Shrinking the Greek State

Wall Street Journal
Editorial
June 3, 2011

Europe's financial mandarins are hashing out another a bailout package for Greece this week, and once again the question is, who's going to pay for it? Since no one seems to want the inevitable—a significant write-down of the value of Greek debt—the International Monetary Fund and EU member states will likely cough up more money. Athens will be expected to contribute too, but how the Greeks do it matters as much as the amount they raise.

Privatization is a good place to start, since Greece's super-sized state is largely what got the country into fiscal trouble in the first place. The Socialists took office in 2009 and haven't sold a single company for fear of putting public-sector employees out of work and upsetting Greece's famously obstreperous unions. Yesterday, the telecommunications workers went on strike.

The push for Athens to act is gaining steam among creditors, which include the IMF, EU, central banks and private banks. To date, Athens has promised to sell stakes in telecommunications company OTE, the postal bank, major ports, a water company and more, and even named banks to manage the sales. That's a good, if late, start: Athens aims to raise 50 billion euros in total over the next five years.

The plan won't plug Greece's gaping debt hole. Analysts at London-based Independent Strategy estimate the country's sovereign debt will reach around €345 billion by the end of this year, or some 153% of GDP. That figure has caught the attention of critics like credit-rating agency Moody's, which noted Greece's "large debt burden" when it downgraded the country's sovereign debt three notches on Wednesday.

But privatization isn't good just for the capital it raises; it also injects competition into the economy, spurs innovation, reduces waste and will eventually help Greece grow its way out of debt, which is the only way the country can ultimately escape its fiscal crunch.

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