Greece’s big fat fire sale

In the early days of the Greek debt crisis, two German politicians came up with a radical solution: Greece should sell off some of its uninhabited islands and property to pay back its creditors. “Sell your islands you bankrupt Greeks! And sell the Acropolis too!” was how the German tabloid Bild summed up their idea.

While selling off ancient monuments was never a serious idea, the privatisation of state assets has always been an integral feature of Greece’s international bailouts. Over the past five years, Greece has faltered on promises to sell vital parts of its infrastructure – ports, airports, marinas and waterworks – in exchange for billions of euros in loans.

Privatisation remains a vital element of Greece’s latest bailout deal. Under threat of being forced out of the eurozone, Athens agreed to transfer “valuable assets” to an ‘independent’ fund, with the aim of raising €50bn. Half the proceeds will be used to shore up capital reserves at Greek banks; a quarter will be used to repay Greece’s creditors, and the remainder will be spent on unspecified investments.

The idea of the privatisation fund first emerged in a leaked German government paper which argued Greece should leave the eurozone if it did not agree to put €50bn in a Luxembourg fund as collateral for its debts. The fund was to be held by a company wholly owned by KfW the Germand investment bank controlled by Wolfgang Schauble. Although drafted in Berlin, the plan soon found support among Greece’s hardline creditors in central Europe and the Baltics.

Tsipras wrung two concessions: the fund would be run from Athens, not Luxembourg, and a tranche of the cash would be earmarked for investments in Greece. The extentd of KfW’s involvement in the Athens based fund has not been clarified.

The privatisation fund is likely to remain one of the most contentious issues as Greece and its creditors strive to conclude bailout talks by mid-August.

From the creditors’ perspective, Greek privatisation has been failure heaped upon failure. In 2011, international creditors decreed that Athens would raise €50bn by the end of 2015 from selling state assets. By early 2015, only €3.2bn had been raised; none of the most sensitive aspects – airports, ports, railways – had been sold. Neither officials at the European commission nor the International Monetary Fund are taking the €50bn target remotely seriously.

In a devastating analysis of Greece’s debt burden published in July, the IMF said it was realistic to assume asset sales would be worth no more than €500m a year – meaning it could take 100 years to raise €50bn.

Gabriel Sterne at Oxford Economics argues that the IMF has failed to learn from its recent history that “less is more” when it comes to setting numerical targets. “It is economics versus faith – ‘Somehow we will make this work even if it doesn’t add up’ – but the economics really doesn’t add up.”

When Syriza swept to power in January, one of its first actions was to sack the people in charge of Greece’s privatisation agency and cancel plans to sell Greece’s electricity transmission operator (ADMIE). The sale of other assets – most notably regional airports and the port of Piraeus – had almost been completed, but was thrown into doubt. The government is expected to put up little resistance to the sales now being concluded. Venues purpose-built for the 2004 Athens Olympic games, which have sat derelict and rotting for the past decade, will also be among the assets moved to the fund, alongside state utilities, including the water board and ADMIE.

Both Russia and China have expressed interest in snapping up the state-run railway network, one of the biggest encumbrances on public finances before the debt crisis erupted in late 2009. The Greek state is also rich in buildings bequeathed by individuals to municipalities and the Orthodox Church – properties that are also expected to be included in the fund. Contrary to popular perception, the public sector owns very few islands. The sale last week to Hollywood star Johnny Depp of the Aegean islet of Stroggilo, for a reputed €4.2m, was conducted privately.

Unions with ties to the governing party have already vowed to “wage war” to stop the sale of docks in Piraeus, where the Chinese conglomerate, Cosco, currently manages three piers. With the debt-stricken country on its knees, officials have stressed that the prime minister will fight to ensure the denationalisations are not seen as a fire sale.

However, independent observers fear just that. “Privatisation in Greece right now means a fire sale,” political economist Jens Bastian said.

The privatisation fund has few precedents, although it has been compared to the Treuhandanstalt, the German agency created in the dying days of the GDR to privatise East German assets shortly before reunification. Greece’s former finance minister, Yanis Varoufakis, was one of the first to draw the parallel, although others offer the comparison unprompted. Peter Doyle, a former IMF economist, says the Treuhand offers the closest parallels: the agency had full control over government ministries to sell assets quickly. “The principal task was to sell these things to somebody for cash.”

“The privatisation agency is facing a trade off between doing something that is fair and open and following judicial procedures, or something that is going to deliver needed cash.”

Doyle fears Greece could be heading down the path taken by Russia in the 1990s, when valuable state assets were sold at knockdown prices to raise urgently-needed cash, creating a new oligarch class in the process.

“The very thing we all think that Greece needs – to get rid of its oligarchy – will in fact be entrenched by privatisation done this way,” argues Doyle, who worked on privatisations in the Czech Republic, Slovakia and Poland in the 1990s. The difference between those countries and Greece, he thinks, is that the population and political class in central Europe accepted the idea of privatisation, despite the short-term hardships.

He is convinced the current privatisation plan for Greece is doomed to fail. “The programme was set up to encourage Greece to leave the euro and that plan didn’t work, so now we are stuck with the privatisation arrangement that nobody, not even the original creditors, ever intended to happen.”

However the privatisation programme has powerful political friends in Europe. On the side of the conservatives of Herr Schauble now stand politicians such as the leader of the liberal group in the European parliament, Guy Verhofstadt. Verhofstadt is an MEP, a candidate for President of the EU Commission and a former Prime Minister of Belgium. Mr. Verhofstadt who in his attack on Alexis Tsipras in the European parliament asked Greek PM to really end clientelism in Greece ,sits on the board of Sofina (Société Financière de Transports et d’Entreprises Industrielles), a Belgian holding company headquartered in Brussels. Sofina invests in multiple economic sectors such as telecommunication (7%), portfolio companies, banking and insurance (6%), private equity (6%), services (18%), consumer goods (31%), energy (6%), distribution (8%) and various other sectors (10%). The company has an active interest in the privatisation of Greek water as part of a consortium with Aktor, one of the most powerful business groups in Greece, with a leading role in construction, highway concessions and waste management. Aktor is controlled one of the Greek powerful families and its consortium is considered the favourite to win the bid.

Up for sale:

Helliniko Olympic complex

Ports of Piraeus and Thessaloniki

14 regional airports

PPC power company, including ADMIE, the electricity transmission operator

DEPA natural gas company

Hellenic Petroleum

Hellenic Post

Athens Water Supply and Sewerage Company

Xenia Hotels in Rhodes

Marinas of Chios, Pylos and other locations

The Guardian, The Press Project – additional material YX