN SecretaryGeneral Kofi Annan, who called Greece ‘an international power in humanitarian aid’ in praise of the action it took in the areas that were hit by the tsunami.

It will continue to strive, to the best of its ability, to make a difference in a world fraught with misery, calamities and strife, proving to the international community its faith in Martin Luther King’s aphorism: ‘I refuse to accept the idea that man is mere flotsam and jetsam in the river of life.’

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A Greek-Alban Greece has traditionally been an ‘educator of the people of the world,’ disseminating knowledge and ideas on which much of the Western world’s society and culture have been based. True to this tradition, the Greek educational group Filekpaideftiki Etaireia, which operates the reknowned Arsakeion schools, has opened the first Greek-Albanian college in Tirana in order to promote, through education, a deeper understanding between the peoples of the two countries.

The Arsakeion Greek-Albanian College of Tirana (founded in 1998) is the first school established by Filekpaideftiki Etaireia outside Greece and it will endeavor to become an important educational center in SE Europe, on a par with the other schools of the group. Although its current premises are five rented buildings in Tirana, the construction of a modern campus is already under way on the school-owned 100-acre property near Elbasan, a few miles from the Albanian capital. On campus, the lyceum, high school, primary school and kindergarten will each be housed in its own building, provided with all the necessary facilities, while separate buildings will house the theater, the library, the administration offices, the gym, the boarders’ dormitories and the teachers’ residences.

The primary aim of the Arsakeion College in Tirana is, by employing all the modern multicultural educational methods, to provide a high standard of education, which should promote a more profound understanding of both the Greek and the Albanian cultural backgrounds and should be instrumental in achieving a broader collaboration between the two countries, not only on the educational but also on the cultural level.

While no effort is being spared in the teaching of the Albanian curriculum, special attention has also been given to the teaching of the Greek language, by employing the most up-to-date methodology under the guidance of the chairman of Filekpaideftiki Etaireia, Professor G. Babiniotis. The results are truly impressive: The high standard of education and the

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enriched curriculum provided by the school, in conjunction with the constant increase in the number of pupils, have already made the name Arsakeion a point of reference not only in Albania and Greece, but also in the wider area of SE Europe.

There is no doubt that the benefit of an upgraded education will foster a better understanding between the people of Albania and Greece — a fact widely recognized in Albania, not only by the Tirana society, which is eager to see its children matriculate from the Arsakeion College, but by the Albanian Ministry of Education as well. The Albanian school inspectors have been full of praise not only for the expert organization of the school, detailed annual planning, pioneering methods of teaching and the manner of evaluating the pupils, but also for the competence of the teaching staff and the abundance of educational material. They have further expressed admiration for the various activities and cultural events organized by the school, which appeal to both pupils and their parents, strengthening the spirit of friendship and the mutual appreciation between the two countries. The Arsakeion College, by respecting the national and cultural tradition of Albania while acquainting its pupils with aspects of Greek culture, has achieved a harmonious coexistence of the two in the minds of both its pupils and their families. In this respect, the Arsakeion College is not only a font of knowledge that will enhance the future possibilities of its pupils for a successful career but also a veritable cradle of friendship and untrammeled collaboration between the Albanian and the Greek people.

And this friendship and collaboration are more than obvious among the mixed teaching staff. The headmistress — a well-respected academic — is a Greek national, and she is seconded by a very skillful schoolmistress of Albanian origin. The teachers responsible for the Albanian courses are all Albanian nationals with degrees that comply with Albanian

legislation and they have been hired after careful and detailed evaluation, while those responsible for the Greek courses are Greek nationals with degrees from Greek universities.

The Arsakeion College follows the time schedule and educational program of the rest of the Albanian schools, but there are extra courses in which Greek is taught as a second language, as well as several others — literature, European civilization, democracy, geography, computer science and technology — that have been adopted from the Greek educational program. The books pertaining to these courses are the same as those used in the Greek schools. Filekpaideftiki Etaireia supplements these with its own publications of corpora and reference books, providing its pupils with an even richer source of knowledge.

Every year Filekpaideftiki Etaireia organizes and hosts a visit to Greece for the pupils of the Arsakeion College, giving them a unique opportunity not only to view the classical sites but also to acquire a greater insight into Greek history and culture by attending special educational programs in museums and elsewhere — an experience that prompts them to undertake further research in these fields.

Contact with other educational bodies has always been one of the priorities of the Arsakeion College. And to this end it is a fervent advocate of the ‘school fraternization’ institution, forging bonds of friendship with schools in remote areas, as well as with schools in Greece and the rest of the world — bonds which are strengthened by exchanging hospitality and by joint cultural and athletic events.

Following the tradition established by the other Arsakeion schools and in order to broaden its pupils’ experience, the Arsakeion College organizes every year, with notable success, several cultural events — exhibitions, conferences, symposia, seminars,

ian college lectures, tribute-paying to distinguished artists and writers — in association with various cultural centers in Greece and other countries. Special attention is given to the celebration of the national days of both countries, as well as Christmas festivities and Mother’s Day, the organization of which is undertaken — in an atmosphere of joyous creativity — by the pupils themselves with the aid of their teachers.

As in all the other Arsakeion schools, the students are encouraged to form and to participate in societies and fraternities — foreign languages, athletics, drama, music, the performing arts, the art of communication (orators’ society and journalism), astronomy, meteorology, the natural sciences, informatics, biology, the environment, mathematics, chess and creative thinking — after school hours, the particular aim of these societies being to provide the students with fruitful albeit entertaining ways to spend their free time, to help them develop their skills and talents and to promote social contact and teamwork. The latter is nowhere more apparent than in the editing and presentation of several stylish publications — journals, albums, Christmas cards, collections of essays, etc — which are produced by the students in cooperation with the teaching staff and reveal the multitask activities of the school and its highly organized structure.

The Arsakeion College, by treating the national and cultural traditions of Albania with great respect, has achieved their harmonious coexistence with the Greek culture, making its pupils and their families more Europe-oriented, in the best interests of both their country and SE Europe in general.

ñ Filekpaideftiki Etaireia is a charitable, non-profit educational institution with a varied and multifaceted agenda. ñ One of the main objectives of Filekpaideftiki Etaireia is the foundation of schools and colleges. ñ A total of approximately 8,500 pupils attend the Arsakeion schools in Athens (Psychico and Ekali) and Thessaloniki, the Tossitseion schools in Patras and the Arsakeion College in Tirana (Albania). More than 750 exceptionally well-qualified tutors staff these schools.

Filekpaideftiki Etaireia is the oldest educational institution in modern Greece. It was founded in Athens in 1836, in an effort to provide adequate education for the girls of the post-revolutionary era, by three prominent scholars — loannis Kokkonis, George Gennadios and Bishop Michail Apostolides — and it met with unqualified approval. Promptly, a large circle of donors gathered in support of Filekpaideftiki Etaireia, the most generous being Apostolos Arsakis and Michael and Helen Tossitsas.

The schools of Filekpaideftiki Etaireia soon spread to other Greek cities, but its greatest contribution to education in modern Greece was the creation of an upper school for girls for the education of schoolteachers, which for the next 63 years was the only female seminary in the country.

Filekpaideftiki Etaireia administers its three nursery, 10 primary and six secondary schools and seven lyceums, known as Arsakeion-Tossitseion Schools, through an elected president and board of directors, who undertake their duties gratis, considering it an honor to be called upon to fill these positions. A unique feature of the schools’ modus operandi is the ‘Epopteia,’ a board of inspectors with wide administrative and operational authority, delegated to inspect, control and assess the quality of the educational work accomplished, and to coordinate the operation of the schools. And, of course, Filekpaideftiki Etaireia places special emphasis on cooperating with its pupils’ parents, thus ensuring what is best for their progress and well-being.

All school premises are specially designed and constantly renovated, and they provide the appropriate space, facilities and equipment for a great variety of activities, including science and computer laboratories, a natural history museum, athletic fields and sports centers, conventional and electronic libraries, church, theater and so on.

Progress and innovation, however, have always been the strong points of Filekpaideftiki Etaireia and the past two decades were no exception: It has fostered the organization of educational seminars for teachers, so that they can keep abreast of recent developments in their field; it updated the schools themselves in the 1880s by making them co-educational; it renovated the Arsakeion building in the center of Athens, which, in 1996, reassumed its leading role in the city’s cultural life by housing an extensive book arcade; it announced the establishment of Arsakeion schools in Ioannina and Cyprus; and it created special services that cooperate with teachers and facilitate their work: the Cultural Events Service, the Educational Programs Service, the Counseling-Psychological Support Service, the Speech Therapy Service and the Career Consultancy Service. However, the overall picture of Filekpaideftiki Etaireia activities would not be complete were we not to mention Epikoinonia, the magazine in which all pertinent events as well as articles of a broader educational, cultural and social interest are publicized.

Constantly readapting itself to progress and innovation in the field of education and expanding its curriculum accordingly, Filekpaideftiki Etaireia has created the ideal environment in which young children have the opportunity both to discover the world around them and to understand and develop their own skills and talents.

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‘Funding’ Balkan culture

By Dionysis Stathakopoulos Very young but already high-spirited, the Balkan Fund, a script development fund, was established in 2003 under the auspices of the Thessaloniki Film Festival. It focuses on the countries of the Balkans, an area which has not yet been fully covered by any other festival fund. ‘This festival, taking place in the traditionally multicultural city of Thessaloniki, will support filmmakers from the Balkan area in their efforts to develop projects as professionally as possible,’ the fund’s art director, Christina Callas, explained to The Bridge. ‘The Balkan Fund, therefore, aspires to support filmmaking in an area that in the recent past has lived through quite explosive times, with the result that now it is a region full of stories waiting to be told.’

Interviewed here, Christina Callas tells us more about the fund’s purpose, procedure and plans for the future.

How important has this initiative proven to be for the Balkan countries and for Greece? Who will benefit from it?

The initiative has proven to be of paramount importance, since there is almost no other funding for script development in the Balkans — that is to say, the countries of Albania, Bosnia, Bulgaria, Croatia, Cyprus, the Former Yugoslav Republic of Macedonia (FYROM), Greece, Romania, Serbia, Slovenia and Turkey. It was extremely beneficial to those of the Greek projects that had been nominated, because of

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the co-production and co-financing opportunities that arise during the meetings their authors have with well-known producers and agents who have come to attend this annual Balkan Fund event.

The Balkan Fund’s film ‘Grbavica‘ won the Golden Bear. How significant is this award for both the fund and the Thessaloniki Film Festival?

It was a huge success for both. ‘Grbavica’ has proven the value of proper script development and the achievement potential funds such as this have.

The Balkan Fund has been active for the past three years. What is the participation level of Balkan countries? Has it been rising?

The participation rises yearly, as the Balkan Fund gains repute. The fact that the first movie to be made under the auspices of the Balkan Fund, ‘Grbavica,’ has received a Golden Bear will surely attract even more applications and market interest.

How do you proceed in selecting the scripts to be funded, and what steps does a screenwriter have to follow in order to submit his script?

The Balkan Fund awards its support once a year.

The announcement of each year’s awards and of

the dates for the next year’s submissions and nominations is made during the Thessaloniki Film Festival in November. The fund has pledged to provide financial support for four or five feature films, endowing them with a grant of up to 10,000 euros each. The applications that fulfill the selection criteria are first evaluated by a group of experienced readers, and two reports, by two different readers, are issued for each film project, in order to avoid an evaluation that could have been made solely on the basis of personal aesthetic preferences. This first round leads to the nomination of some 12 film projects, which are then forwarded to the international jury for its final evaluation.

The international jury is made up of wellknown professionals in the film world, the socalled decision makers, who — due to their position and connections — can also help the selected film projects further up the road to achieve realization.

The 12 nominated film projects are then examined at a three-day workshop during the Thessaloniki International Film Festival, in which the authors present their film projects to the international jury. The workshop is also open to the festival’s accredited filmmakers. So, all 12 film projects have the opportunity to elicit the sup-

Elm event a Tataragic is w years ith her featu a producer later, from S r e film she ar schedu p le. Thi is closing t roject ‘Snow ajevo who p h s . articip e ’ She w i s f how inan ‘Aid a loniki a Begic and she relates h cial deal for on the 10,00 ted in the 2 Film F 004 I t 0 e he film partici -e r expe es but th and tr uro prize. N Balkan Fun e expe tival. Both o pated in the rience: ow ying to d fu rie 2 tation arrang , almost tw of the nce at the c s had partic 004 Balkan o e h er sho Fund e ipated ity of T them film p oting ve an ro in h enoug d had the jects was v essaloniki w several sim nt, organize e ila h ri a d r and to time to pre ght questio y interestin s one of the r events thr by the Thes sent ‘S g, bec ns for o sam answe u o gho s t ‘We di r the very s now’ and e each one, ause the ju useful ones ut Europe, r . m includ pecific phasiz since w d not me ing o y was quit The presen que et et e Festiv got the aw many produ stions that w hose points urs. Also, w e familiar w al, th ar it c e e Canne organized d. Even mo ers at the B re put to us at we belie were allow h

by Cin re by t alkan s we m v b e e y d a the j re imp ef Fu he a is quit ortant e cruci naged to fin ondation du fact that w nd event. B ury. al ut rin d e our Ge rman p for our proj two co-prod g the Cann were select we benefit ect. La e ed fro e u d to at artner s cers — Film F m st s, we a t re aim week we go a French o estival. Wit end L'Atelie it, h this r du ne and t the s ing at ex u severa l funds pport of the a German on posure in .’ e—w Fund S ud, an h d now ich , with

port of co-producers and other professionals present at the workshop, even if they are not among the winners; and they all receive a certificate testifying to their participation.

What are the criteria for a script to be eligible for nomination?

The Balkan Fund supports only film projects that have a realistic and complete development and production plan. The selection committee is mainly concerned with the evaluation of their artistic and storytelling content.

There are, however, a few basic criteria which have to be met: The Balkan Fund supports only feature-length film projects, fictional in content and potentially suitable for theater release.

The country where the film’s development and production will take place has to be one of those already mentioned.

The script has to be original and clearly related to the history and culture of its country of origin.

Last November, the Balkan Fund event took place during the 46th Thessaloniki Film Festival.

What was the total number of participants?

The jury sessions, which are open to the public, and the personal meetings of the authors are conducted during the three days of the workshop. The participants therefore are the jury, the 12 nominated authors or teams and 40 to 50 producers, fund managers and agents.

What is the source of financing?

The Thessaloniki Film Festival, the CNC (Centre National de la Cinematographie) and the Goethe Film Institute.

What are the future plans of the fund?

We are looking into possibilities of extending our support to talented filmmakers in SE Europe.

The Balkan Fund in facts and figures It was created in 2003 under the auspices of the Thessaloniki Film Festival.

It is a script development fund.

It focuses on the countries of the Balkan peninsula.

The fund spends 40,000 euros per year, plus the expenses of the event.

The fund’s aim is to support four or five feature films, granting them 10,000 euros each.

At least one of the films should come from Greece.

The Balkan Fund supports only film projects which have a realistic and complete development and production plan.

Each project is judged on its own merit.

The Thessaloniki Film Festival, the CNC (Centre National de la Cinematographie) and the Goethe Film Institute are the sources of financing.

Constantine Giannaris’s film ‘Welcome Aboard’ is one of last year’s projects to be awarded a prize by the Balkan Fund. The other three film projects that won 10,000 euros apiece are the following: ‘Conversation with Serafim,’ screenwriter and director Silviu Purcarete, producer Ozana Oancea - Libra Films (Romania) ‘Asphyxiation,’ screenwriter and director Asli Ozge, producer Deniz Kunkut - DKFY (Turkey) ‘Cum in the Rye,’ screenwriter Dimitrije Vojnov, director and producer Srdjan Dragojevic Delirium Films (Serbia & Montenegro).

interview

Mjaft means ENOUGH

By Dionysis Stathakopoulos

The young people of Albania have had enough of the ills that plague their country — social, political and economic — and they are organizing themselves to put them right.

Mjaft is a movement of reform and reconstruction and it is gradually spreading all over Albania, fueled by the hopes of a people who deserve a

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future brighter than the present.

‘I’ve had enough!’ Those were my exact words, when I first tried to approach the Albanian movement called Mjaft, after a lot of mail and many calls had gone unanswered. But when I finally managed to telephone Mrs Kristi Pinderi, the movement’s media coordinator and editor of the web magazine Mjaft Telegraph, she replied to me by using exactly the same words, although in a different language: She said ‘Mjaft.’ Mjaft means ‘enough.’ It means ‘enough’ to many phenomena like corruption, bad government policy and, most significantly, civic apathy, which was the main reason that led to the creation of the movement. ‘We are like we are because we didn’t say mjaft to all the bad things that we inherited from the past or that we have created during the last years,’ she explained, referring to today’s situation in Albania.

But what exactly is Mjaft? In March 2003 the Balkan YouthLink in Albania (BYL-A), the Albanian National Debate Association (ANDA) and over 60 partner organizations launched a massive public awareness and advocacy campaign called Mjaft as a civic response to Albania’s endemic political, social and economic problems. But in the months that followed Mjaft’s creation, all the groups and individuals that were involved recognized the acute need for the continuation of the campaign’s work — as an established move-

ment now, which constantly presses for civic activism and national development. At the moment, Mjaft is the largest movement in Albania, with over 8,000 members (no Greek members included yet) and more than 1,000 volunteers.

The civic clubs that have been organized in several Albanian cities — Berat, Durres, Kukes, Fier, Lezha and others — complete the movement’s profile. ‘Mjaft was an idea propounded by some young people who now lead this organization,’ said Pinderi. ‘They came back to Albania after they had had the experience of studying in universities abroad. It was very difficult for them to understand how it is possible that Albania, a country very rich in natural and human resources, could nevertheless be the poorest country on the Balkan peninsula and in Europe as well. So they used their old contacts and their creativity to get funds to start a big campaign against the apathy prevalent in society. It was a very successful campaign and these young people have decided to go further with the idea.’

Today, Mjaft’s vision is to work toward establishing a well-governed Albania, with active citizens, strong communities and a positive image in the world. The members of the organization strongly believe that the key which will unlock the existing impasse and reverse the bad picture is a constructive civil awakening. This is the path that leads to a proper democracy, good governance

and a prosperous society. So the movement’s mission is to increase active citizenship and strengthen the people’s sense of community, improving at the same time Albania’s image throughout the world. More specifically by: — Encouraging citizens’ participation in decision making, and by influencing and monitoring policies at both the local and the national level; — Promoting voluntarism and improving cooperation within the various communities; and — Restoring a sense of protest in the minds of the people.

‘We believe in democracy, with the participation of all, we believe in consolidated communities, in civil solidarity and in a European Albania, an Albania where moral values will no longer be discounted.’ This motto stands for Mjaft’s way of thinking and acting. Accordingly, its members believe strongly in restoring the country’s image.

This is proven by the significant achievements the movement has accrued in the three years that it has exisited: — The organizing of a public opinion poll regarding the first 100 days of the government’s performance and actions.

— The intensive, four-month public relations campaign that was mounted in order to raise public awareness about issues such as blood feuds, abuse against women and minorities, political and economic corruption, immigration, environmental deterioration and many other social and economic problems.

— The fact that, by organizing a series of protests and petitions, it induced the government to increase education spending by 10 percent for 2004 and by 23 million euros for 2005.

‘One of the many fields of action that Mjaft is focusing upon is education,’ declared Mrs Marinela Lika, Mjaft’s project co-ordinator, in an interview with the Albanian Telegraph. ‘In January,’ she continued, ‘Mjaft started a project to lower the level of illiteracy in rural areas. It is a pilot program, which at first will cover a small number of villages, but we hope to expand and consolidate it in the near future. The Institution of Youth Leadership (YLLI) also has put in motion another program, one that undertakes to educate annually some 70 young people, on average, on how to become leaders in their communities, teaching them how to organize and set in motion their projects, the importance of the media in the coverage of their campaigns, as well as how to mediate or call for a strike on certain issues, the art of the debate, and so on.’ At the end of each year, Mjaft forms a plan for the next one, with reference to the programs, projects and activities already completed. But, first and foremost, the plan is based upon Mjaft’s vision for a better Albania in all respects.

‘We continue our struggle to find ways to give back to the people of Albania their much-deserved dignity — in every aspect…’

culture

Antigone’s kindred spirits Sophocles’ famous play that deals with the conflict between human and divine law found an eager audience in Tirana, who, for the first time ever, had the opportunity to attend the performance of a classical Greek drama. It was the happy result of a collaboration between the talented young Albanian director Mikel Kalemi and the Greek Embassy in the Albanian capital. Spyros Diamandis, press and communications secretary at the Greek Embassy, spoke to The Bridge about the performance and about the extent to which such cultural events are influencing the further improvement of Greek-Albanian relations.

How did the staging of a performance of Sophocles’ ‘Antigone’ in Tirana come about?

We got the idea after a meeting we had at the embassy with the young and talented Albanian director Mikel Kalemi. Mr Kalemi had already produced ‘Antigone’ two years ago at the ancient theater of Vouthroto — an ancient Greek colony in southern Albania — though his means were quite modest. We liked the idea and decided to go ahead and produce the play in Tirana. We considered it to be an event of significant importance, since it was the first time ever that the Albanian audience would have the opportunity to attend a production of a Greek classical play performed in the Albanian language.

Why did you choose ‘Antigone’?

Leaving aside the fact that Sophocles’ ‘Antigone’ is without doubt one of the greatest plays produced by the ancient Greek dramatic poets — a play that propounds ageless ethical values — one may also find that it has a lot in common with contemporary Albania. The play’s main element of conflict between man’s law, the decrees of a ruler, and divine law, the voice of

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By Alexandra Fiada human conscience if you wish, was a burden on the soul of the Albanian people for almost half a century, during the especially hard and harsh years of Enver Hoxha’s dictatorship. At the same time, were one to read Ismail Kadare’s book ‘Aeschylus, the Great Loser’ — one of my favorite books, which has also been translated into Greek — with some surprise, one would realize that, regardless of whatever points the author has seen fit to present in an exaggerated form, many aspects of the morals, customs and traditions that appear in Greek classical drama can be encountered also in Albania and even nowadays they are still apparent.

What did the Greek Press and Communications Bureau of Tirana achieve by this performance?

We had a threefold target. First and foremost, the performance itself. As I already mentioned, it was the first time ever that a classical Greek play was staged in Tirana, in the Albanian language, by an Albanian director and with Albanian actors. Given the innumerable difficulties inherent in present-day Albanian reality, the staging of the play was a bold undertaking and we are extremely proud that we brought it to a happy conclusion. And I say ‘we’ because the end performance was the result of the efforts of several

in Tirana people who believed in this project. To start with, we had the unstinting support of the General Secretariat of Information of Greece, and of the general secretary of information himself, Mr Panayotis Leivadas, who from the first moment believed implicitly in our ambitious dream and financed our effort.

The support we had from our ambassador to Albania, Pantelis Karkabassis, a great believer in the contribution of culture to relations between people of different countries, was

also of great import. Also I would very much like to extend my thanks to my collegue at the Press Bureau, Ms Koutsoukou, who valiantly bore the burden of the innumerable details related to the staging of the play.

Our second target was to publicize the fact that the construction of the new, and only, open-air theater that the Academy of Arts in Tirana has was financed almost entirely by Greece. Despite the fact that the inclement weather conditions compelled us to stage the play in one of the Academy halls, the Greek contribution to the construction of the new open-air theater had been favorably presented in all the interviews with the Albanian media prior to the performance.

And, finally, our third target was to ensure a

future collaboration of the noteworthy theater group that Mikel Kalemi has brought together with both the Greek theater people and the Greek Ministry of Culture. To this end, we brought Mr Kalemi into contact with the Organization for the Promotion of Greek Culture and the State Theater of Northern Greece, and we are hopeful that in the future this collaboration will be fruitful and present us with interesting cultural projects. Our expectations — the expectations of all of us who believe in the beneficial effect of cultural contacts between people of different countries — are indeed high.

How was the performance?

Beyond our wildest dreams! Such was the response of the public that we had to give double the number of performances originally planned. We reached the point where we had to turn people away. I myself watched two of the performances standing up! I was quite impressed by the director’s novel way of dealing with various aspects of the play and by the quality of the acting.

And I would like to point out two things: The first has to do with the young director, the second with the actors.

The passion Mikel Kalemi has for Greek drama deserves our special attention. It is illustrated by the fact that, when still a student at the drama school of the Academy of Arts in Tirana, he twice attempted to clandestinely cross the border into Greece with the sole aim of watching a performance of Greek drama at Epidaurus. On his first attempt he was arrested and turned back. His second attempt was successful and he realized his dream. Upon

culture

his return to Albania, Greek drama had become his point of reference in life.

Secondly, the actors interpreted a classical Greek play perfectly, without any previous experience of the genre — not even as spectators. Furthermore, the Albanian language, though incomprehensible to our ears, completely ‘bonded’ with the performance and managed to convey to us all the feeling of the play. Everything was perfect. Even the theater program — which we produced for the occasion and which was distributed free of charge — made a great impression, since nothing similar had ever happened in Albania.

Our reward was to see how moved the Albanian audience was, how the play spoke directly to their hearts. This, and perhaps the

comments of certain notable people who know the place well and therefore are very much aware of the importance such initiatives have — people like Anastasios, the Archbishop of Albania, who described the performance as a ‘revelation for Tirana.’

What comes next?

‘Antigone’ will next come to Greece. It will be performed there during the UNESCO Festival in Thessaloniki next September. But we have other plans too: We are planning to stage Euripides’ ‘Medea’ in Tirana next October, but our ambition is to establish a permanent collaboration with the Greek Ministry of Culture so that every year another Greek drama will be performed in the Albanian capital. The collaboration with Greece has already begun and perhaps — personally I believe it to be so — the collaboration of Mikel Kalemi with the State Theater of Northern Greece was instrumental in the formation of the concept to establish a Balkan Theater Festival — a project that was announced during the recent meeting in Thessaloniki of the directors of the national theaters of Balkan countries.

and is acquiring new forms that demand particular skills. Among the more significant of these new forms are the diplomacy of communication — the diplomacy of the media — and the diplomacy of culture. The exercise of the Greek diplomacy of culture toward Albania, and the Balkan countries in general, requires vision, planning and a strong presence. In Albania, Greece had to deal with the negative stereotypes of an image that had been systematically fostered by Hoxha’s propaganda, in his attempt to remain forever in power by totally isolating his country.

Today Albania is once more a democratic country and the image of Greece in the eyes of the Albanians is constantly improving, but we certainly have to work harder to make it even better. This is why we regard the organizing of cultural events as being of supreme importance, not only in getting the two peoples to better understand each other, but also in improving Greek-Albanian relations even further. ‘Antigone’ has contributed greatly, but there is much more to be done and we must go on.

From your point of view, how important are Greek cultural events considered to be in Albania?

Traditional diplomacy is now a thing of the past. Diplomacy nowadays is being established on a new basis, has a new structure

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market

A breath of ‘fresh’ energy High oil and gas prices, Europe’s increasing dependency on a few external supplies (mainly OPEC and Russia), concerns related to the long-term availability of fossil fuels and the urgency of new greenhouse gas mitigation measures, together with the recent Ukraine-Russia gas dispute have made the need for a European Energy Policy imperative.

A key factor for such a policy will be regional energy cooperation such as the Energy Cooperation Agreement that was signed recently in Greece by the countries of Southeastern Europe. This should be seen in an environment which is dedicated to maintaining high development rates, constant changes, privatizations and continuous adjustment in the world economy. In particular, Greece, Romania and Bulgaria are the countries which present the highest economic interest in these areas.

The efforts for a common European Energy Policy began with the Lisbon Strategy. The EuroMediterranean cooperation was aimed at the development of business activity in the Mediterranean area in order to have prosperity, social equality, energy efficiency, friendship and peace.

Furthermore, the Commission on March 8, 2006 issued the Green Paper on the ‘European strategy for sustainable, competitive and secure energy,’ which established the orientations for a European energy policy with three targets: the security supply, competitiveness and environmental sus-

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By George Kasimatis

tainability. This means a better quality of life for the citizens, a competitive energy market and the development of energy supplies.

The Baltic Cooperation and the creation of the Energy Community set up the foundations for a common energy market which would in the future improve the competitiveness and life quality not only in these regions but also in the whole of Europe.

The ‘energy dialogue’ between the European Union and Russia is expected to advance the relations of these two sides in the energy issue, creating at the same time better conditions for European and Russian enterprises.

In fact, these synergies between European countries reinforce the efforts of the European Union for energy autonomy, which nowadays is of the utmost importance. High competitiveness and monopolies have dominated all sectors, hindering every effort for energy efficiency.

The real challenge for the European Union is the use of alternative and renewable energy sources, a prospect which started to gain ground recently because of the constant decrease in energy supplies.

Diversifying the EU’s energy mix is a priority area, especially with regard to the use of nuclear energy, which today covers 15 percent of the EU’s needs and is an issue of controversy between member states.

In general, there are many obstacles which need to be faced in order to be optimistic for the viable economic future of these countries. For instance,

the inefficient bank system, bureaucracy, para-financial systems, the lack of specifications, low productivity, the different mentality in the market and high import duties restrict the business energy initiatives in the countries of Southeastern Europe.

The common energy policy is a flexible framework for the development of a regional cooperation encouraging at the same time the idea of a common energy market in these countries. This is the only way that gives hope for future energy independence. This new peripheral energy identity can play a very important role in Europe by simultaneously promoting the common European conscience.

George Kasimatis is director of the Office of the European Parliament in Greece.

market

Labor cost & market FLEXIBILITY The developments and the prospects of both Greece and the rest of the Balkan countries have become increasingly intertwined in the past 10 years, driven by an increase in inter-regional trade and investment. The Balkan region has experienced substantial economic growth during the last years (See Fig 1). Driven forcefully by EU accession, Bulgaria and Romania have experienced average annual real GDP growth of around 5 percent during the past five years, surpassing the growth experienced by both Greece and the eurozone. This has been largely facilitated by the region’s unyielding desire to drastically reform and rationalize the former state-controlled economies and eventually join the broader European market, thereby increasing the region’s attractiveness as an investment destination.

This appeal is evident in the growing inflow of foreign direct investment, which reached 6.8 billion euros in 2004 with Greece

By Dimitrios K. Maroulis contributing a net 489 million euros (See Fig 2). Romania and Bulgaria, as the main targets, absorbed 1.6 billion and 4 billion euros respectively. The three primary sectors of Greek investments in the Balkan region have so far been the Industrial, Financial Services and Transport & Telecommunications sectors, with the latter two accounting for around 80 percent of all investments in 2004. It is important to remember that this investment inflow has brought with it not only the crucial capital needed to expand or develop these local markets or sectors, but the necessary skills and technical know-how to implement and facilitate this development.

This reform- and investment-led economic expansion has in turn facilitated the rapid increase in per capita GDP for the region, albeit still remaining far below that of Greece or the

Fig 1. GDP Growth Euro Area Greece Bulgaria Romania FYROM Serbia & Mont Albania *Alpha Bank Forecasts

2003 1.2% 4.6% 4.3% 5.2% 3.5% 2.7% 6.0%

2004 2.4% 4.7% 5.6% 8.3% 2.4% 7.2% 5.9%

2005 1.5% 3.6% 5.5% 5.0% 3.8% 4.6% 6.0%

2006* 2.1% 3.7% 5.5% 5.5% 3.9% 5.0% 6.0%

2007* 2.4% 3.7% 5.0% 5.0% 4.0% 5.5% 5.5%

2008* 2.4% 3.7% 5.0% 5.0% 4.0% 6.0% 5.0%

eurozone. This has meant the creation of new untapped consumer markets for Greek companies, as the Balkan countries are experiencing an increase in both living standards and disposable incomes. As an export market for Greece, the Balkan region’s importance is increasing, accounting for as much as 2 billion euros’ worth of exports in 2004 (approximately 17 percent of total exports – See Fig 3 & 4). Furthermore, Greek exports to the region have increased at an average annual rate of 14.9 percent during the 1995-2001 period, compared to the negative average annual growth of -1.0 percent of

exports to the EU-15 countries during the same period. This growth in exports has also prompted many Greek companies to develop extensive distribution channels in the region, which in many cases have been the first step toward the closer economic ties that followed.

The end result is that many Greek companies are beginning to notice that a growing share of their profits is coming from the rapidly growing Balkan economies. Currently these profits are still at relatively low levels and are predominantly reinvested to support this con-

Fig 2. Greek Net FDI (predominantly to the Balkan Region) (millions of euros) 1999 2000 2001 2002 2003 2004 2005

518.0 2,319.0 688.5 696.3 41.2 488.8 694.8

tinued expansion. However, in the coming years we will see a surge in profit contributions from the region, as the substantial investments laid during the past decade begin to reap the benefits of the economic growth taking place in the Balkan countries. The gradually decreasing but still large gap in per capita GDP between the Balkan countries and the eurozone means that there still remains substantial future growth potential for Greek companies looking to expand their business beyond the domestic market. While the export of goods is one aspect of Greek-Balkan economic ties, the export of services is also growing in importance. In 2005, the number of Greek tourists that visited Bulgaria rose to 660,000, accounting for 15 percent of the total number of tourists received by the country during that year. In turn, as the economies and disposable incomes in the Balkans grow, Greece can expect to see a growing part of its tourist revenues coming from other Balkan countries.

Aside from seeing the rest of the Balkans as an export market, many Greek companies are increasingly shifting their production base to those countries in order to reap the bene-

fits of the comparative advantage of low cost offered. Even though wages in many parts of the region have increased rapidly over the last few years, due in large part to the sustained decreases in unemployment and the continued improvement in living standards, the region still remains highly attractive for Greek businesses on a relative basis. Monthly labor costs of 3,000 and 2,238 euros in the eurozone and Greece respectively are clearly greater than those of 279 euros in Bulgaria and 331 euros in Romania. Thus a substantial competitive edge is offered to the firms which choose to relocate. This has resulted in the emergence of an interesting trend. Initially, Greek companies viewed the broader region of Central and Eastern Europe mainly as an export market. Then, as their products gained domestic consumers and reached the required critical mass, domestic production facilities were pursued or local competitors were absorbed via mergers or acquisitions.

While some sectors and regions in Greece certainly have and may yet experience an increase in unemployment as a result of the aforementioned territorial shift in production, Fig 3. Greek Imports & Exports with the Balkans (millions of euros) 2000 2001 2002 2003 2004 2005*

982 1.125 889 993 1.243 1.392

*Alpha Bank Forecasts

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1.850 2.108 1.775 1.884 2.033 2.094

the correct response is not a return to protectionist policies. It must rather be ensured that the domestic markets maintain their competitiveness. Therefore, labor markets must become increasingly flexible and social support frameworks should remain in place so as to minimize the unavoidable and negative impact experienced by the domestic labor market. Of greatest importance is the flexibility of the labor market, as has been proven internationally, since it allows a more rapid redeployment of labor when markets undergo periods of severe rationalization. Social policies, aimed at the retraining or redeployment of the unemployed, can further lessen the impact on affected regions. However, it must be remembered that, taking into account the long-term success of the economy as a whole, it is impossible to fully offset the short-term impact of this natural market evolution.

While this shift in the production base brings with it certain negative short-term transitional side effects, these are replaced by some long-term benefits. Within this framework, many Greek firms have been able to remain competitive both on the regional and international level while maintaining their head Fig 4. Greek Imports & Exports (millions of euros)

1997 1998 1999 2000 2001 2002 2003 2004

Bulgaria Imports Exports 371.4 283.3 351.6 393.5 336.4 391.5 432.2 488.3 472.8 636.9 328.9 586.4 369.4 728.6 462.1 776.3

Romania Imports Exports 181.4 156.2 175.2 180.5 198.5 201.0 326.1 416.5 380.1 399.1 341.6 297.6 391.9 305.8 503.7 385.0

offices in Greece. This trend has ensured their future economic survival, preventing the closure of companies that would otherwise have been unable to compete, given the high cost structure in various Greek domestic sectors.

The Greek consumer in turn has benefited from this shift via a reduction in the prices of products that were once produced locally at a higher cost but are now produced abroad and remain competitive as regards their price both in the Greek and the international market. This trend of producing cheaper products in the neighboring Balkan countries has had an impact on Greek exports to the Balkans over the past five years. Their growth dropped to a mere 2.5 percent annually during 2000-2005 and reached 2.1 billion euros in 2005. On the other hand, the growth of Greek imports from the Balkans rose by 7.5 percent during the same period, reaching 1.3 billion euros in 2005. The net benefit for Greece has been and still remains positive as we continue to experience a trade surplus with the region.

Furthermore, the benefits from this increase in trade and investments are spread all over the Balkans. The sector of financial services is typical of this mutually beneficial relationship, which was developed between Greece and other Balkan countries. In the past, most Balkan banks were financially unstable,

poorly managed and did not have the adequate capital. As a result, there was little faith in the domestic banking system. Many citizens literally preferred to use their mattresses in order to keep their money safe instead of taking the risk of a deposit in the bank. However, after the substantial social and market reforms that took place, a growing influx of foreign banks appeared, which injected the much-needed degree of stability and subsequent trust into the domestic banking sector.

Today, over 80 percent of Bulgaria’s banking sector is owned by foreigners.

Despite these substantial reforms and the economic growth of the region, credit penetration still remains exceedingly low at 25 percent of GDP in 2005 compared to 115 percent in the EU and 81 percent in Greece during the same period. However, the growth potential of the banking sector is still extremely high, since the region as a whole experienced a credit expansion of 21 percent in 2005. At the same time, Romania, Bulgaria and Albania experienced individual credit growth rates of 50, 30 and 75 percent respectively, compared to rates of 7 percent in the eurozone and 17 percent in Greece (See Fig 5). This has offered the Greek banking sector a large market of untapped margin potential, while the countries of the area have benefited

Fig 5. Credit Expansion Euro Area Greece Bulgaria Romania FYROM Serbia & Mont Albania *Alpha Bank Forecasts

2003 5% 19% 56% 45% 15% 45% 37%

2004 5% 19% 48% 43% 21% 43% 48%

2005 7% 17% 30% 50% 20% 50% 74%

2006* 7% 15% 25% 32% 20% 32% 45%

2007* 7% 14% 20% 25% 18% 25% 32%

2008* 7% 12% 18% 22% 18% 22% 25%

from the strength and support of the Greek banks. Furthermore, the Balkan region is being seen increasingly as a source of revenues for the Greek market, where the prevailing trend is the continued margin compression.

Therefore, Alpha Bank is looking to increase the region’s contribution to its profits from just over 11 percent in 2005 to 20 percent by 2010. The still-low level of credit penetration and the positive future economic prospects leave ample room for substantial growth and profit potential in the banking sector.

The rising power of low production cost centers such as China and India is forcing Greek companies to exploit all the available comparative advantages in the international market, thereby ensuring not only their economic future, but also the economic future of the country. The prospects remain in general positive, despite regional risks like high inflation and, in certain cases, the expansion of current account deficits to largely unsustainable levels. However, one must take notice that the level of inflation is already greatly reduced compared to the past, while the imminent accession of Bulgaria and Romania to the European Union in 2007 raises the pressure on candidate countries like the Former Yugoslav Republic of Macedonia (FYROM) and potential candidate countries such as Albania and Serbia and Montenegro to increase both the speed and the degree of their reforms. In that way they will further increase their involvement in the growth of regional trade and investments. On the other hand, Greece, as one of the leading investors in the region, can reap the benefits from the future economic integration and development, while firmly consolidating its position as the entry point of international companies to the greater Balkan area.

Dimitrios K. Maroulis is assistant manager of Alpha Bank, Economic Research Division.

market

An energy force Over the last two years, Greece has taken important steps toward upgrading its strategic role in the international energy charter and its establishment as an energy hub between the East and West. Further development of its electricity and natural gas networks and interconnections represent Greece’s basic strategy for the period 2007-13.

While in the process of liberalizing its internal electricity and natural gas markets, the Greek government is promoting the construction of several large-scale energy interconnection projects in the natural gas, electricity and oil sectors, namely the Greece-Turkey and Greece-Italy natural gas pipelines and the Burgas-Alexandroupolis oil pipeline.

Moreover, the signing of the Treaty for the Establishment of the Energy Community, which took place in October 2005 in Athens, constitutes a rather important factor for the creation of an integrated energy market in the wider Balkan region, which will be incorporated, at a later stage, into the EU’s internal energy market.

Within this framework, Greece has played an essential part, both regarding the actual signing of the treaty as well as its implementation, by undertaking the task of holding the Energy Community Electricity Forum and Regulatory Authorities’ Council.

It is expected that the implementation of the treaty, through the creation of a stable regulatory and market framework for the energy sector, will attract investment and enable the economic development and social

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By Nikos Stefanou

stability of the region. According to a recent study by the European Commission and the World Bank, it is estimated that 21 billion euros will be required in the next 15 years to rehabilitate existing power plants and construct new ones (12.5 billion euros), as well as for investments in transmission and distribution (8.5 billion euros).

It is within this context that Greece possesses a tremendous opportunity to play a significant role in the wider Southeast European region, through the activation of its domestic energy companies and in collaboration

with large European and US energy enterprises for the development of large-scale energy infrastructure projects.

Large-scale energy interconnection projects I. The Burgas-Alexandroupolis Oil Pipeline Project (BAP) The materialization of the Burgas-Alexandroupolis oil pipeline project will significantly contribute toward the decongestion of the Bosporus strait, providing a new, supplementary and environmentally safe channel

in SE Europe for the exportation of substantial quantities of Black Sea oil to the European, US and Asia-Pacific markets.

The pipeline will be extended to a length of 285 kilometers, connecting the Bulgarian port of Burgas in the Black Sea with the Greek port of Alexandroupolis in the Aegean. There, it will be stored in crude oil tanks before being exported to other destinations in Europe, as well as the USA and Asia. The oil will be transferred by oil tankers to Burgas from the Russian port of Novorossiysk in the Black Sea. The project’s cost is estimated at 750800 million euros and it is considered the most economically viable solution, compared to other similar projects in the region, as it passes through flat areas and bypasses urban centers.

The pipeline will have an initial annual capacity of 35 million tons of oil, to be gradually increased to 50 million tons at a later stage. It is estimated that the project will be completed at the end of 2009.

II. The Interconnector Turkey-Greece Project (ITG) The construction of the pipeline constitutes one of the basic pillars of Greece’s energy policies as regards security of supply and enhancement of the country’s geostrategic position in the international energy market.

This pipeline, together with the existing supply of natural gas from Russia via Bulgaria

and the supply of LNG from Algeria, will contribute to the diversification and the further penetration of natural gas in the Greek energy market.

The Greek-Turkey pipeline, with a total length of 300 kilometers, stretches from Komotini to Karacabey in Turkey. The pipeline will have an initial capacity of 3-3.5 billion cubic meters of natural gas per year, coming from the Caspian region, and will be gradually increased to up to 11 billion m3/annum.

The budget for the construction of the 90-kilometer Greek section of the pipeline is estimated at approximately 80 million euros and it will go into operation in early 2007.

III. The Interconnector Greece-Italy Project (IGI) On November 4, Greece and Italy signed an intergovernmental agreement in Lecce, Italy, for the development of the Greek-Italian undersea natural gas transmission pipeline.

The construction of the Greece-Italy undersea pipeline is considered as the extension of the Greece-Turkey pipeline. Once the two projects are complete, Greece will be transformed into an energy hub for the transportation of significant quantities of natural gas from the Caspian region and Central Asia to the high-consumption markets of Western Europe. The project constitutes one of the five priority axes of the Trans-European Networks.

The pipeline is designed to carry 8 billion cubic meters per year and its total budget is estimated at 300 million euros. It will extend

from Stavrolimenas in Western Greece to the city of Otranto in Italy and will have a total length of 212 kilometers and a diameter of 32 inches (81.28 centimeters). The project’s completion is expected by late 2010.

The Greek Public Gas Corporation (DEPA) and the Italian energy company Edison will undertake the construction and management of the pipeline through their equal participation in a third company named Poseidon.

IV. Electricity Interconnections Aiming to further enhance cross-border electricity exchange in Greece’s northern interconnections and taking into account the integration of electricity markets in the wider Balkan region, a number of new electricity interconnection projects have been scheduled: Reinforcement of the electricity interconnection with the Former Yugoslav Republic of Macedonia (FYROM) by upgrading the existing 150kV line from Melitis to Bitola to 400kV. It is estimated that the project will be completed by the end of 2006.

New interconnection line with Turkey, through the construction of a 400kV line of a total transmission capacity of 400MW. Reinforcement of the existing interconnection line with Bulgaria, through the construction of a new 400kV line from Philippi to Maritsa, with a total capacity of 300MW. Nikos Stefanou is general secretary of the Greek Ministry of Development.

market

Hellenic Petroleum and n o i t a r e p o o c l regiona

By Dr Panos Kavoulakos

Over the last few years, the Hellenic Petroleum Group has embarked on a steady course of transformation. We are adapting our corporate culture and internal procedures to that of a private, internationally competitive power company while at the same time transforming our portfolio of activities. We are developing at every stage of power production, introducing new activities such as electricity production and hydrocarbon exploration and production. Furthermore, we are expanding these activities geographically in the wider region of SE Europe and the Eastern Mediterranean.

A few years ago, our external concerns were limited, chiefly to the purchase of crude oil for our two oil refineries in Greece. We bought crude oil mainly from the countries of the Middle East and Russia.

Today, we are continuing in this activity but on a larger scale, as we now have four oil refineries. In addition to this, we also have a series of significant new activities in the wider region, which include: Direct investment of capital in countries other than Greece; Oil refining in the Former Yugoslav Republic of Macedonia (FYROM) and sale of oil products in seven other countries;

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Development of hydrocarbon exploration and production in Libya, Albania and Montenegro; Ownership and operation of the Thessaloniki-Skopje oil pipeline and active participation in the Burgas-Alexandroupolis pipeline; and Export of chemicals and provision of services of industrial studies beyond Greece through our subsidiary Asprofos.

As a result, Hellenic Petroleum is now becoming a significant regional group. Sales from our subsidiary companies abroad amount to around 750 million euros annually, a figure that accounts for 12 percent of the group’s total turnover (2005 estimate). Capital employed abroad amounts to 400 million euros, which accounts for 14 percent of the total capital employed by the group, and the number of employees abroad comes to about 2,000, a figure that accounts for 35 percent of the total employees of the group.

The effective management of these activities is a complicated task that requires the combination and utilization of a series of parameters. It requires cooperation with companies in our field, with the state companies in the countries of the region and with the governments of the countries where we are active. It also requires making use of our comparative advantages, which include our

industrial installations, human resources, national identity and cultural similarities with both neighboring countries as well as the Arab world.

The Greek state, one of our chief shareholders, has proved to be a great asset in our endeavor to expand our presence in the wider region.

In the area of refining and trade in Greece, Hellenic Petroleum holds a leading position. With three of the country’s four refineries it covers 73 percent of domestic consumption. In addition, it has 23 percent of retail trade through Eko, which has a presence at over 1,350 outlets throughout the country, while at the same time it also has a strong sales network for liquid gas, industrial, airline and shipping fuel as well as a sales network for lubricants.

Our refineries are supplied with approximately 13 million tons of crude annually, while about 1 million more is purchased for our refinery in Skopje. Purchases of crude are made in countries of the Middle East, Libya, Russia and Kazakhstan and reach an annual figure of 3-5 million euros, according to the level of international prices.

To ensure a stable supply of oil to our refineries, as well as for the country, Hellenic Petroleum concludes purchase agreements

with state companies in the countries of the Middle East.

There are two main parameters we utilize to achieve favorable terms and stable supply: (a) the fact that we are a large consumer of crude at the European level, and (b) the fact that Greece is favorably received by the Arab world and state oil companies in oil-producing countries.

In the area of refining in Greece, we are planning significant investments in order to upgrade our refineries. Our main investment concerns the installation of new plants that transform mazut into high-value, environmentally friendly white products. The investment in a hydrocracker and coker is in the region of 600 million euros and assembly is expected to be completed in 2009. The investment will adapt the production of the group to the needs of the country, as it will increase the production of vehicle and heating petrol, which we import today at the expense of mazut. Its financial return is supported by trends in demand in both Greece and the rest of Europe, where the increasing shortage of diesel is expected to lead to a greater need to import in the coming years. In addition, the upgrading of our refineries will allow the group to take full advantage of the country’s sources of crude oil supply, as it will be able to process the high-sulfur crude of the Middle

East and Russia in order to produce products with almost zero sulfur content.

The Hellenic Petroleum Group also has a strong presence in the refining and sales of oil products in the wider region of Southeastern Europe.

In neighboring FYROM, we operate the country’s only refinery and have a share of over 80 percent of the market. We are among the largest companies in the country and one of the largest employers, contributing to its economic development through capital investments for the modernization of the refinery and the development of a network of petrol stations. We have invested significant amounts for the secure and efficient supply of our northern neighbor. Furthermore, we have constructed and operate an oil pipeline that connects our refinery in Thessaloniki with that of Skopje. Currently, we are in negotiations with the government concerning the construction of a product pipeline that will connect the country with Kosovo, as well as the common commercial use of fiber-optic cables that connect Skopje with Thessaloniki and run the entire length of the oil pipeline. We export products to Kosovo and, following the recent opening of the market in Serbia, have begun

market

exporting products to that country as well, where we have a network of petrol stations.

Our cooperation with the government of Skopje has not always been easy, but over the last two years we have managed to significantly improve our relations and the climate of our cooperation.

In Cyprus, Hellenic Petroleum has 35 percent of the retail sales market, with over 70 privately owned petrol stations which are supplied with products from Hellenic Refineries. Following the closure of the refinery in Cyprus, Hellenic Petroleum is now one of the main guarantors for a stable fuel supply to the country. Our cooperation with the government of Cyprus is very good and we intend to proceed with further investments in the petroleum sector, providing that conditions allow for this. Our subsidiary company Asprofos is a member of the consortium that has undertaken the study for the terminal station planned by the Cyprus government at Vassiliko.

In Bulgaria and Serbia, we currently operate a network of 15 petrol stations in each country. In Bulgaria, our network is supplied by our refinery in Thessaloniki, while our network in Serbia is chiefly supplied by local refineries and, more recently, by our refinery in Skopje, following the authorization of imports to the country. In both these countries we are focusing on further developing refining and sales in the region of Southeastern Europe.

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These are two interesting markets, with different characteristics. Moreover, the large multinationals are not active in these markets, apart from Shell, in Bulgaria. Consequently, they represent good opportunities for developing networks of privately owned petrol stations.

Therefore, we have planned and implemented an investment program that aims to increase the number of our petrol stations from 15 to 80 in each country over the next three years.

The privatization of the Serbian state oil company NIS is another significant opportunity for expansion in the region. The Serbian government has begun the process of privatization and we aim to take an active role in this procedure.

In Montenegro, Hellenic Petroleum owns the main facilities for storage and distribution of oil products in the country and 39 privately owned petrol stations, while it covers approximately 70 percent of the market with Hellenic Refineries products. Furthermore, Hellenic Petroleum has taken the important role of guarantor for the stable supply of fuel to the market at competitive prices in yet another country in the region. At the same time, through its subsidiary Jugopetrol Kotor, Hellenic Petroleum has acquired the rights for exploration and production of hydrocarbons off the coast of Montenegro.

In Albania, we have storage and distribution facilities at Dyrachio and a network of petrol stations, while we supply the market with fuel from Hellenic Refineries.

In Georgia, we also supply fuel and have a network of 17 petrol stations.

Hellenic Petroleum has been active in the field of hydrocarbon exploration and production for over 30 years. Today, we are developing an international portfolio of hydrocarbon exploration and production with the aim of covering 10-15 percent of our needs in petrol from our own production. Apart from Greece and Montenegro, we also have exploration rights in Libya and Albania, while we are also examining our expansion into other countries of the Eastern Mediterranean, such as Egypt and Syria. Our cooperation with companies in the field is an important part of our strategy for development in this area. For example, in cooperation with Australian Woodside and Spanish Repsol YPF, we have acquired exploration rights in six blocks in the Sirte and Murzuk regions of Libya. The investments we plan in Libya over the next five years are in the order of 30 million euros for exploration and 90 million euros for production development.

Hellenic Petroleum is the only producer of petrochemicals in Greece and has a share of

over 50 percent of all products in which it is active in this area. Our main products are polypropylene, BOPP film, PVC, solvents and inorganics. A significant part of our production is exported to Turkey as well as Italy. Our annual exports in the area amount to approximately 150 million euros. At the same time we import polypropylene from Libya and Italy, as well as VCM, chiefly from Italy.

Hellenic Petroleum actively promotes the construction of the Burgas-Alexandroupolis pipeline. Also of particular interest to the group is the construction of the natural gas pipeline connecting Turkey with Greece and possibly extending toward Western Europe.

This is partly due to our 35 percent participation in the Greek Public Gas Corporation (DEPA), but also because the pipeline will add yet another source of supply beyond the current alternatives, which are Russian and Algerian LNG, leading to greater competition and lower prices for our fuel supply.

The Hellenic Petroleum Group is also moving into a new field — the production and sale of electric energy. The first privately owned electricity plant in Greece is ready for commercial operation with combined cycle technology and is supplied with natural gas.

This is a plant with a General Electric 9FA gas turbine and a capacity of 390MW operated by our subsidiary company Thessaloniki Energy.

The main aim is to give customers a choice of provider. We also plan to export energy to Italy and, at the same time, purchase electric energy from countries of the region that have a surplus, such as Bulgaria. This is a new activ-

ity for us which will contribute positively to the country’s energy balance and thus help us prevent blackouts.

The Hellenic Petroleum Group is developing in all areas of energy in Greece and the region of SE Europe.

It has a leading position in the country and with its investments contributes to the economic development, secure provision and supply of Greece with products which are friendly to the environment.

It has a significant presence in SE Europe in the area of refining and trade, a presence which is already reinforced.

It varies its portfolio with the addition of new activities, such as exploration and production of hydrocarbons abroad and the production and sale of electric energy in Greece.

With the support of its shareholders and the Greek state, it is being transformed from a petroleum refining and trading company in Greece to a major energy group in the region of SE Europe.

Dr Panos Kavoulakos is managing consultant at Hellenic Petroleum SA.

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major

Toward a capital market

We believe that cooperation in the broader area of Southeastern Europe is the key for regional stock markets to move forward and it is up to us to find the win-win solution, implement it and reap the benefits. We hope that we have already taken the first steps forward and that in the future we will increase both in number and market capitalization. Therefore, we are seeking to understand one another’s conditions of operation and to identify opportunities of mutual interest for cooperation.

In the last four years, we have seen major changes in the Greek stock market, the most important being the increasing number of foreign investors. The stake of foreign

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shareholders exceeds 40 percent of our total market and almost 45 percent of our 20 blue chip stocks capitalization. Interest in our middle-capitalization stocks is rising quickly and foreign holdings stood at 32.30 percent of the market cap of the 40 middle-capitalization stocks at the end of February 2006.

The net inflow from international investors has also been extremely important since the beginning of the year, as it exceeded 1,200 million euros in just the first two months and for 2005 more than 5.2 billion euros has been invested by international investors in the Athens Stock Exchange.

This has been a result of a number of positive factors, such as the inclusion of Greece in the eurozone, the upgrade of our market status from emerging to mature,

By Spyros Capralos

and the introduction of new legislation in the capital market. This transition has definitely not been an easy process and has resulted in increased market volatility. The change of market status especially has proved a slow and difficult task, as it initially involved net outflows before again becoming the focus of international investors.

Our market capitalization today stands at 143 billion euros, a figure that, in comparison with our European peers, positions the Athens Stock Exchange around the middle of the European list of exchanges.

What are the drivers of a possible cooperation between the regional capital markets?

Our regional markets are relatively small in market cap, compared to larger European markets.

Prospects for European Union membership, increased political stability in the region and potential economic convergence provide a large upside for further market growth.

Turnover velocity is relatively low in regional markets and compatible with the size of the markets.

There is room for further harmonization of our markets’ infrastructures.

Cross-border trade and settlement between our markets is extremely low.

Convergence trade is expected to raise interest, as has happened in other European markets.

International investors compete for new opportunities and prefer well-estab-

lished infrastructures for trading and clearing.

The European directives concerning trade, clearing and settlement are driving us to the solution of minimization of cost through cooperation.

Therefore, it becomes obvious that the time is right to discuss how we can join forces and attract international investors to our markets. First of all, we have to achieve a good, mutual understanding of our markets’ models, infrastructures and problems as well as our common goals.

We then have to establish the roadmap of our cooperation. There are two targets that we should aim to reach. Firstly, we should be aiming to create similar infrastructures in order to minimize transaction costs and allow cross-border trade and clearing.

Then, we should try to bring together the common infrastructures to offer international investors a single point of access to our markets.

In summary, these are the steps to be followed to reach our targets: Achieve a coherent regulatory framework in all our markets; Accomplish efficient and effective exchange of information between our regulatory authorities; Establish safe and efficient market infrastructures for trade, clearing and settlement; Attain cost reduction in cross-border trading through harmonization of our infrastructures; and Arrive at an infrastructure agreement to provide a single point of access to international investors.

Our shared vision should be to create a major capital market in Southeastern Europe in order to attract international investors to the wider geographic region. At the same time, we should be aiming to serve our domestic markets for non-blue chip stocks, improve corporate governance and transparency and stimulate cross-border trade between our markets.

Spyros Capralos is president and CEO of Hellenic Exchanges SA.

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n i g n i g Exchan

s n a k l a B the

At the beginning of the 20th century, five exchanges were operative in the area of the Balkans: Athens, Istanbul, Sofia, Belgrade and Bucharest. Today, at the beginning of the 21st century, this number has already increased to 16: one in Albania, one in the Former Yugoslav Republic of Macedonia (FYROM), two in Montenegro, one in Moldova, two in Bosnia, one in Croatia and one in Slovenia. In Romania, there are two more securities markets, currently under absorption by the Bucharest Exchange.

The prevalence of communism in all the Balkan countries, with the exception of Greece and Turkey, resulted in the overall dejection of the capital market. Stock exchanges, perceived as ‘temples of capitalism,’ were shut down; the profession of the stock trader, like that of any other entrepreneur, was demonized.

The collapse of these regimes at the beginning of 1990s fostered great expectations: The general tendency to ‘do it like in the West’ led to the apotheosis of all free market institutions, especially those which were clothed in a mantle of glory in the eyes of the former communist technocrats.

The rapidly collapsing regime’s dogma that secretly survived, though in a distorted fashion, and which dictated that the means of production belonged to the people, offered an easy justification for the mass reallocation to the wider public — by means of certificates, stock and compensatory notes — of all those public assets, which ultimately escaped strategic investor-type privatization processes. This tactic

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By Jenny Giotaki and Vassilios Margaris

resulted in the creation of millions of retail investors. However, the majority of them never managed to understand and exploit the real economic and financial value of the securities they had acquired through this reallocation process. It was not until the foundation of credible supervisory authorities in those countries that ‘legitimate’ transactions, always resulting in the transfer of those securities’ ownership for a ‘bottle of vodka’ or a ‘bag of flour,’ ceased to exist. On the other hand, however, the circulation of such a great number of securities had already generated the need for the creation of their official, central, trading place. This was one reason for the establishment of all these exchanges in the Balkan area.

Inexperience in free market operation, political instability, always discouraging central decision-making and encouraging backstage activities, as well as the actual misuse of foreign economic and infrastructure assistance, were another reason for the creation of multiple trading platforms in many of these countries.

It must be emphasized, however, that the recent era has been one of rapid market development at least in those countries with a pre-communistic trading culture. The institution of the stock exchange has rapidly and steadily overcome its teething troubles and led to the actual foundation of a new branch — highly prestigious for local economies — the financial market. The communication of the importance of this new institution to the people of these countries, whose welfare, despite its steady improvement, remains limited

and practically prohibits them from actively participating in the overall progress achieved, is the next challenge for the financial market technocrats in the Balkan area.

There follows a rough guide to the three largest markets: The Bulgarian capital market The history of this market goes back almost a century. The first stock exchange law was adopted in 1907 and concerned the structure and functions of securities and commodities.

After the First World War the exchange returned to operation in 1920, with a focus on more foreign exchange and less securities trading. Turnover at the exchange had been high during the 1930s, due to 30 new listings that took place during that decade.

Under communism, the exchange was shut down and its re-establishment did not take place until 1991, after the regime had collapsed and the new trade law had been enacted. The exchange’s re-establishment in the form of a joint stock company under the name ‘The First Bulgarian Stock Exchange JstVo’ was perceived as the country’s capital market renaissance. During the 1992-1994 period, for the reasons explained above, every Bulgarian town was establishing its own exchange; by the end of 1994, approximately 20 exchanges had been

set up in the country.

All these markets operated without any regulation up to 1995, when the law for ‘Securities, Capital Market Commission, Exchanges and Intermediaries’ was enacted. By the end of that year, all Bulgarian markets had consolidated to create the Bulgarian Stock Exchange in Sofia, while in 1996 the Central Securities Depository was founded. The year 1995 also marked the establishment of the Capital Market Commission and the drafting of a preliminary legal framework for quoting firms on the exchange. Initially, trade exclusively took place in the so-called ‘Free Market,’ where massively privatized companies were listed. In January 1998, a cable construction firm, Elkabel, was listed on the exchange’s ‘Official Market,’ which, by the end of 1999, counted 32 companies.

During 2004 and 2005, the Sofia Exchange was breaking one record after another in its advance, which had begun at the end of 2003.

SOFIX climbed from 104.7 points at the end of 2000 to 183.1 in 2002 and from there to 825.53 at the end of 2005, offering investors an accumulated five-year return of 688.47 percent.

The rise of the Sofia Exchange has resulted from the country’s monetary and fiscal stability over the past five years, combined with the anticipation of its accession to the European Union and the internal gradual maturity of its capital market.

Despite the generally positive perspective of this market’s evolution, one must also acknowledge its inherent weaknesses. The first relates to the lack of market depth. Although the daily turnover is rising, it remains at a low level (2-4 million euros daily), while most companies prefer the unofficial — hence ‘Free’ — market, with very loose listing rules. The Free Market today encompasses 324 companies, as opposed to just 35 listed on the ‘Official Market.’

Expected due diligence prior to listing, containing the risk of revealing former or current corporate malfunction, along with the higher trans-

parency standards applicable, are the main factors discouraging companies from going public on the Official Market. In addition to the above, one should also note the lack of an entrepreneurial and general capital market culture from which the local population, generally educated under the previous regime, suffers. Many steps have been made by the Sofia Exchange in the direction of educating the people and positively communicating the institution to the general public; many of these steps relate to the transposition into the Bulgarian legal order of the European acquis communautaire, whose practical and fully fledged implementation, however, remains to be achieved. Other steps are connected to the general encouragement of traditional capital market institutions, such as IPOs. These efforts are not always successful: It was not until 2004 that two IPOs were launched, while the overall practice has not yet been embraced by the industry.

Market shortcomings, as analyzed above, have brought skepticism among technocrats; the prevailing focus seems to be on the selection of a strategic exchange partner who will acquire 44 percent of the company’s paid-in capital currently owed by the Bulgarian state.

Expressions of interest have come from the OMX (Scandinavian alliance), the Vienna Stock Exchange and the Athens Stock Exchange, the latter also offering the Bulgarian market the opportunity to be the third market to participate in the cooperative inter-Balkan trading platform currently under construction between Athens and Nicosia.

The Romanian capital market The Bucharest Exchange was founded in 1882; Greek traders were among its founders. It was shut down in 1948 and returned to operation

on April 21, 1995, following a relevant Capital Market Commission resolution. Its first session took place on November 20 of the same year on the stock of six companies which had already been listed.

On September 27, 1996, the RASDAQ was founded, financed by USAID. The RASDAQ specialized in listing massively privatized companies; more than 6,000 companies with approximately 16 million Romanian residents as shareholders were quoted thereon. The development rate of this market has been lower than that of the Bucharest Exchange, mainly due to the low quality of the companies quoted, most of which exist only on paper. The decrease in the number of such companies from 6,000 to 4,442 in 2003 and the parallel increase of the exchange’s capitalization from $1.8 billion in 2002 to $2.4 billion in 2003 speaks for itself.

The Bucharest Exchange remains stateowned while the government has announced its intention to privatize it by 2006 with the consolidation of the RASDAQ and SIBIU, the latter being a commodities exchange. On May 25, 2004 the government announced a long-term program under the title ‘To a Robust Securities Market.’ This program includes a number of measures for stimulating the local financial market, which is expected to act as the main development lever for the country’s economy.

These measures include the transformation of seven state-owned large-capitalization companies into public entities, the listing of government bonds, the merger between the BSE and RASDAQ, and the review of the corporate governance regime.

The rapid increase in the daily volume over the last three years — from 1.1 million euros in 2003 to 2.4 million in 2004, 8.2 million in 2005 and 14.5 million for the first two months of 2006 — resulted in a corresponding rise of the general index, which from 1,788.4 points at the end of 2003 recently hit 7,600 with an aggregate return of 325 per-

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cent. Market capitalization, at 3 billion euros in 2003, recently rose above 16 billion.

The year 2005 marked the commencement of cooperation between the Bucharest and Vienna exchanges; this cooperation led to the creation of a Romanian Companies Index, on which the Austrians launched an index future.

Retail investor accounts at the local depository, not yet an autonomous entity but an exchange department, amounted in the middle of 2005 to 6.2 million euros with an annual increase of 300,000-500,000 euros.

The evolution of the Romanian capital market is mostly due to its strong macroeconomic factors, notably its 22.4 million inhabitants that make any investment attractive and its strategic geographical location at the center of the Balkans, increasing its importance as a transport junction point in the overall area.

As for the shortcomings of the Romanian market, one should note the frequent complaints expressed by the International Monetary Fund and the European Commission’s enlargement department regarding the slow pace of progress of the structural reform required for the country’s accession to the EU. The criticism is mostly leveled at the fact that major changes in state ownership structures are seriously impeded by the silent, though inherent, belief that the country’s welfare should remain under state control.

The Serbian capital market The Belgrade Exchange was established in 1894, while currency, securities and commodities trading commenced in January 1895. In cooperation with neighboring countries, futures

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on flour were among the products traded. The last session of the exchange took place on April 4, 1941, when the country was occupied by the Germans, although the exchange completely ceased operations at the beginning of the 1950s on Tito’s orders. For historical reasons, we note that during the 1930s, 25 percent of traders on the exchange were of Greek descent, from the community of Zemun, a Belgrade suburb which during the Ottoman era belonged to the Austrian-Hungarian Empire and, therefore, brought together all people of Greek origin residing in the city.

In 1989, the exchange was re-established under the name ‘Yugoslavian Capital Markets.’

In 1992, the entity was renamed the Belgrade Exchange and turned into a joint stock company with 39 local banks, three brokerage firms, eight private companies, two insurance firms, the Federation of Serbia-Montenegro and the federal state of Serbia as shareholders.

Today the country is composed of two federal states, Serbia and Montenegro, each of which is autonomous in terms of administration, army and police forces, currency and supervisory authorities. Montenegro, with its 700,000 inhabitants, already has two exchanges, the creation of one of which was financed by USAID. Up until 2003, mostly governmental and generally foreign currency fixed income securities were traded on the Belgrade Exchange, while stock business remained limited. Since then, the situation has significantly changed due to the listing of many remarkable companies; the daily turnover volume recently reached 2 million euros.

Of course, the Serbian market’s fixed income has remained extremely attractive over

the last two to three years due to its euro and dollar yield of 5-6 percent; this market’s daily liquidity amounts to 350,000-500,000 euros.

The year 2004 was perceived as a very good one for the stock market, on the one hand, due to the launch of the general index on May 2, and, on the other, due to the commencement of electronic trading at the end of November. It should be stressed that electronic trading could have commenced earlier on the basis of OASIS, the ATHEX electronic system, which had been installed in the Serbian market with Greek development aid (DAC) financing in 2003.

A year after its launch, the general index recorded a rise of 60 percent; however, the return on the Serbian market sometimes fluctuates between 200 and 500 percent, justifying this market’s nickname, the Balkan El Dorado.

Of course, one cannot deny that insider-trading problems remain acute, despite the emulous efforts of the Serbian Capital Market Commission; returns on Serbian market investment are closely connected to the profile and capacities of one’s local investment adviser.

Jenny Giotaki is head of the International Regulation Department of Hellenic Exchanges SA. Vassilios Margaris is general manager of the Exchange Center of Thessaloniki.

A story of

expansion

By John Kyriakopoulos

In the context of its strategic goal for the expansion and rationalization of its revenue sources, Piraeus Bank today has a banking presence in five countries in the wider Mediterranean area.

Following a series of successful acquisitions, coupled with dynamic organic expansion, Piraeus Bank today controls a well-distributed network of 168 branches in the area and employs 2,387 people.

Placing significant strategic emphasis on the enhancement of its international presence, in 2005 Piraeus Bank completed the acquisitions of three banks: Eurobank in Bulgaria, Atlas Bank in Serbia, and Egyptian Commercial Bank in Egypt. These acquisitions added 75 new branches and an additional banking presence in two new countries. Piraeus Bank’s total deposits in the region in

2005 amounted to 1.3 billion euros, whereas loans to customers stood at 1.2 billion.

In Bulgaria, Piraeus Bank operates a welldistributed network of 66 branches, out of which 48 were added by the acquisition of Eurobank in May 2005. Piraeus Bank holds a combined loans market share of 4.2 percent.

Total loans increased by 156 percent in 2005 (to 481 million euros) and deposits by 446 percent (to 330 million euros).

Via organic expansion, Piraeus Bank Romania added 17 new branches in 2005, thus increasing the total number to 30. Total assets almost doubled, while total loans increased by 132.5 percent to 180 million euros.

Piraeus Bank holds a strong position in Albania with Tirana Bank. The latter ranks as the second-largest bank in the country in terms of loans volume, with a market share of 13 percent. It has a network of 34 branches and its total loans increased by 82 percent in 2005 to 133 million euros.

Piraeus Bank commenced its operations in the promising Egyptian market in mid-2005 through the acquisition of Egyptian Commercial Bank. ECB has 25 branches (eight were opened after the acquisition), and its assets increased by 49.3 percent in 2005 (to 674 million euros).

In Serbia, the acquisition of Atlas Bank in May 2005 is considered the basis for further expansion in the region. It has a network of 13 branches and its total loans increased by 101 percent in 2005 to 62.5 million euros.

John Kyriakopoulos is deputy general manager of International Business and Wealth Management at Piraeus Bank.

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g n i t e Comp

abroad...

There is little doubt that Greece, deprived to this day of a common border with any other EU member state, potentially stood to gain more than most from the sweeping away of the Cold War’s artificial divisions.

The last 15 years have largely borne out this prediction: For example, although Greece’s stock of inward foreign direct investment is still almost double that of its stock of outward FDI, in recent years annual FDI outflows have been roughly twice as large as FDI inflows. With the new globalizing environment calling for the discovery of new opportunities outside of one’s national borders, Greek entrepreneurs were among the first to venture into the Balkans — a relatively highrisk but potentially high-return region which, for a variety of reasons, took longer to regain its footing post-1990 compared with the rest of Central Europe.

EFG Eurobank was among those pioneers. Since our original investment in Bulgaria in 1998, our foreign-based network has grown to approximately 400 branches in Bulgaria, Romania and Serbia, with plans for 100 more by end-2006. This includes 50 through our newly established operation in Poland, a ground-breaking venture which demonstrates our determination also to compete in larger markets further afield, alongside

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By Constantine A. Papadopoulos

Europe’s largest institutions. March 2005 also saw Eurobank enter the Turkish market via the acquisition of a highly dynamic securities firm active in the Turkish capital market. By end-2005, EFG Eurobank had invested 360 million euros outside Greece and, indeed, by 2009 we aim to secure 20 percent of net profit from our international operations, versus 4 percent last year.

As long as the countries of Central and Eastern Europe adhere to a policy framework that supports structural reforms, macroeconomic stabilization and private sector initiatives — in keeping with their ‘European’ vocation — foreign investors will continue to play an important role in their growth and development, as part of a mutually reinforcing upward cycle. As far as Greece is concerned, the latter effect will not only provide the country’s firms and therefore, ultimately, its economy as a whole, with a more promising future; Greek investments in the banking sector of those countries will also allow the

latter to play its intermediating role more effectively. The ultimate prize is nothing less than a higher growth rate in those countries, and — equally important — diffusion of the benefits to ever-larger swathes of society, which for too long have been deprived of a decent standard of living.

Constantine A. Papadopoulos is an EFG Eurobank Ergasias adviser on European Affairs.

Along the path

of convergence

In recent years the growth rates of the countries of Southeastern Europe have been impressive; the open borders and the political stability engendered by EU membership, along with a combination of public sector reforms, increased FDI and major efforts to meet international standards have been the critical contributors to the region’s rapid development, spurring businesses to enter this evolving market. In the same way that Central European countries, such as Poland, Hungary, Slovenia and the Czech Republic, have converged in certain aspects with Western European ones, countries in SE Europe are now following the same path.

Thanks to the EU’s substantial financial assistance and funds helping to regenerate the regional economies, these countries are demonstrating impressive progress on all fronts with new wealth being created and new opportunities arising.

Furthermore, the policy environment in Southeastern European countries is undergoing a major transformation, with action being taken to reduce inflation and deficits and at the same time promote the development of the private sector through privatizations and deregulation. This steady progress of structural reforms has improved the business environment and has begun to attract significant amounts of foreign direct investment. In addition, the recent establishment of a free trade zone will further strengthen the joint market and create a simpler trade mechanism, mak-

By Evrikos Sarsentis

ing it easier for businesses to promote and move their products more effectively in the markets of SE Europe.

In this context, the region is largely seen as a significant growth opportunity for international and local businesses. In particular, Bulgaria, Romania, the Former Yugoslav Republic of Macedonia (FYROM) and Albania, where the Cosmote Group operates, have flourished as their economies are growing at some of the fastest rates in Europe.

The telecommunications sector in the market of Southeastern Europe is poised for particularly substantial growth, since telecommunications is not only an important service industry in its own right, but is also a critical support element for other service industries. Cosmote possesses both the resources and the necessary know-how to meet the challenges and become a successful regional player in the mobile market, a market which presents significant growth potential and multiple business opportunities. One of Cosmote’s key objectives is to offer telecommunication services to people who need them most. This is due to the fact that people in developing economies are going straight to mobile services, as a result of the lack of adequate wireline infrastructure.

Cosmote currently operates in four countries beyond Greece: in Albania, through its subsidiary AMC, the leading mobile services provider in the regional market; in Bulgaria, through its subsidiary Globul, which is continuing its rapid development with a market share approaching 40 percent; in FYROM,

through its subsidiary Cosmofon, which displays a particularly positive course; and in Romania, through its subsidiary Cosmote Romania, which started commercial operations in December 2005 and has already made its presence felt in the domestic market with its competitive pricing and attractive services.

Cosmote is fast turning these operations into highly profitable assets, while at the same time offering its customers and local consumers increased value for money and improving quality of service.

In these developing markets, which offer significant growth prospects, Cosmote provides high-quality, cost-efficient services in an environmentally friendly way. Cosmote remains committed to the core values and strategic choices that placed it at the top of the Greek market, aiming to become the major mobile telephony provider in Southeastern Europe.

Evrikos Sarsentis is director of Investor Relations & Strategic Development at Cosmote.

market

A hard-earned harvest Starting in 1997, OTE has built an almostcomplete regional network of mobile, fixed and added-value telecom services throughout the Balkans — no mean feat when one considers the suspicion with which the region was viewed investment-wise until recently.

The original moves — a 54.01 percent share in fixed operator Romtelecom in Romania (an initial 35 percent in 1998 and another 19.01 percent plus the management in 2003) and a 20 percent minority stake in Telekom Srbija in Serbia, as well as 90 percent of far-away Armentel — were extensively criticized as murky Balkan deals. This was compounded by the war embargo on ex-Yugoslavia and successive political changes and economic uncertainty in Romania, the Former Yugoslav Republic of Macedonia (FYROM), Bulgaria and Armenia. As investments exceeded 1.3 billion euros,

By Michael Tsamaz

‘throwing good money after bad’ became a usual criticism leveled at OTE. Still, OTE stayed on course. Helped by stricter and more focused management methods over the last 20 months and by a gradual shift from fixed to mobile telephony which — thanks to the pioneering investment moves that OTE made during those years — allowed for the management and marketing acumen of Cosmote to be used, OTE succeeded in building a network of four mobile operators in Albania (AMC), Bulgaria (Globul), FYROM (Cosmofon) and Romania (Cosmote), along with the fixed operators in Romania, Serbia and Armenia. More recently, in preparing to list reorganized Romtelecom on the Bucharest and possibly the London stock exchanges, reviving dormant mobile subsidiary Cosmorom in Romania, expressing an interest in increasing its stake in Serbia,

and effectively restructuring the Armenian venture in both its fixed and mobile services to a point that we might see a complete turnaround in the value of Armentel, OTE has started to reap its hard-earned harvest.

Early on, in order to explain its SE Europe investment ventures, OTE used to mumble, ‘We went first where the EU is now coming,’ a thinly veiled reference to the fact that SE Europe was the next step for EU enlargement. In fact, OTE took its blows and accepted the early disappointments and costs of the Balkan business setting the modus operandi.

Without getting too smug, it can now point at the seven-country network it has built with a base of 25 million customers, just as major European and international telecoms companies and private funds are only now seriously starting to test the waters of the region — with a few years’ delay.

Michael Tsamaz is a managing director at OTE Investment Services SA.

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Capital flows

& globalization

Over the last five to six years a significant change has taken place in the economies of the Balkans, the Middle East and the Southeast Mediterranean. As these economies were being transformed from the old agricultural-industrial-commodity model to a more modern economic model they became very attractive destinations for international investors. As a result, foreign direct investment and portfolio capital flows to these economies have skyrocketed, bringing valuable financial resources for their economic growth. The big question, however, is at what phase of this trend are we right now — close to the end, as some experts believe, or just at the beginning, as the optimists would argue?

Several factors have contributed to the improved attractiveness of most economies in the region.

On the political front, most of the Middle East countries are governed by strong majority parties and are moving closer to democratic regimes, perhaps under the pressure of the international community and the ‘war on terror’ doctrine. In the Balkans, the prevailing political stability of the last few years, compared to the past, is a sign of the progress that has been achieved. Even the relationships between long-time foes in the region, like the Greeks and the Turks, have somehow improved.

On the macroeconomic front, most if not all economies have shown signs of dramatic

By George Lilis

improvement. As a result, inflation rates are coming down — as in the case of Turkey, where inflation came down to 8 percent in 2005 from 68 percent in 2001 — fiscal discipline is being implemented and budget deficits are shrinking, current account deficits are being reduced and foreign exchange flexibility is increasing, since in most cases the national currencies are not pegged to the US dollar or any other strong currency.

In addition, most of these countries have favorable demographic trends: large populations with a high percentage of young people and strong growth rates. For example, Egypt has a population of 74 million with a growth rate of 1.9 percent; as a result, it has the potential to become a sizeable consumer market

with a cheap labor force.

International investors have obviously noticed the progress of the economies of the region. As mentioned before, foreign direct investments (i.e. capital flows from multinational companies) and portfolio capital flows (i.e. investments in stocks, bonds and currency) have reached new records.

In the case of foreign direct investments, the main driver has been the excess cash in the balance sheets of European and American multinational companies. These cash positions were the result of the global economic recovery and low interest rates (cheap money), as well as of cost-cutting policies and more prudent capital management after the recent economic and financial scandals. Consequently, these multinationals not only formed joint ventures and made acquisitions in the region, but also transferred valuable know-how.

In the case of portfolio capital flows, the main underlying drivers have been the excess global liquidity and the ‘petrodollar flows.’ It must also be stressed that the big hedge funds and mutual funds from the USA, Asia and Western Europe

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take into account the fact that these markets are offering high returns compared to the relatively low returns of the US market, in particular. Furthermore, on a basis of comparison, the valuations of these emerging markets should be characterized as normal if one takes into account the high growth rates that these markets offer. Moreover, the impressive increase in the price of crude oil over the last five to six years

has led to a transfer of wealth from the oil-consuming countries to the oil-producing ones, mainly to the OPEC countries and Russia.

Thereafter, these petrodollars are recycled to

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the stock, bond and currency markets of the region, increasing liquidity and helping local companies raise capital for their expansion.

Local investors have also increased their investment activity in their own countries and in several neighboring ones within the region.

This is a serious indication of their trust in the economic prospects of these countries. Furthermore, the change in people’s attitude toward these markets has been facilitated by the greater transparency and higher efficiency that prevailed.

Even though these economies have shown substantial signs of progress, there is still plenty of room for political, social and economic improvement. Several regimes are al-

ready taking steps toward democracy, although they still have a long way to go. Furthermore, a relatively big part of their population is not educated and the living standards are quite low compared to those of the developed world. These countries are in need of

modern banking systems, usually the backbone of healthy economies capable of preventing financial crises. Also of great importance are the introduction of new technologies, a higher rate of homeownership and the development of road infrastructure.

In general, although these countries have seen their per capita GDP rise and their quality of life improve during the last years, with the help of FDI and portfolio capital flows from abroad, there is still much that needs to be done. For example, the Romanian per capita GDP is only $8,000. This region, with enormous geopolitical significance since it can function as a bridge between Europe and Asia and Africa, has today the historic opportunity to move forward via the efficient use of capital flows. At the same time international investors will enjoy high returns on their investments in the region; therefore, they will continue to have the necessary incentives to invest in the area. The end result could and should be a better environment for investments, higher levels of development and, last but not least, the rebuilding of the relationships between old-time foes in the region.

This key area of the world could and should exert its influence in the evolution of the new global economy.

George Lilis, CFA, is an analyst for Global Fund Management AEPEY in Athens, Greece.

Bread and cake

in the Balkans

With the European Union still trying to find its way through its latest, and greatest, enlargement, the deadline for the next one is already approaching. Bulgaria and Romania have already signed their accession treaties and, if everything goes as planned, should join the EU on January 1, 2007.

The forthcoming full membership of those countries will prove to be a further challenge for the EU, which will have to face the task of handling their full and trouble-free assimilation. At the same time, the accession of the two newcomers will also be a challenge for Greece — given the geographic location of the country.

Changes that will occur upon integration, such as the end of import and export levies, are expected to radically alter the market profile of the food industry in general and the flour industry in particular — an industrial sector in which Loulis Mills operates.

Considering the new realities, such as the abolition of all tariff and quota barriers, I feel that the market will experience a period of transition, which will eventually lead to the establishment of balanced prices and quality in the new environment.

To be more specific, there are currently substantial price differences between Greece and its neighboring countries, both in raw materials, such as wheat, and the final product, in this case flour. In Greece wheat and flour are ex-

By Nikolaos Fotopoulos

pensive but the final product is of a high standard, while in neighboring countries wheat and flour are cheap but the final product’s quality is far from satisfactory. It is important to underline the fact that in Romania and Bulgaria many types of flour cannot be produced, simply because they do not have the necessary raw material and its import would make the cost of the final product prohibitive.

The current tax legislation for imports significantly reduces the price difference in raw material and consequently inhibits its import from third countries. The same legislation prohibits the export of high-quality flour from Greece to third countries, as its price would be extremely high. With the opening of the borders, the law of free economy will gradually lead, over a transitional period, to the regulation of prices.

In this emerging environment, companies that already have an active presence in the aforementioned countries are expected to benefit from some comparative advantages. The Loulis Group already operates industrial plants in Romania, Bulgaria and Albania. In the Balkans, over a distance of 1,750 kilometers (Piraeus, Volos, Kavala, Sofia, Tirana, Bucharest

and Targu Mures), the Loulis Group owns one mill every 320-340 kilometers and therefore controls 20 percent of a market of 50 million.

We are the only company in our field with both the technology and the know-how to offer the markets of Bulgaria and Romania a wide range of quality products of exceptionally high standards. What keeps us from doing so today is the lack of the appropriate raw material. Should Romania and Bulgaria join the European Union on January 1, 2007, the Loulis Group will be the first to meet the challenge of offering the new enlarged market high-standard products with an optimal relation between price and quality.

Nikolaos Fotopoulos is CEO of Loulis Mills SA.

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g n i d n a t s Under s t e local mark

By George Katsaros

Notos Com Holdings SA is one of the largest Greek distribution and retail corporations and is active in a range of markets. The company is involved in the management of international brand names of cosmetics and apparel through contracts of exclusive representation in Greece and abroad. Distribution of the brands is effected through company-owned department stores, wholesale and a domestic and international retail network consisting of a total of 105 stores. The brand portfolio includes internationally strong names with high profit margins and large market appeal, including Chanel, Yves St Laurent, Givenchy, Sisley, Bvlgari, Clarins, Max Factor and Lancaster in the cosmetics sector and Lacoste, Gant, Polo Ralph Lauren, Cerruti Jeans, Henry Cottons and Trussardi in the apparel sector.

Notos Com has been active abroad since 1993 through local subsidiaries and holds the exclusive distribution of apparel and footwear products which are distributed primarily through a retail network of 51 stores (boutiques). It has a presence in a total of 18 countries that cover the geographic region from Poland in the north to Cyprus in the south. The group initially entered these markets by launching a strong brand name, Lacoste, and later introduced the Gant brand. In Bulgaria the group also distributes cosmetics both wholesale and through four retail stores.

The policy to penetrate these markets is based on the potential for growth which was

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anticipated 13 years ago and which has been amply justified, since most of the countries have either joined or are in the process of joining the European Union. An important growth factor, this is expected to contribute considerably to the enhancement of the standard of living in these countries, a development which will raise demand for more luxurious products such as those represented by Notos Com. The main aim is to export the successful Greek model through obtaining the exclusive representation of brands managed already with great success in Greece and establishing or expanding a retail network, while promoting a wholesale network wherever possible.

The number of years we have operated in SE Europe has allowed us to acquire a very sound understanding of local markets, including taxation and legal systems, consumer behavior, as well as trade regulations. This expe-

rience has also established our presence through cooperation with local customers and collaborating associates.

Notos Com intends to continue its expansion in these countries and markets, but in a carefully planned way. Presently, turnover generated abroad represents only 5.4 percent of group turnover, half of which is from the area of SE Europe. However, growth over the last year has increased at a rate of 25 percent, a rate considered sustainable over the next few years.

We aim to further develop in SE Europe the high standards under which we operate in Greece, while introducing superior customer service through high-quality products and services.

George Katsaros is group treasurer and investor relations manager at Notos Com Holdings SA.

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Fifty years of experience

ICME ECAB SA, a Greek company which manufactures all kinds of telephone and data cables, including ACSR conductors, has developed an almost 50-year presence on the Romanian and other international cable markets. Founded in 1949, ICME ECAB SA, a Hellenic Cables SA affiliate company since 1999, is based in Bucharest and employs about 500 people.

ICME ECAB SA is a leading cable manufacturer in Romania and its products are distributed on the Romanian and international markets under the registered trademark CABLEL. The company sells and distributes its products from its facilities in Bucharest and its warehouses in Cluj, Bacau and Timisoara to the Romanian market. Meanwhile, the Hellenic Cables network distributes ICME ECAB products throughout the international market.

In the coming years, the company aims to further enhance its position on the domestic market, in neighboring countries (Bulgaria, Hungary, Serbia, Moldova, the Czech Republic and Slovakia) as well as additional markets further afield.

In 2005, the sales turnover of the company amounted to 56 million euros (10 percent growth against 2004), profits before income tax amounted to 3.3 million euros (122 percent increase against 2004), and earnings before interest, taxes, depreciation and amortization (EBITDA) to 6.4 million euros (52 percent increase against 2004).

Copper for SE Europe Sofia Med SA, a company active in the production and processing of copper and copper alloy products, is a subsidiary of Halcor SA and is based in Sofia, Bulgaria.

The company commenced operations in 2000. As a result of the extensive investment program in high-technology equipment that was implemented during the period 2002-2004, production capacity will be increased to 85,000 tons by the end of 2006.

Today, the company has established its position in the European market as one of the major manufacturers of copper and brass products such as strips, sheets, discs and profiles.

The company employs 460 specialized technical and administrative personnel and the plant comprises three manufacturing departments — casting shop, rolling and extrusion — while the facilities occupy an area of 250,000 m2.

Through investments and constant development, Sofia Med SA aims at offering high-quality products, equal to the requirements of international markets, where the company exports 90 percent of its production.

companies

A steel company for the Balkans

Aluminium systems in Bulgaria Steelmet is the largest manufacturer in the fields of extruded and architectural aluminium systems in Bulgaria. For more than 10 years the company has been the leader in credit sales programs. This has enabled Steelmet to become a reliable partner and a significant factor of economic activity in Bulgaria.

Steelmet’s activity as a commercial company started in 1994, while the construction of a brand-new aluminium profiles manufacturing plant commenced in 1998. This plant still constitutes one of the biggest greenfield investments in the country, in the order of $16 million. Initially, production comprised two extrusion lines with an annual capacity of 7,000 tons. At present, as a result of the investment program, the plant’s capacity exceeds 15,000 tons, carried out by four modern extrusion presses.

Steelmet also manufactures products for the automobile industry, for construction applications, heavy industry, electrical machinery, insulated architectural aluminium profiles, sliding and opening windows, exhibition systems, panels, and custom-made systems for hundreds of small and medium-size Bulgarian companies active in many fields.

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Stomana Industry SA has had an active presence of more than 50 years in the Balkans and the international market and is a leading steel company in Bulgaria.

The company produces a wide range of steel hot rolled products, such as steel plate sheets, merchant bars, grinding balls, and beams, as well as semi-finished strand casting products (billets, blooms and slabs).

In June 2001, SIDENOR SA acquired the majority of Stomana Industry SA shares and subsequently realized a large investment program for the modernization of the plant and the total restructuring of the company.

Stomana Industry SA invests in new technologies in order to ensure high added value products and optimum customer service.

The completion of a new investment plan for the production of concrete reinforcing steel bars, exceeding 40 million euros, is anticipated within 2006. The new manufacturing unit will have a production capacity of approximately 800,000 tons and will cater to the developing markets of Bulgaria, Romania and the Western Balkans.

The company’s established position in the global market, combined with the wide sales network of SIDENOR SA throughout Europe, ensure the future development of Stomana Industry SA.

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A building of friendship and cooperation The photo on the cover shows what could be described as a ‘before and after picture’ of a very important building in the center of Sarajevo — important in many ways, for many different reasons.

One of these reasons is that this particular building constitutes an integral, but not yet operational (due to its state), part of the facilities of the Council of Ministers of Bosnia-Herzegovina currently known as ‘Building No. 3 — Building of Institutions.’

It is connected, via common underground facilities, to the Parliament Building.

The cover photo is an ‘after’ picture because the building suffered serious damage during the civil war, including structural damage. It is a telling picture. A fire started on the eighth floor and spread throughout much of the building, causing both internal and external damage. So, among other things, it represents the suffering of the civil war while serving as a reminder for the people of Bosnia-Herzegovina, the Balkans, Europe and the world, of the ills of war.

It is also a ‘before’ picture because in the next few months this building will be reconstructed and renovated, gaining a bright new look in preparation to host the Council of Ministers of Bosnia-Herzegovina.

The restoration works are financed by the Hellenic Plan for Economic Reconstruction of the Balkans (80.39 percent) and the government of Bosnia-Hezegovina (19.6 percent) and, fittingly, the building’s new name is ‘Building of Friendship of Greece and Bosnia-Herzegovina.’

1 Mesi Bridge Shkodra - Albania photo taken from albaniabridge.co.uk