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Greece's entry into the ERM, the result of a successful and continuing convergence policy, together with the inevitable effect on the economy of the country's hosting of the Millennium Olympics, have made future prospects in Athens appear buoyant.

The Simitis-led government's tough economic policies have brought Greece on-line to join EMU in 2001, and with inflation and the budget deficit on a downward curve the government's strategy is being supported by the markets.

Procopis Andrianopolis, head of money markets at the National Bank of Greece in London, believes however that optimism should be tempered with caution over the next six months. It is the policy of the central bank to keep short-term rates higher to help stabilise the drachma following the 14% devaluation earlier this year. There was a great demand for these bonds following devaluation, but that will taper off, I believe, and yields will fall."

Indeed the drachma has regained some ground following the controlled devaluation on ERM entry, and the bank may act sooner rather than later.

Despite his caution, however, Andrianopolis believes that all the macro indicators are good and that barring a few hiccups, possibly a flattening of the inflation curve, the Government's targets should be met. This view of the fixed interest markets is shared by Andreas Brodtmann, a director of the Berenberg-Hellas-Olympia fund in Athens. "The strong, stable showing of the drachma will allow the bank to bring short-term interest rates down," he said.

"This would be in line with what we have witnessed over long-term rates. Ten year bonds were yielding 10%-12%, but now after the lull following the first wave of the Asian crisis, that is down to 8%. That is, however, comparatively high, and I would expect them to fall even further." The confidence of the equity market is highlighted by Brodtmann. He is confident that the increased liquidity means there is real scope for improved growth. With the Greek p/e ratio below the European average, the earnings growth of the major listed companies is expected to be well above that of comparable listings.

"Consolidation and mergers are also likely to be a major driving force this year. The banking sector is particularly interesting with rumours of both domestic mergers and international takeovers. With p/e ratios of around 12% in the banking sector, compared with European averages of around 20%, the National Bank of Greece, Ergobank and Alpha Credit bank could all be involved in this process," said Brodtmann.

The privatisation of 10 major state-owned companies will also provide a massive boost to the index, as will the deregulation of the en-ergy, transport and telecommunications sectors.

George Athanasakis, equity analyst at NBG International believes there are other positive influences at work at present. "I would expect to see a relaxing of interest rates as inflation continues to fall, giving a boost to the market, and also expect to see mutual funds getting much more involved in the equities market. Also we are witnessing, for the first time, a positive economic cycle in Greece. Previously GDP was up and down and inflation stubbornly high, but in the last for years with the help of EU funds we have more stability and consequently more investment." Kevin Hall"

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