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Greece will default if it fails to rein in unions

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Filed: Timeline

Greece is gearing up for its biggest privatization effort. The unions are gearing up to stop it. If they win, Greece’s ability to stave off a default is in serious jeopardy.

Under pressure from its paymasters – the European Union, the International Monetary Fund and the European Central Bank – Athens agreed to launch the aggressive privatization program a few days ago. Theoretically worth €50-billion ($70-billion), it would see everything from state investments in phone companies to shipping ports sold off.

Mass privatizations have emerged as one of the main conditions for the next instalment of Greece’s €110-billion bailout package, received a year ago, when the country hit the debt wall and was unable to fund itself. If the privatizations proceed, the EU might also agree to some other goodies, such as trimming the interest rates on Greece’s bailout loans, or extending their maturities.

Unless Athens receives the next €12-billion loan instalment, Greece would “most likely” go bankrupt, Finance Minister George Papaconstantinou said in a TV interview earlier this week. “The country would stop paying salaries, pensions and its other expenses. The shutters would come down.”

The privatization effort is designed to buy time while deeper austerity and reform programs are put in place, pay down some debt and make the economy more competitive by shedding bloated businesses, even if the privatizations themselves will involve considerable cost, such as paying investment bankers and lawyers, and soak up a lot of bureaucratic management time. Quick privatizations also risk fire-sale prices. The sale of any profitable, stake-controlled enterprises would also deprive the government of steady cash flow.

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Already the unions, backed by most of the opposition parties, are preparing for a fight. Thousands of Greeks took to the streets in Athens and Thessaloniki on Wednesday to protest the reform effort.

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The GSEE union, which claims to have a million members, also plans to protest the austerity and privatization efforts. “Our response will come in the street,” Stathis Anestis, a senior GSEE member, told AFP. “This is no rescue package, it’s a liquidation.”

The privatizations are sweeping and are to include the government’s stakes in public and private companies and land. They include OTE, the largest telecommunications company in the Balkans; the ports of Piraeus, near Athens, and Thessaloniki; PPC, the country’s biggest electricity producer; horse-racing player ODIE; and train operator TrainOSE.

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Greece’s first privatization effort was launched in the early 1990s under Stefanos Manos, who was minister of economy and finance at the time.

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Mr. Manos says some of the state enterprises are wildly inefficient, make-work projects. He noted that the salaries of the state rail company vastly exceeded the company’s revenues. In an interview last year, he said the government would save money if closed the rail system and paid for cabs for everyone.

The waste continues. Rail employees get extra pay if their train journeys take them more than 50 kilometres from their home town. Employees of the state oil company receive a daily food stipend even though cafeteria food is free.

http://www.theglobeandmail.com/report-on-business/greece-prepares-for-assets-fire-sale/article2039143/singlepage/#articlecontent

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