Economic data

* The New Democracy (ND) government, led by the prime minister, Costas Karamanlis, has a tiny majority of 151 out of 300 seats in parliament. Beset by allegations of corruption and struggling to tackle the impact on Greece of the global recession, the government will remain fragile.
* The Economist Intelligence Unit believes that elections will be held before the end of the parliamentary term in 2011. The opposition Panhellenic Socialist Movement (Pasok) is currently ahead in opinion polls and has announced that it will force an early general election in March 2010, at the same time as the presidential election. However, according to opinion polls, it is unlikely that Pasok would secure an absolute majority, implying that an agreement with at least one other party would be needed. This could lead to a formal coalition or a minority government with support from the opposition. Either way, the government would not be a stable one.
* Relations with Turkey are, and should remain, much better than in the 1990s, but tensions and obstacles to any rapid improvement remain, despite efforts on both sides. The president of the Republic of Cyprus, Demetris Christofias, and the leader of the Turkish Republic of Northern Cyprus (TRNC), Mehmet Ali Talat, are in negotiations. A solution to the issue is still a long way off, but it would provide a significant boost to Greek-Turkish relations.
* We estimate a budget deficit of 5% of GDP in 2008, exceeding the 3% limit established by the EU's Stability and Growth Pact. We expect the deficit to rise further to 6.5% of GDP in 2009 and 6.8% in 2010 before falling to a still high 4.9% of GDP by 2013. Greece's high deficit and public debt will adversely affect international confidence in the Greek economy.
* The need for a tighter fiscal policy and for households and businesses to rein in borrowing will cause GDP growth to slow from an average of 3.9% in 2004-08 to 0.5% in 2009-13. Household debt has risen rapidly from under 10% of GDP in 2003 to 48% of GDP in 2008. Banks in Greece maintain that they are well capitalised. However, several Greek banks are exposed to the deteriorating economies of the Balkans. All Greek banks will participate in the government's€28bn loan guarantee and capital injection scheme.