Europe’s vin­dic­tive pri­vati­sa­tion plan

Financial Mirror (Cyprus) - - FRONT PAGE -

On July 12, the sum­mit of eu­ro­zone lead­ers dic­tated its terms of sur­ren­der to Greek Prime Min­is­ter Alexis Tsipras, who, ter­ri­fied by the al­ter­na­tives, ac­cepted all of them. One of those terms con­cerned the dis­po­si­tion of Greece’s re­main­ing public as­sets.

Eu­ro­zone lead­ers de­manded that Greek public as­sets be trans­ferred to a like fund – a fire-sale ve­hi­cle sim­i­lar to the one used af­ter the fall of the Ber­lin Wall to pri­va­tise quickly, at great fi­nan­cial loss, and with dev­as­tat­ing ef­fects on em­ploy­ment all of the van­ish­ing East Ger­man state’s public prop­erty.

This Greek Treu­hand would be based in – wait for it – Lux­em­bourg, and would be run by an out­fit over­seen by Ger­many’s fi­nance min­is­ter, Wolf­gang Schäu­ble, the au­thor of the scheme. It would com­plete the fire sales within three years. But, whereas the work of the orig­i­nal Treu­hand was ac­com­pa­nied by mas­sive West Ger­man in­vest­ment in in­fra­struc­ture and large-scale so­cial trans­fers to the East Ger­man pop­u­la­tion, the peo­ple of Greece would re­ceive no cor­re­spond­ing ben­e­fit of any sort.

Eu­clid Tsakalo­tos, who suc­ceeded me as Greece’s fi­nance min­is­ter two weeks ago, did his best to ame­lio­rate the worst as­pects of the Greek Treu­hand plan. He man­aged to have the fund domi­ciled in Athens, and he ex­tracted from Greece’s cred­i­tors (the so-called troika of the Euro­pean Com­mis­sion, the Euro­pean Cen­tral Bank, and the In­ter­na­tional Mon­e­tary Fund) the im­por­tant con­ces­sion that the sales could ex­tend to 30 years, rather than a mere three. This was cru­cial, for it will per­mit the Greek state to hold un­der­val­ued as­sets un­til their price re­cov­ers from the cur­rent re­ces­sion-in­duced lows.

Alas, the Greek Treu­hand re­mains an abom­i­na­tion, and it should be a stigma on Europe’s con­science. Worse, it is a wasted op­por­tu­nity.

The plan is po­lit­i­cally toxic, be­cause the fund, though domi­ciled in Greece, will ef­fec­tively be man­aged by the troika. It is also fi­nan­cially nox­ious, be­cause the pro­ceeds will go to­ward ser­vic­ing what even the IMF now ad­mits is an un­payable debt. And it fails eco­nom­i­cally, be­cause it wastes a won­der­ful op­por­tu­nity to cre­ate home­grown in­vest­ments to help counter the re­ces­sion­ary im­pact of the puni­tive fis­cal con­sol­i­da­tion that is also part of the July 12 sum­mit’s “terms.”

It did not have to be this way. On June 19, I com­mu­ni­cated to the Ger­man gov­ern­ment and to the troika an al­ter­na­tive pro­posal, as part of a doc­u­ment en­ti­tled “End­ing the Greek Cri­sis”:

“The Greek gov­ern­ment pro­poses to bun­dle public as­sets (ex­clud­ing those per­ti­nent to the coun­try’s se­cu­rity, public ameni­ties, and cul­tural her­itage) into a cen­tral hold­ing com­pany to be sep­a­rated from the gov­ern­ment ad­min­is­tra­tion and to be man­aged as a pri­vate en­tity, un­der the aegis of the Greek Par­lia­ment, with the goal of max­imis­ing the value of its un­der­ly­ing as­sets and cre­at­ing a home­grown in­vest­ment stream. The Greek state will be the sole share­holder, but will not guar­an­tee its li­a­bil­i­ties or debt.”

The hold­ing com­pany would play an ac­tive role ready­ing the as­sets for sale. It would “is­sue a fully col­lat­er­alised bond on the in­ter­na­tional cap­i­tal mar­kets” to raise EUR 30-40 bln, which, “tak­ing into ac­count the present value of as­sets,” would “be in­vested in mod­ernising and restruc­tur­ing the as­sets un­der its man­age­ment.”

The plan en­vis­aged an in­vest­ment pro­gramme of 3-4 years, re­sult­ing in “ad­di­tional spend­ing of 5% of GDP per an­num,” with cur­rent macroe­co­nomic con­di­tions im­ply­ing “a pos­i­tive growth mul­ti­plier above 1.5,” which “should boost nom­i­nal GDP growth to a level above 5% for sev­eral years.” This, in turn, would in­duce “pro­por­tional in­creases in tax rev­enues,” thereby “con­tribut­ing to fis­cal sus­tain­abil­ity, while en­abling the Greek gov­ern­ment to ex­er­cise spend­ing dis­ci­pline with­out fur­ther shrink­ing the so­cial econ­omy.”

In this sce­nario, the pri­mary sur­plus (which ex­cludes in­ter­est pay­ments) would “achieve ‘es­cape ve­loc­ity’ mag­ni­tudes in ab­so­lute as well as per­cent­age terms over time.” As a re­sult, the hold­ing com­pany would “be granted a bank­ing li­cense” within a year or two, “thus turn­ing it­self into a full-fledged De­vel­op­ment Bank ca­pa­ble of crowd­ing in pri­vate in­vest­ment to Greece and of en­ter­ing into col­lab­o­ra­tive projects with the Euro­pean In­vest­ment Bank.”

The De­vel­op­ment Bank that we pro­posed would “al­low the gov­ern­ment to choose which as­sets are to be pri­va­tised and which not, while guar­an­tee­ing a greater im­pact on debt re­duc­tion from the se­lected pri­vati­sa­tions.” Af­ter all, “as­set val­ues should in­crease by more than the ac­tual amount spent on mod­erni­sa­tion and restruc­tur­ing, aided by a pro­gramme of public-pri­vate part­ner­ships whose value is boosted ac­cord­ing to the prob­a­bil­ity of fu­ture pri­vati­sa­tion.”

Our pro­posal was greeted with deaf­en­ing si­lence. More pre­cisely, the Eurogroup of eu­ro­zone fi­nance min­is­ters and the troika con­tin­ued to leak to the global media that the Greek author­i­ties had no cred­i­ble, in­no­va­tive pro­pos­als on of­fer – their stan­dard re­frain. A few days later, once the pow­ers-that-be re­alised that the Greek gov­ern­ment was about to ca­pit­u­late fully to the troika’s de­mands, they saw fit to im­pose upon Greece their de­mean­ing, unimag­i­na­tive, and per­ni­cious Treu­hand model.

At a turn­ing point in Euro­pean history, our in­no­va­tive al­ter­na­tive was thrown into the dust­bin. It re­mains there for oth­ers to re­trieve.

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