The Problems of Privatization in Greece

Greece has to raise €50 billion selling off state assets but this ambitious privatization effort is unlikely to be realized.

The parliament of Greece in Athens, July 25, 2007
The parliament of Greece in Athens, July 25, 2007 (Colm Costelloe)

Greece is supposed to raise some €50 billion in a nationwide privatization effort as a condition for the international financial support that it needs to avert a sovereign default. Analysts fear that the country might not even raise half that number selling off state assets.

There is plenty to sell. As one Fox News columnist pointed out this month, the Greek state owns a lot of things it doesn’t need. The country could pay off up to €300 of its €347 billion debt by selling off shares the government owns in publicly-traded companies and much of its real estate holdings.

The government owns stock in casinos, hotels, resorts, railways, docks as well as utilities providing electricity and water.

Labor unions are staunchly opposed to even partial privatizations however. “Rolling blackouts are promised this week to dissuade the government from selling of even 17 percent of its stake in the Public Power Corporation.”

The Adam Smith Institute’s Eamonn Butler agrees that privatization will prove problematic. He points out that Greece has netted €10 billion through privatizations since 2000, “but the new target means doing five times more, in half the time.” Many of the properties in the privatization list have been on offer for a long time but there simply are no buyers.

Among the companies on the privatization list are a telephone operator, shares in half a dozen banks, a couple of water companies, a gas company, train operators, airports (including defunct ones), a weapons contractor and regional ports and highways.

Butler, too, expects public resistance to selling off these companies on the ground that they are of vital national importance. “If only,” he writes.

Meanwhile, the Greek government will be trying to sell off old Olympic venues, a state lottery, a horse racing concession, a stake in a casino, a nickel mine and thousands of acres of agricultural land. Which begs the question of why it owns these things in the first place.

Corruption and nepotism are endemic in these publically held entities. The state railroad alone maintains a payroll four times larger than its ticket sales, The Wall Street Journal reported. It needs €1 billion in yearly subsidies to keep afloat. Add to that the public outcry and it’s not hard to imagine why few entrepreneurs are willing to take the risk of investing in these companies.

It is why Butler doesn’t expect many to be sold yet. Privatization won’t be possible before these companies are made fit and their debts paid off. The prospect of future privatization presents a real opportunity for reform though. “And it sends the markets a message too that Greece is serious.” But that will require a determined effort on the part of both the government and labor unions to clean up these companies and prepare them as well as their workforces for competition.