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Greece postpones privatization

by Renee Cordes | Published February 21, 2012 at 2:30 PM

As it welcomes a second international bailout and prepares still-deeper austerity measures, the Greek government is temporarily putting its privatization program on the back burner.

Wrapping up seven months of negotiations, euro-area finance ministers agreed early Tuesday, Feb. 21, to give Greece the €130 billion ($172 billion) it needs to avoid bankruptcy in March, with the amount to be contributed by the International Monetary Fund yet to be determined. The sovereign debt restructuring calls on private sector bondholders to accept a 53.5% write-down in the value of their €107 billion in Greek bonds, up from the 50% haircut that had been agreed in October.

The second aid package for Greece, unveiled after nearly 13 hours of talks, was approved after Athens signed up to far-reaching cuts in pensions, the minimum wage, healthcare and defense spending, as well as layoffs of state workers amid record high 20.9% unemployment.

Speaking to journalists in Brussels Tuesday, a European Union official said there would be no new Greek privatizations until June at the earliest, though the €19 billion target by 2015 still stands.

Some 35 transactions are foreseen over the next two years, with land and building sales (including Athens police headquarters) making up the bulk of these, the official said.

While Athens will stick to its €50 billion medium-term target, "the moment it will be achieved has been postponed," the official said, without giving a time frame.

"Greece should be saved, at least for the next couple of months," ING Belgium SA/NV senior economist Carsten Brzeski said in his initial response. "However, the feeling of relief is not likely to last for long."

Observers continue to question Greece's ability to raise money from selling state assets. "While the Greek government owns a huge number of sellable assets, the failure of the privatization program is an unfortunate mix of many of the problems facing Greece," including massive uncertainty over a future debt default and lack of demand from investors amid slowing economic growth and lack of credit, said Raoul Ruparel, head of economic research at Open Europe, a London-based think tank.

Even after Tuesday's stop-gap agreement, Ruparel said, "our concerns over the privatization still hold."

The aid package also came after Greece reached a debt-swap agreement with its private creditors, who will forgive 53.5% of their principal and trade in their remaining holdings for new Greek government bonds and notes from the European Financial Stability Facility.

To make sure Greece abides by its commitments there will be stricter monitoring of the country's accounts by European governments, as well as a task force to be set up in Athens.

Olli Rehn, the EU's economic and monetary affairs commissioner, said the agreement is an "essential step further for Greece and the euro area as a whole," but underscored the tough transition needed to make it work.

"It is clear that the Greek economy cannot rely anymore on a large public administration financed by cheap debt," he said, "but rather it needs to lean on investment, Greek and foreign, to facilitate new growth and creation of jobs."

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