Greece finally has a deal after months of tense negotiation. In a lot of ways, it’s a massive climb-down on what the government wanted, and even more austere than previous bailout agreements the country has signed up to.
Greece must make cuts to its pension industry, liberalise some protected sectors of the economy, and conduct a review into its labour market, among other reforms — but perhaps the most stark is what it’s being asked to do about privatisation.
Athens is being asked for “a significantly scaled up privatisation programme,” and they’re not kidding. Here’s the detail:
Valuable Greek assets will be transferred to an independent fund that will monetise the assets through privatisations and other means. The monetisation of the assets will be one source to make the scheduled repayment of the new loan of ESM and generate over the life of the new loan a targeted total of EUR 50bn.
When negotiations for a bailout kicked off, a lot of observers expected privatisation to be a big problem, since Syriza, the victorious and radically left-wing party, had campaigned against them. But as the talks developed, they focused more on debt relief and pensions.
But even if the government is more open to selling off state assets, €50 billion ($US55.83 billion, £35.97 billion) is a lot of money in Greece. In fact, it’s more than a fifth of Greece’s GDP. It’s much larger than any privatisation programme Greece has previously been asked to undertake. And since the proceeds would be used to repay the bailout loan they’re getting now, a failure to meet the goal will mean raising the money through taxation, or once again finding itself on the edge of default.
But the document even suggests that Greece might privatise more, asking the participants to “explore possibilities to reduce the financing envelope, through an alternative fiscal path or higher privatisation proceeds.”
Back in July 2011, the European Commission made its first estimates for receipts from privatisation, it expected that Greece would raise €50 billion ($US55.3 billion, £35.6 billion) from 2010 to 2015.
That plan quite quickly went completely to pot. The chart on the right shows the expected outcomes by mid-2014, when the Commission expected €6.3 billion ($US6.96 billion, £4.48 billion)
So what’s now on the table an astonishing ask. The latest review expected that Greece would raise €22.3 billion ($US24.65 billion, £15.86 billion) by the end of 2020. That’s still not even half of what’s suggested by Monday’s deal.
Syriza’s rise to power in January put some of the privatisation projects in doubt. Initially, analysts weren’t sure the flagship sale of the Port of Piraeus would go ahead, but Prime Minister Alexis Tsipras made a show of confirming the fact that it would.
Despite the fact that privatisation hasn’t been a major sticking point in the recent negotiations doesn’t mean that the current government will be able to more than double the income from already-optimistic privatisation plans.
If it gets anywhere near to completion, the new privatisation plans will a colossal programme of state asset-selling, especially for a country not transitioning from a communist regime — and it will be one of the only ones that began with a radical left-wing government.