Greek Debt: How Much for the Acropolis?
Greece is for sale. But is a sell-off of public assets a wise and politically viable solution to an Olympian debt crisis– especially since a dramatic divide is emerging between the government and the citizens it governs?
As the daily protests in Athens make clear, one big reason people are in the streets is their desire for more public transparency and less corruption. So will the Greeks trust their government to unload vast holdings of economic assets in the most sweeping privatization plan Europe has ever seen? The answer is not yet evident.
In late May, Prime Minister George Papandreou committed to an unprecedented auction of state-owned assets, the intent being to raise revenue of €50 billion (about $72 billion) by 2015. There’s doubt aplenty that Papandreou’s Socialist government can meet such a target, and to understand why, look at even a partial list of items in the national tag sale:
- Athens International Airport, the nation’s largest. The government has a 55 percent stake to sell.
- OTE, the national telecommunications company. The state’s share is now 16 percent.
- The national power generator.The state’s stake is 51 percent, and Papandreou wants to drop it to 34 percent.
- OPAP, the national gambling monopoly.Athens has a 34 percent share. The government also wants to turn the national lottery over to private operators.
- The national rail system. Athens’ share of it now is 49 percent.
- DEPA, Greece’s natural-gas supplier. It is 65 percent government-owned; Hellenic Petroleum, the No. 1 oil refiner and retailer, owns the rest (and the government owns slightly more than 35 percent of Hellenic Petroleum).
- Hellenic Defense Systems and Hellenic Vehicle Industry, two defense production companies. Both are losing money.
Also on the lengthy list are the postal savings bank, the national highway authority, a natural-gas storage company, international and regional ports, the public broadcast spectrum, and an immense sprawl of real estate, prime Olympic sites left over from 2004, beaches, hotels, and casinos.
It is an unruly assortment. And having witnessed privatization programs unfold in Japan, Malaysia, Britain, India, South Korea, the U.S., and elsewhere, the only conclusion I can draw is that getting government out of business is not as clear-cut a proposition as one might think.
There are almost always sovereignty questions. And anyone who thinks national pride is a “get-over-it” matter should recall how Americans reacted when the Japanese were flinging yen around in the 1980s.
In Greece’s case, it is evident that the sale will attract foreign buyers by the planeload. And some of the biggest names in European merchant banking are advising on these sales: Rothschild, Crédit Suisse, BNP Paribas, and the London branch of Deutsche Bank.
Most of the airport Athens doesn’t own is already in the hands of a German construction group; Deutsche Telecom is the largest shareholder in OTE, otherwise known as Greek Telecom. Under Papandreou’s plan, Greece will surrender a majority stake in the national power company.
Then there is the question of what will sell and what won’t. OPAP, the gambling monopoly, and the national lottery are both moneymakers. The power company is consistently in the black, too. But think about those two weapons producers. Anyone who knows defense knows that economies of scale are the key to survival. Who is going to buy (or even buy into) an in-the-red Greek arms maker? What often happens in privatizations is that the jewels go to investors (and so does the revenue), while the government is still in business but stuck with the clunkers.
One question often overlooked when nations climb on the privatization wagon is how ready one economy or another is to absorb state assets. Malaysia, for instance, got right into the take-it-private craze during the Reagan-Thatcher privatization years in the early 1980s. As a developing country, it ended up producing a handful of millionaires favored by the government. But the principal goal—to bring poor Malays into the modern economy—was never substantially achieved, and some assets have since been re-nationalized. Greece is not Malaysia, but it is not Germany or France or Britain either by way of its development—one reason it is in the mess we see before us.
Privatization, in short, is a case-by-case process, and not many useful rules apply across the board. But there are a few:
- If an asset counts among a nation’s public goods—a school, a bridge, or even a prison—it is questionable whether inserting a profit-making investor between the company and its customers (broadly speaking) will improve matters. In the U.S., famously, there have been efforts to privatize public-school systems and prisons, and the record in both cases is decidedly mixed at best. Some enterprises are to society’s good but are simply not meant to make money.
- Ownership is often not the fundamental issue; management and company culture are. After India made a disastrous attempt to privatize electricity generation in the 1990s (in partnership with the late, great Enron), state electricity boards didn’t go private: They restructured themselves into separate reporting units and in many cases went into the black. There are profitable, well-managed state-owned companies just as there are miserably managed private companies.
- Depending on the circumstances, initial public offerings are generally better than merchant-banked auctions that cater to private-equity firms or other large investors. The former give citizens a chance to take a piece of the action– as in Japan’s case, where companies such as NTT went private via the Tokyo stock exchange. Then there’s no danger of a company being taken apart, asset-by-asset, until there’s no more company.
In the end, privatization is a question of political culture. Like much of Europe, Greece has a tradition of socialist thinking going back to the 19th century. So it’s no surprise that Greeks are suspicious of their government and suspicious of a fire sale of public assets.
The counter-example is the U.S. Niall Ferguson, the British historian and commentator, recently argued that America’s way out of its deficit problems is to sell some $233 billion in government assets, including land, highways, power- generation authorities, and Amtrak. That’s not so certain a conclusion: What’s a quarter of a trillion dollars next to the long-term problems Washington faces? But if any nation is going to accept privatization as a standing policy without taking to the streets, it will be the land of the free.