Another Wildly Optimistic Assumption In Greece

In a note on the latest Greek deal, Morgan Stanley’s Paolo Batori, CFA, Daniele Antonucci, and Robert Tancsa report on another wildly optimistic aspect of the Greek deal: The assumed receipts from privatization programs.

Privatization receipts are a crucial input for the Greek debt sustainability model. Greece has a substantial portfolio of assets. The latest published Troika analysis estimates further proceeds from privatizations of up to €45bn over time (although the new bailout program might well stretch them over a longer time period or, most likely, reduce the overall amount). Bond market participants seem somewhat sceptical at this stage, given limited granularity on the details.

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Photo: Morgan Stanley

We prefer to take a cautious stance too, and have factored into our base case a smaller relief coming from privatizations (less than €5bn), based on the partial available information on Greece’s portfolio of real estate assets and on Greece’s recent performance on this front. Yet Greece could privatize more, and there is a risk that our estimate might turn out to be too conservative further down the line – if extra technical assistance exerts some effect. Therefore, we will be monitoring the privatization processes to update our forecasts, and, while taking a rather conservative approach at this juncture, our scenario analysis also presents an alternative debt trajectory encompassing privatization proceeds roughly in line with official expectations. In this alternative scenario, Greece’s debt/GDP does approach 120% in 2020 (although it stays above that figure, given our cautious economic outlook).

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