“Some Greeks feel the pri­vati­sa­tion of state as­sets un­der­mines growth be­cause it sells Athens’ ad­van­tages to for­eign states... In­stead of keep­ing cam­paign prom­ises, Syriza agreed to more aus­ter­ity or risk ex­it­ing the Eu­ro­zone”

Financial Mirror (Cyprus) - - FRONT PAGE -

Athens signed its first ma­jor deal to pri­va­tise 14 air­ports for EUR 1.2 bln ($1.3 bln) with Fra­port, a Ger­man air­port op­er­a­tor. The com­pany will pay a fixed an­nual rental fee of EUR 23 mln, and in­vest EUR 330 mln to up­grade fa­cil­i­ties over the next four years. In ad­di­tion, China Cosco Hold­ing Co., that al­ready op­er­ates two con­tainer ter­mi­nals there as a hub for Asian ex­ports, is the sole bid­der for a ma­jor­ity stake of the Pi­raeus port ex­pected to gen­er­ate about EUR 700 mln. The sec­ond big­gest Greek port in Thes­sa­loniki is ex­pected to be pri­va­tised this year, and bind­ing bids are an­tic­i­pated in April.

The Greek gov­ern­ment will pay to possess 51% of Greece’s In­de­pen­dent Power Trans­mis­sion Op­er­a­tor, which is owned by the Pub­lic Power Cor­po­ra­tion (PPC/DEH); the re­main­ing 20% will be sold to a pri­vate in­vestor and 29% will float on the Athens stock ex­change. More­over, Greece’s banks suf­fer from non-per­form­ing loans in­clud­ing mort­gages, con­sumer debt, and com­pany bor­row­ing — more than 48% are not be­ing re­paid on time, pri­mar­ily due to lack of jobs and in­come. As a re­sult, Greece de­vel­oped a sec­ondary mar­ket for non­per­form­ing loans, debt re­ceiv­ables un­paid for a pe­riod of more than 90 days. NPLs are to be man­aged by loan as­set com­pa­nies to sta­bilise the bank­ing sec­tor by pro­vid­ing im­me­di­ate liq­uid­ity to the rel­e­vant credit in­sti­tu­tions while as­sist­ing bor­row­ers with re­struc­tur­ing debts. Th­ese moves send a strong mes­sage that the Greek econ­omy is aim­ing for growth.

Con­sid­er­ing Prime Min­is­ter Alexis Tsipras has pub­licly stated he does not sup­port the re­forms, th­ese are some im­pres­sive devel­op­ments, but Greek cit­i­zens are not happy. Some Greeks feel the pri­vati­sa­tion of state as­sets un­der­mines growth be­cause it sells Athens’ ad­van­tages to for­eign states. Fur­ther­more, over 60% of Greek cit­i­zens voted against aus­ter­ity in a ref­er­en­dum ear­lier last year – the first time cit­i­zens were able to voice their opin­ion on the eco­nomic cri­sis.

In­stead of keep­ing cam­paign prom­ises, Syriza, the po­lit­i­cal party in con­trol of the Greek par­lia­ment, agreed to more aus­ter­ity or risk ex­it­ing the Eu­ro­zone. Un­for­tu­nately, Greece is likely to re­ceive only EUR 2.5 bln from pri­vati­sa­tion deals, less than the EUR 3.7 bln agreed to in the most re­cent bailout agree­ment. At this time, the gov­ern­ment holds a frag­ile ma­jor­ity of three mem­bers of par­lia­ment, down from five af­ter the Septem­ber elec­tion. It will not be a sur­prise if the gov­ern­ment’s ma­jor­ity col­lapses again and new elec­tions are called in 2016.

In the be­gin­ning of next year, Athens will strug­gle to pass key re­forms, in­clud­ing re­vamp­ing the pen­sion sys­tem.

Greece has one of the most ex­pen­sive pen­sion sys­tems in Europe, con­sum­ing 17.5% of GDP, and about one in five Greeks are over 65 years old. While pen­sion chec­ques are not large (the av­er­age pen­sion is about EUR 700, and 45% of pen­sions are be­low the poverty rate of EUR 665), the pen­sion sys­tem is suf­fer­ing a deficit due to decades of tax eva­sion and un­em­ployed youth not able to make fi­nan­cial con­tri­bu­tions. While Greece’s cred­i­tors in­sist on cut­ting pen­sion costs by EUR 1.8 bln, Syriza would rather in­crease em­ployer and em­ployee con­tri­bu­tions as pen­sions have al­ready been cut over ten times since the be­gin­ning of the fi­nan­cial cri­sis. This means there will be in­tense con­tro­versy over pen­sions in the be­gin­ning of 2016.

Ful­fill­ing the first wave of pol­icy changes agreed to in the lat­est bailout is nec­es­sary for the Euro­pean Union, Euro­pean Cen­tral Bank, and In­ter­na­tional Mon­e­tary Fund to con­duct the first re­view of the Greek econ­omy. Af­ter this re­view, dis­cus­sions on how to re­struc­ture Greece’s EUR 320 bln debt will fol­low – re­call the IMF de­ter­mined Greece’s debt to be un­sus­tain­able in June. Re­struc­tur­ing the debt could in­clude ex­tend­ing the re­pay­ment due date, de­lay­ing pay­ments, cap­ping in­ter­est and debt ser­vice costs, and ty­ing re­pay­ment to GDP growth, giv­ing Greece’s econ­omy some time to grow. With­out re­struc­tur­ing the debt, Greece’s econ­omy will likely shrink in 2016, and un­em­ploy­ment will re­main high.

While the IMF and White House pro­mote a hair­cut on Athens’ debt, Greece’s cred­i­tors say this is not an op­tion. This is ironic given that Ger­many was the re­cip­i­ent of one of the largest re­struc­tur­ing pro­grammes in history af­ter World War II — Greece and about 20 other coun­tries wrote off a large chunk of Ger­man loans and re­struc­tured the re­main­ing debt by ex­tend­ing the re­pay­ment sched­ule, and grant­ing a lower in­ter­est rate. West Ger­many’s debt re­pay­ment sched­ule was linked to its abil­ity to pay by ty­ing re­pay­ment to its cur­rent and ex­pected trade sur­pluses. Thus, Ger­many was free of dif­fi­cult debt pay­ments, trad­ing part­ners were in­cen­tivised to buy Ger­man goods, and its econ­omy was able to grow.

The Euro­pean uni­fi­ca­tion project has been called into ques­tion be­cause it has cur­rency in­te­gra­tion with­out a cor­re­spond­ing po­lit­i­cal unity. Fi­nan­cial crises as seen in the Eu­ro­zone do not oc­cur in the U.S. be­cause it has a strong cen­tral gov­ern­ment – the fed­eral gov­ern­ment pro­vides au­to­matic bailouts to states in trou­ble. Af­ter the sav­ings and loan cri­sis in Texas in the 1980s, for ex­am­ple, tax­pay­ers in other states paid to clean up the eco­nomic mess – th­ese states did not ask for their money back as Eu­ro­zone mem­bers are cur­rently ask­ing of Greece. Hence, it is a po­lit­i­cal choice to have a debt cri­sis since the Euro­pean Cen­tral Bank could guar­an­tee Greece’s debt and in­ter­est rates would come down as a re­sult.

Fur­ther­more, Eu­ro­zone mem­bers are not able to de­value their cur­rency to make ex­ports more at­trac­tive and in­crease for­eign in­vest­ment. Aus­ter­ity has only been shown to work if coun­tries are able to de­value their cur­rency, like when Canada slashed its debt in the 1990s – it was able to main­tain growth and re­duce un­em­ploy­ment by re­duc­ing in­ter­est rates and en­cour­ag­ing pri­vate spend­ing while de­valu­ing its cur­rency to en­cour­age ex­ports.

The refugee cri­sis is also plac­ing more fi­nan­cial ob­sta­cles in Athens’ path. In 2015 1 mln mi­grants en­tered Europe, 800,000 of them via Greece. The Hel­lenic Repub­lic has spent about 1 bln eu­ros cop­ing with the in­flux. Greece is work­ing with the EU to cre­ate a com­mon im­mi­gra­tion pol­icy and im­prove co­op­er­a­tion with sur­round­ing coun­tries. The Greek gov­ern­ment is also work­ing with Tur­key to elim­i­nate hu­man traf­fick­ing net­works, share in­for­ma­tion, and co­op­er­ate with re­spon­si­ble au­thor­i­ties like the po­lice and coast guard.

Greece has made some progress to­wards growth that will hope­fully lead to an in­crease in jobs, more tax rev­enues for the gov­ern­ment, and fur­ther for­eign in­vest­ment in the coun­try. Af­ter re­struc­tur­ing the Hel­lenic Repub­lic’s debt and the econ­omy be­comes stronger, Athens may then be able to re­duce taxes to in­crease pri­vate sec­tor spend­ing, and Tsipras may be able to ful­fill his aim to lift cap­i­tal con­trols by March 2016.

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