EU demands sale of Greece's assets
By Alex Davidson
The fire-sale of Greek public assets has speeded up following the latest bail-out agreed by the Troika (European Union, European Central Bank and International Monetary Fund). At the end of May 2016 the €10.3bn latest bailout was finally released to Greece after the Syriza-ANEL (Independent Greeks) coalition government capitulated to the demands of the Troika and agreed to far-reaching and further painful measures in return for receiving financial help. The measures include further tax rises, VAT increases and more privatisation.
VAT will rise to 24% on groceries, mobile phone calls and most consumer goods. Increases in the price of coffee, tobacco, internet use and other items were also introduced. Pannos Kammenos, Defence Minister and leader of the right-wing Independent Greeks (ANEL) blasted the rise in VAT on small Aegean Islands – which he had just voted for – as “criminal”. One Syriza MP resigned over the issue.
Following the draconian measures adopted by the Syriza-ANEL government and passed through the Greek Parliament, Eurozone Ministers met in Brussels to consider releasing the next bail-out money. After an 11 hour meeting it was agreed to release the €10.3bn to cover Greece’s debt repayments for the rest of the year.
EU / IMF differences
Prior to the meeting of Eurozone Finance Ministers, the International Monetary Fund (IMF) had issued a stark warning that Greece’s debt was unsustainable unless there was immediate debt relief and reduction in interest rates on the current loans. [i]
According to the IMF forecast Greece will be burdened with debts worth 250% of GDP by 2050 if there is not a “substantial reprofiling” of the terms of the loans. According to the IMF “reprofiling” by extending repayment terms and fixing interest rates at lower levels could reduce Greece’s debt burden to 100% of GDP by 2050.
The EU did not agree to the IMF position, although some countries (eg Spain) were sympathetic to the idea, believing that Greece had taken sufficient steps to justify some loosening of the shackles. However, Germany would have none of it. The German Finance Minister, Wolfgang Schauble, re-iterated his position stated in an earlier interview with Der Spiegel [ii], “Debt relief is not possible within the currency union. European treaties do not allow it.”
The differences between the EU and the IMF over Greece’s debt sustainability have been a bone of contention among the creditors for some time. Eurozone officials think Greece’s austerity plans could generate a regular budget surplus of 3.5% of GDP. But IMF Managing Director Christine Lagarde has described this scenario as “a far-fetched fantasy”. The IMF officials argue that a surplus of 1.5% is more realistic although even this would be ambitious as it would require the Greek government to meet the Troika targets and keep to extremely tight spending plans.
The IMF has acknowledged that they would have preferred up-front debt relief as Greece’s debt is unsustainable but concede that they have now compromised. Poul Thomsen, Director, IMF European Department, stated: “On the part of the IMF I believe that we have made a major concession. I might as well be open about that. We had argued that these debt relief measures should be approved upfront and we have agreed that they will be approved at the end of the program period…” [iii]
The concession made by the EU is to agree that the question of debt relief will be reviewed at the end of the current programme period in 2018. Simonetta Nardini, IMF Head of Media Relations, relayed this in a conference call: “Debt relief is firmly on the agenda now. Our European partners and all the other stakeholders all now recognise that Greek debt is unsustainable, is highly unsustainable, they accept that debt relief is needed.” [iv]
So, the deal struck in Brussels delays the issue of debt relief until 2018 when the current bail-out programme ends, but, even then there are no guarantees that it will happen.
As part of the latest bail-out the Greek government agreed to speed-up the privatisation of public assets.
The German company, Fraport, had already acquired the fourteen most profitable Geek regional airports including those in Corfu, Crete, Kefalonia, Mykonos, Rhodes, Samos, Santorini, Thessaloniki and Zakynthos. These airports have a very high tourist traffic serving some 19 million passengers per annum. The deal with Fraport amounted to €1.2 billion for a period of 40 years with an option of a further 10 years.
The Greek state earned €450 million every year from these airports so Fraport is getting ownership on the cheap. The deal has left the Greek government with the remaining small unprofitable airports and the income from the sale of the 14 airports now goes to Fraport.
The Greek government had established the “Hellenic Republic Asset Development Fund” (HRADF or Taiped, to use its Greek acronym) to deal with the sale of Greek public assets. Taiped employed a “technical consultant” when tendering, choosing Lufthansa Consulting GmbH. Just under 90% of Lufthansa Consulting is owned by Lufthansa Commercial Holding, a subsidiary of Deutsche Lufthansa AG. Deutsche Lufthansa AG in turn holds just under 8.5% of the airport operator Fraport AG.
Fraport and Lufthansa Consulting are both headquartered at Frankfurt Airport. A majority of shares in Fraport are held by the German Federal State of Hessen and the City of Frankfurt (a total of 51.35%). This means a large chunk of the revenue from the most profitable Greek airports will now go to the public budget of Germany for the next 40 years.
This was the first big sale of Greek public assets to go towards the privatisation fund of €50 billion demanded by German Finance Minister, Wolfgang Schauble. Half of this fund was due to go to the recapitalisation of the Greek banks.
Piraeus Port sold
The latest privatisation is that of the port of Piraeus. A 67% stake was sold in August 2016 by the Greek government to the Chinese Ocean Shipping Company (COSCO) for €368.5 million. COSCO is a Chinese government-owned company. The sale went ahead despite the lengthy strike by the Piraeus port workers in protest at the sale of this Greek public asset.
A subsidiary of COSCO already owns two of Piraeus port’s three container terminals. Piraeus port received an annual lease of around €35 million from the COSCO subsidiary for the two container terminals. 67% of this money will now go to the majority shareholder of Piraeus port, that is, from one of COSCO’s pockets into another. This means that the Greek state will lose at least €700 million by the end of the lease.
As part of the deal COSCO have agreed to invest in the port. However, €115 million of Euro funds were already earmarked for the expansion of the cruise ship terminal at Piraeus. This will now assist COSCO to meet their target investment agreed as part of the sale.
The Greek state rail company, TrainOSE, the sole operator for passenger and freight services in Greece, was sold in July 2016 to the Italian rail company “Ferrovie Dello Stato Italiane Spa” for €45 million. The Italian rail company is a government-owned holding company and it is the third largest rail company in Europe. The Greek state-owned Railway Rolling Stock Maintenance company has so far failed to attract a bidder but has now been put back on the market.
In October 2015 EU Transport Ministers endorsed the EU’s Fourth Railway Package. The European Council followed suit, agreeing that mandatory competitive tendering should be the main way of awarding public service contracts. The European Parliament then “rubberstamped” the EU’s Fourth Railway Package, which means that train operators must have complete access to the networks of member states to operate domestic passenger services.
A number of EU member states including France, Germany and the Netherlands have used EU rail directives to build up a large portfolio of franchises across the EU, giving them a head start in the scramble to dominate the complete opening of rail markets across Europe. These state companies have been skimming the profits in order to invest in their own networks and strengthen their market position.
The new EU rules demand that railway companies have access to all EU domestic passenger rail markets from January 1st 2019 in time for railway timetables starting on December 14th 2020.
The British Labour MP Kelvin Hopkins warned that the core intention of the Fourth Railway Package was designed to visit the mistakes made in Britain on the rest of the EU. He said, “railway privatisation in the UK was a laboratory experiment that was designed in the EU.” He added that “It has been an expensive failure…Separating trains from track and privatising train companies has been massively expensive to taxpayers and passengers.” [v]
So, Greek railways may have been bought by the Italian state railway but it will be fully privatised by 2019.
Deutsche Telekom buys Greek Telekom
Deutshe Telekom bought into Hellenic Telekom (OTE) in 2009 in a privatisation deal as part of an earlier Greek bailout. In 2011 Deutsche Telekom took a 40% stake becoming the largest shareholder leaving the Greek state with 10% of the shares. The other shares are in the hands of Institutional investors and Greek oligarchs. In 2015 it made profits of €280.8 million.
The company dispensed with the use of the name, OTE, and adopted Cosmote as a uniform commercial brand. It chose not to adopt the Deutsche Telekom brand under which name it operates in Central and Eastern European operations. OTE (Cosmote) owns 54% Telekom Rumania.
Deutsche Telekom has 225,243 employees worldwide and it operates in 50 countries. The Federal republic of Germany owns 31.7% of its shares. Yet again the sale of what was a Greek public asset is now effectively in the hands of Germany.
Hellenic Petroleum, has three oil refineries in Greece and one in Macedonia. It is the leading oil refiner in Greece and supplies 85% of Macedonia’s oil needs. This public asset is now up for sale.
In addition, most other Greek public assets are being put in the shop window and will be sold at bargain basement prices. These include a catalogue of beaches, islands, boutique hotels, golf courses, Olympic venues, historic properties, the Athens Water Supply and Sewerage, the State Lotteries and Hellenic Post. More than 500 islands and large tracts of Greece’s 16,000 kilometre-long coastline are on the list.
More than 70,000 pieces of real estate are to be transferred to The Hellenic Republic Asset and Development Company in what will amount to the biggest privatisation programme on the continent of Europe.
The full catalogue is readily accessible on the HRADF website: https//www.hradf.com/en/portfolio
Another aspect of the latest bail-out agreement was that the Greek government should establish a new privatisation super-fund, which will claim ownership of all assets of the Greek state including 70,000 real estate properties, all major state enterprises like utility companies (electricity, water) and public transport (buses, metro), state shares in banks and the assets currently held by Taiped. The new privatisation super-fund is to be called “The Hellenic Company for Assets and Participation” (HCAP).
HCAP will have a 5 member Supervisory Board. 3 members will be appointed by the Greek State with the prior approval of the EU Commission and the European Stability Mechanism (ESM). Two representatives from the European Stability Mechanism will sit on the Supervisory Board appointed by the EU Commission and ESM. One of the ESM members will be Chairman of the Board. Decisions will be taken with the consent of 4 members of the Board So, the consent of one of the ESM members will always be required.
This setting-up of this new super-fund was the fulfilment of last year’s idea of German Finance Minister, Wolfgang Schauble, who had always argued for €50 billion of “valuable” Greek assets to be placed in a special fund beyond the reach of the Greek government. The super-fund has been given a lifespan of at least 99 years.
The one thing missing from the Greek privatisation agency is a notice outside its office saying “A nation for sale everything must go.”
[i] IMF Country Report No 16/130, 23 May 2016 - Greece: Preliminary Debt Sustainability Analysis Updated Estimates and Further Considerations.
[ii] Der Spiegel, 18 July 2015.
[iii] IMF Transcript: Excerpt from a Eurogroup Press Conference on Greece, 25 May 2016.
[iv] IMF Transcript of a Conference Call on Greece, Simonetta Nardini, IMF Head of Media Relations, 25 May 2016.
[v] Hopkins, K., quoted in EU Seals Mass Privatisation, Trade Unionists Against EU (TUAEU), 8 July 2016.
"The British Labour MP Kelvin Hopkins warned, 'railway privatisation in the UK was a laboratory experiment that was designed in the EU.' He added that 'It has been an expensive failure...Separating trains from track and privatising train companies has been massively expensive to taxpayers and passengers."