DEBT

Seen by investors as the eurozone's soft underbelly, Greece has the currency bloc's second largest debt as a percentage of GDP after Italy, forecast at 103.4% in 2009.

Yield spreads on Greek bonds over German bunds hit a record high in February, as investors fled the euro area's periphery during the financial crisis. Although spreads have now returned to more normal levels, Greece's ballooning debt remains the economy's most serious risk.

Rating agencies Fitch and Moody's have downgraded their outlook on Greek government bond ratings, citing concerns over the impact of the economic downturn on public finances. Standard & Poor's cut Greece's rating to A- in January.

SLOW REFORMS, PRIVATISATIONS

Greece faces the risk of extended slow economic growth if it fails to adopt structural measures to boost competitiveness and correct its fiscal imbalances, the EU and the IMF have said.

But facing street protests and resistance within its own ranks, the outgoing conservative government was slow to implement the required structural reforms.

In 2008, an overhaul of the social security system, which experts warned would collapse in 15 years due to an ageing population, fell short of what was necessary. Education reform, seen as crucial to making the labour market more competitive, met a similar fate amid violent protests.

The government was more successful with privatisations. It sold a stake in OTE telecom to Deutsche Telekom (DT) and privatised cash-strapped Olympic Airlines.

ECONOMIC RISKS

Greece's economy, which makes up about 2.5% of the euro zone's total, is forecast to slide into recession this year for the first time since 1993.

Tourism and shipping remain Greece's main economic pillars, making it particularly vulnerable to the global downturn. Although shipping has shown signs of recovery, tourism has been especially hurt this year.

Greek banks, although largely safe from the toxic assets which brought down global giants, have invested heavily in the Balkans and their profit growth has waned as the once-booming economies of eastern Europe slow down.

Standard & Poor's views Greece's banks as facing the highest long-term economic risks in western Europe.

SOCIAL UNREST/VIOLENCE After Greece's worst riots in decades in December 2008, violence has simmered with frequent gas canister attacks and some bombings. The riots were triggered by the police killing of a teenager and fanned by high youth unemployment as well as mistrust of the political system.

Calm soon returned but far-left and anarchist groups have renewed attacks on businesses and police, culminating with the killing of a policeman in June. Leftist guerrillas claimed responsibility for a bomb that went off on Oct.2 near a conservative rally before Oct.4 general elections but caused no injuries.

Analysts say that another flare-up is possible as long as the roots of dissatisfaction remain.

Source: Reuters, Balkans.com Business News