ATHENS (Reuters) - As Greek scandals go, it started as a trivial but titillating tale -- a ministry official jumps from his balcony after being blackmailed by an angry lover.

A man reads front page headlines about the sex DVD scandal that has rocked Greece for weeks, in newspapers on display at a central Athens kiosk February 8, 2008. Greeks have been mesmerised by the scandal, which broke when a ministry official attempted suicide after being blackmailed by an angry lover, and has damaged the conservative government's popularity. REUTERS/Yiorgos Karahalis

Many Greeks yawned. Few suspected that what would soon be known as the “sex, lies and DVDs scandal” would effectively freeze planned reforms, push the conservative government closer to snap elections, and shake the foundations of Greek society.

“This scandal has shown us what has been happening for years but none of us would publicly admit,” said architecture student Victoria Deligianni, 24, sitting at a central Athens cafe. “There is just no progress in this country.”

Political analysts say the affair has turned the spotlight on all of Greece’s ills -- nepotism, widespread corruption in politics and the press, sexism and lack of opportunity for qualified young people with no connections.

It was no secret Greece was in need of a cleanup in 2004, when voters fed up with socialist scandals in the 1990s voted in the conservative New Democracy party.

Prime Minister Costas Karamanlis vowed to “re-launch the state” and end the chronic corruption that had long angered citizens and kept many foreign investors away.

He also promised to put in motion the reforms Greece needed to catch up with its European Union partners -- in education, social security, health and public services.

Instead, the public has been treated to a series of scandals. In the past year alone, overpriced government bonds were sold to state pension funds and a labor minister was sacked over illegal Indian workers at his country house.

Greece’s ranking on the Transparency International corruption watchdog’s list has gone from bad to worse, falling to 56th in 2007 -- behind countries such as Jordan, Botswana and Costa Rica -- from 49th in 2004.

SEX TALE

The DVD scandal has overshadowed the government’s economic achievements, bringing its popularity to the lowest point since 2004, under 30 percent, a recent poll showed.

According to the Greek press, it started when a young woman slept with her boss, who promised her a permanent ministry job. When he did not deliver, she taped their private meetings in an attempt to blackmail him.

Then she went to Greek media with her DVD. Most sent her away, but one journalist has been accused in the media of making a copy and delivering it to the prime minister’s office.

When the DVD made it to Karamanlis’s office, the official -- Culture Ministry general secretary Christos Zachopoulos, 54 -- resigned and then jumped. He is now recovering in hospital.

A conservative MP was alleged to have acted as a go-between for the journalist and financial authorities. After pressure, he resigned from his parliamentary group, cutting the government’s number of seats to 151 in the 300-seat house and raising the specter of snap elections.

NATION MESMERISED

Greek viewers have been mesmerized by the twists and turns in the saga that has dominated television news for weeks.

Newspapers on display at Athens’ yellow kiosks publish daily revelations and the scandal dominates dinner conversation in tavernas across the country.

Greek blogs are rife with comments on the DVD’s content, saying a sex scandal alone would hardly be reason for a Greek official to attempt suicide. They say what may have pushed him over the edge was that he was caught making negative comments about the prime minister.

The government has insisted the issue was personal and any wrongdoing should be legally prosecuted.

“We remain focused on the reforms we promised the Greek people,” a senior government official told Reuters on condition of anonymity. “This issue will be resolved by Greek justice.”

Opposition parties accuse Karamanlis of trying to obscure his own office’s involvement, deflecting his political responsibilities and refusing to shed light on the case.

“The government line has been disorientation, blackout, cover-up, lies,” said socialist opposition PASOK party spokesman Yannis Ragoussis. “They set out to paint this as a personal issue and it has proven to be a deeply political case.”

Zachopoulos, a former teacher who was hand-picked by Karamanlis, was close to the prime minister and his wife and held powers almost greater than the minister -- distributing large amounts of Greek and EU funds.

“When I needed anything from the Culture Ministry, it was made clear to me that I should go to Zachopoulos, not the minister,” a European ambassador to Athens told Reuters, also on condition of anonymity. “It was clear he was the man in charge.”

Prosecutors are investigating Zachopoulos’s financial records as well as ministry decisions to allow construction on or near historic sites.

So far, the only person to get into trouble over the scandal is the woman, 35-year-old Evi Tsekou. She has been charged with blackmail and is held pending trial. Zachopoulos has not been charged over his sexual relationship with an employee.

“The woman was the object of abuse of power and sexual harassment by a superior, even if she consented, according to Greek law,” said Sissy Vovou, a member of the Athens Feminist Center. “It is unacceptable she is held in jail. The only reason she is in is to keep her mouth shut.”

For the many Greek women struggling to make it in a largely male-dominated society, she is an example of someone who took the easy way up and paid the price.

“You study, you work hard and still you have to let someone grab your butt to rise,” said Maria Saratsi, 38, a former manager at a construction company.