Economist
July 21, 2011
Investment bankers do not often advocate bigger government, but UBS’ Stephane Deo has an interesting paper arguing that wholesale privatisation is not the answer to European sovereign-debt problems. The potential revenues are significant—between them euro-zone governments own financial assets worth €2.35 trillion (or 26% of euro zone GDP), while UBS estimates non-financial assets such as property are worth double that. But Mr Deo suggests three alternatives to privatisation.
First, the likes of Greece may be able to return to the bond market earlier if they pledge revenue from state-owned assets as security against new bonds. Second, leasing state-owned property rather than selling it would provide consistent deficit-reducing revenue year after year, rather than a one-off debt reduction. Finally, rather than privatising state-owned enterprises, why not impose market discipline, while retaining ownership of the subsequent profits?
We too have argued that privatisation, in Greece in particular, should proceed more cautiously than currently planned. Proper regulation should be developed before state-owned utilities such as railways and electricity providers are sold off, to ensure sufficient competition to restrain price rises. But that is very different from avoiding privatisation altogether.
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