Greeks are already angry about their bailout referendum being effectively proven pointless after they voted against the conditions set out by creditors prior to June 30 — but just wait until they get a load of the deal they have got now.
Not only has the Syriza-led government agreed to a number of extremely austere measures, it’s also being forced to chop up and sell parts of the country to the private sector so it can recapitalise the battered banking sector. It’s a bit like a desperate yard sale of whatever Greece can find.
It’s hardly surprising that, according to Bloomberg, a couple of officials said that Prime Minister Alexis Tsipras resembled a “beaten dog” at the Brussels showdown.
His government has effectively wasted the time of the Greeks and put the country in a worse financial position than it was at the start of the bailout process, when it asked for €240 billion (£171 billion, $US265 billion) back in 2010. This is because the referendum stalled talks, led to Greece defaulting on a €1.6 billion (£1.1 billion, $US1.8 billion) payment on June 30, and ravaged its credibility and credit ratings.
Part of the agreement is to “amend or roll back some legislation that has been passed in Syriza’s first six months in power, much of which ran against previous bailout deals,” as reported by Business Insider’s Mike Bird.
- “Ambitious pension reforms” and measures to make the system more affordable.
- General deregulation and liberalisation of Greece’s market economy, with areas such as pharmacies being opened up to more competition.
- A “rigorous review” of modernising the Greek labour market.
- Depoliticising the Greek governing establishment — it’s a common criticism that Greece’s government is riddled with cronies from whichever administration is in office at the time.
But perhaps one of the biggest and probably most depressing parts of the Eurogroup’s requests is this (emphasis ours):
… [Greece] to develop a significantly scaled up privatisation programme with improved governance; 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 of which EUR 25bn will be used for the repayment of recapitalization of banks and other assets and 50 % of every remaining euro (i.e. 50% of EUR25bn) will be used for decreasing the debt to GDP ratio and the remaining 50 % will be used for investments.
This fund would be established in Greece and be managed by the Greek authorities under the supervision of the relevant European Institutions. In agreement with Institutions and building on best international practices, a legislative framework should be adopted to ensure transparent procedures and adequate asset sale pricing, according to OECD principles and standards on the management of State Owned Enterprises (SOEs).
So Greece’s creditors are saying that the country needs to hurry up, find €50 billion (£36 billion, $US55 billion) in assets to sell-off so it can make sure its banking system continues to function, while the rest will be used to invest in making some money for the beleaguered country.
Greece is already dirt poor — just before the referendum it was reported that banks only had €500 million (£356 million, $US553 million) left in their collective coffers.
This is barely enough to keep the financial system going, let alone having enough to pay back its creditors on different payment dates, as highlighted by HSBC’s chief European economist Janet Henry and economist Fabio Balboni said in a note this morning:
More importantly, HSBC keenly pointed out several times in the note that Greece has to hurry up and start corralling its assets and selling them off to the private sector — a car boot or yard sale on a national scale.
HSBC said in the note entitled “Greece Agreement” (emphasis ours):
It must also commit to transfer EUR50bn of “valuable Greek assets” to an existing external fund, based in Greece and managed by the Greek authorities under the supervision of the relevant institutions, to be privatised over time with half of the proceeds used to lower debt.
The fund will also include the recapitalised Greek banks. The scale of the fund is substantial: to put it in context, so far the Greek privatisation programme has only raised EUR3.2bn since 2010, compared to an initial target of EUR50bn by the end-2015.
What will Syriza sell off?
This is where it gets really sticky for the Greek people. Greece doesn’t really have much to sell.
International Monetary Fund statistics show that Greece’s central bank has around 112.5 tons of gold, worth around €3.8 billion (£2.7 billion, $US4.2 billion).
In theory it could sell this off but it’s a drop in the ocean. Greece needs to raise €50 billion (£36 billion, $US55 billion) just to appease creditors’ conditions for this bailout.
There’s also a problem with selling all the gold. In June, just before Greece defaulted on its €1.6 billion (£1.1 billion, $US1.8 billion) debt payment to the IMF, Commerzbank analysts warned in a note that:
Furthermore, selling gold would deprive the country of its only really valuable reserves, which could be put to good use at a later date, perhaps to stabilise a new currency if Greece exits the euro. We think it is very unlikely that Greece is willing to go down this path.
Another option is to sell some of its islands. According to estimates from different books, Greece has between 1,200 to 6,000 islands. Obviously not all are inhabited – only around 10% of these islands have people living on it.
Already, British property agent Knight Frank is predicting a “fire sale” of Greek islands over the next few years, but this is for privately owned islands.
The upmarket property company says in its latest Islands Report: “As the long-term ramifications of Greece’s financial bailout play out more fire-sales of Greek islands are expected.”
There are already some islands up for grabs. On Private Islands Online, some islands are going for as little as €15 million (£10.6 million, $US16.5 million) to €40 million (£28.3 million, $US44.1 million). But, again this is a tiny amount, if €50 billion (£36 billion, $US55 billion) needs to be raised quickly.
So the options that Greece have left is few and far between and Greeks will not like it at all.
Greece would have to sell as many of their state-owned entities as possible and Business Insider’s Mike Bird pointed out to me that this closely resembles what Russia did in the 1990s. The country sold off hospitals, schools, and military bases to help bolster up the nation’s balance sheet.
Considering Greece has already gutted most of its state-owned enterprises after cutting tens of thousands of public sector jobs and tightening up pensions and salaries, it wouldn’t be selling companies, such as its public broadcaster ERT, for very much.
So, the final option is a massive raise in tax. Nobody likes taxes — especially the Greeks that have an unemployment rate is over 25% while the average income for a family is at a 12-year low.
No one is sure where Greece is going to get the money from and the nightmare is clearly not over for the nation. But what we do know, is that whatever route Greece takes in hiving off its valuable assets and selling them off, Greeks will be absolutely furious with the outcome.