Less haste, more freed: Experience suggests Greece’s privatisation plan is too fast

Economist
July 7, 2011

With a target of €50 billion ($72 billion) by 2015, Greece’s privatisation plan aims to raise more cash as a share of GDP than any OECD government has managed before. If the goal for listed companies is met, the market capitalisation of the Athens stock exchange would double. The economic benefits of privatisation are widely accepted: a 2003 OECD study found “overwhelming support” for the idea that “privatisation brings about a significant increase in the profitability, real output and efficiency of privatised companies.” But is Greece’s timetable too rapid?

Most privatisation programmes involve a trade-off between long-term structural reform and short-term fund-raising. In Greece’s case, there is an urgent need for money. Lenders want Greece to raise as much of it as possible so they can limit the amount they have to fork out in the next bail-out; the IMF hopes that asset sales will mean less growth-sapping austerity.

The trade-off between cash and reform is less severe in some areas than others. Property sales are expected to be Greece’s single largest source of revenue. By forcing Greece to spruce up its incomplete land registry, speed could have useful wider effects. But selling stakes in state monopolies is far more complex. Putting in place a regulatory framework that fosters more competition takes time, and is likely to depress sale prices by removing firms’ protections. Here revenue and reform may clash directly.

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