Greek riots to derail vital economic reforms

By Daniel Flynn - Analysis

ATHENS (Reuters) - Greece's worst riots in decades are likely to deter political leaders from introducing overdue economic reforms, condemning the country to years in the doldrums.

Disturbances unleashed by the killing of 15-year-old Alexandros Grigoropoulos this month have caused hundreds of millions of euros of damage and shaken Greece's fragile conservative government.

They have also encouraged trades unions to step up their challenge to education and pension reforms, and to privatisations cautiously introduced by the conservative New Democracy party during 4 years in power.

"Even before the riots, reform was proving difficult but now it is going to be very, very difficult," said Diego Iscaro, analyst at IHS Global Insight.

"To achieve sustainable growth in the medium term, these reforms must happen. In the next five years, growth will be slower than what we've seen for a decade."

Greece's entry into the euro zone in 2001 helped fuel years of growth averaging 4 percent annually. Greece enjoyed access to European Union funds, low interest rates, robust exports to Balkan countries and a boom in shipping and tourism.

The prosperity masked weaknesses such as a current account deficit of 14 percent of GDP and one of the euro zone's lowest productivity rates.

Corruption ranks as the worst in the 15-nation euro zone, affecting education and health, and fostering anti-government resentment.