Will international creditors say yes again to Greece after today’s meeting in Brussels?
Part of the deal involves selling or leasing whatever the Greek government owns. The proceeds reduce the debt and meanwhile, by building roads and business parks, resuscitating ports and recapitalizing banks, foreign investors pour money into the country.
It has not been quite that easy, though.
A closer look at government-owned beaches that were for sale revealed squatter communities composed of thousands of undocumented houses. In addition, because Greek property registries are woefully inaccurate, land transfers everywhere have been problematic. (If you can’t prove you own the land, then no one will buy it from you.)
The ports? Greek citizens are worried about prime assets being transferred to foreign ownership or worse, to Greek oligarches awaiting a fire sale. In addition, no one appears to be quite sure how much ownership the government should retain. And even if the Greek parliament settles all of that, foreign banks hestitate to finance Greek deals and the Greek banks need recapitalization.
All of these privatization complications made me wonder how many deals could be involved so I went through a month of articles at eKathimerini.com and came up with this random list of government-owned properties that could be partially or entirely sold or leased. They represent only a small proportion of the hundred of deals that might transpire but do provide a picture of the massive task facing the Greek government.
Public Power Corporation
Gaming company, OPAP
State lottery licenses
Public Gas Corporation
Gas transmission operators
Elliniko International Airport
Athens Water Company
Assorted Port Authorities
Buildings that house state agencies
Thessaloniki Water Company
Larco, Europe’s largest ferronickel producer
Finally, where will the money go? Satisfying the bailout “troika,” the IMF, the European Central bank, and the European Commission, the Greek Parliament has issued “decrees” that direct the money to an escrow fund dedicated to paying the Greek debt.
Sources and Resources: I recommend these NY Times articles, here and here, for interesting stories while a Greek perspective is at eKathimerini.
Finally, the following Merle Hazard “Greek Debt Song” is always fun to watch.
Like New York’s Knickerbocker Bank in 1907 or Jimmy Stewart’s 1930s bank in It’s a Wonderful Life, the ingredients of a classic run include distraught depositors and rumors of a bank’s imminent demise. Lines are long, emotions are volatile and, as the Washington Post tells us about the Knickerbocker run, ”Stacks of green currency, bound into thousand dollar lots, were piled on the counters beside the tellers.” However, as Jimmy Stewart finally has to explain–your money is not here; it is in the loans we gave your neighbors for their homes. Unimpressed, people want their savings. As a last resort, Stewart gives them his honeymoon cash and the Knickerbocker closes its doors.
Fast forward to 2012 and Greece.
Called a slow run or maybe a bank jog, money is leaving Greek banks. 21.9% unemployment means many people need their savings for everyday expenses. Others are worried that if Greece leaves the euro zone, their euro savings will become drachma savings and the drachma could be worth 60% less. They are also concerned about deposit insurance. Yes, Greek accounts are insured. But by whom? A Greek government with no money. Then, to make all of this even worse, Greek banks own Greek bonds that markets have massively discounted.
What does it all add up to? “Drachmageddon.”
Also, it returns us to the timeless prototype of a “perfect financial storm” that 2 Darden School scholars describe in their history of The Panic of 1907. If you would like to read more of this amazingly prescient list (pp.4-5) here is an excerpt from their book.
An overly complex system that enables contagion.
Previously exuberant attitudes to growth.
Narrowing financial margins of safety.
Leadership that diminishes confidence and elevates uncertainty.
Unforeseen adverse economic events.
The emergence of a downward spiral with self-reinforcing pessimism.
Ineffectual collective problem solving.
While this NPR Planet Moneypodcast, this NPR article and this CNN article describe current Greek banking problems, the Bruner/Carr detailed history, The Panic of 1907, wonderfully conveys the characteristics of typical financial storms. Please note also that the term, “drachmageddon” came from Greek financial journalist Kostas Mariolis.