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Greece is gearing up for its biggest privatization effort. The unions are gearing up to stop it. If they win, Greece's ability to stave off a default is in serious jeopardy.

Under pressure from its paymasters – the European Union, the International Monetary Fund and the European Central Bank – Athens agreed to launch the aggressive privatization program a few days ago. Theoretically worth €50-billion ($70-billion), it would see everything from state investments in phone companies to shipping ports sold off.

Mass privatizations have emerged as one of the main conditions for the next instalment of Greece's €110-billion bailout package, received a year ago, when the country hit the debt wall and was unable to fund itself. If the privatizations proceed, the EU might also agree to some other goodies, such as trimming the interest rates on Greece's bailout loans, or extending their maturities.

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Unless Athens receives the next €12-billion loan instalment, Greece would "most likely" go bankrupt, Finance Minister George Papaconstantinou said in a TV interview earlier this week. "The country would stop paying salaries, pensions and its other expenses. The shutters would come down."

The privatization effort is designed to buy time while deeper austerity and reform programs are put in place, pay down some debt and make the economy more competitive by shedding bloated businesses, even if the privatizations themselves will involve considerable cost, such as paying investment bankers and lawyers, and soak up a lot of bureaucratic management time. Quick privatizations also risk fire-sale prices. The sale of any profitable, stake-controlled enterprises would also deprive the government of steady cash flow.

Spain is another country that is trying to use privatizations to plug financial holes. This week, it announced the sale of Loterias, the state lottery company famous for its "El Gordo" (The Fat One) Christmas lottery, whose payout is thought to be the world's biggest.

The privatization effort is off to a rocky start. On Friday, Greek Prime Minister George Papandreou failed to gain opposition support for the new austerity program, including the privatizations and higher taxes. But since his socialist party has a majority in Parliament, he should be able to push through the reforms even without cross-party support.

Economists and analysts think the Greek privatizations are both essential and too ambitious. They note that Greece's historic privatization efforts have been largely unsuccessful and the new effort is already being fiercely resisted by opposition parties and the unions.

"You have very powerful unions who have a very cozy life because of government ownership," said Michael Mitsopoulos, an economist in Athens for the Association of Greek Industries. "They won't be happy to accept their loss of privilege."

Already the unions, backed by most of the opposition parties, are preparing for a fight. Thousands of Greeks took to the streets in Athens and Thessaloniki on Wednesday to protest the reform effort. The day before, employees of Postbank, one of the state investments that is to be sold, blocked the entrance to the retail bank's headquarters in Athens. The country's public sector umbrella union, ADEDY, plans to hold a 24-hour strike next month to protest the privatizations.

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The GSEE union, which claims to have a million members, also plans to protest the austerity and privatization efforts. "Our response will come in the street," Stathis Anestis, a senior GSEE member, told AFP. "This is no rescue package, it's a liquidation."

The privatizations are sweeping and are to include the government's stakes in public and private companies and land. They include OTE, the largest telecommunications company in the Balkans; the ports of Piraeus, near Athens, and Thessaloniki; PPC, the country's biggest electricity producer; horse-racing player ODIE; and train operator TrainOSE.

Details of the sales' timing, value and strategy are scant. While some analysts think raising €50-billion is unrealistic, others say it's possible, though land sales could bog down under the weight of legal and zoning restrictions. The IMF has estimated that Greece has state assets worth more than 100 per cent of GDP, though the country's debt-to-GDP ratio, at an estimated 143 per cent this year, is considerably higher and the highest among the euro zone countries.

Greece's first privatization effort was launched in the early 1990s under Stefanos Manos, who was minister of economy and finance at the time. Before he lost his job in 1993, the telecom industry deregulation was well under way and public-private partnerships were put in place. Later, banking was deregulated to some degree. But then the political will to keep going evaporated and the deregulation and privatization processes pretty much stopped.

Mr. Manos says some of the state enterprises are wildly inefficient, make-work projects. He noted that the salaries of the state rail company vastly exceeded the company's revenues. In an interview last year, he said the government would save money if closed the rail system and paid for cabs for everyone.

The waste continues. Rail employees get extra pay if their train journeys take them more than 50 kilometres from their home town. Employees of the state oil company receive a daily food stipend even though cafeteria food is free.

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Mr. Mitsopoulos says the biggest potential obstacle to the success of the privatization program is a dragged-out process. Fast sales would do two things, he said. It would collect a lot of money quickly, which could be used to pay down debt, and it would deliver the message that Greece is finally serious about making its economy competitive. "All these state investments are burdens on the government," he said. "Privatizations will deliver productivity gains and they can be transformed into tax-paying entities."

A slow process, he said, would reinforce the government's image for dithering. Worse, the trickle of proceeds from the sales would not be enough to pay down debt and would be used instead merely to fund deficits, leaving Greece's crushing debt load intact.

Privatizations are expected to pick up pace across the EU, as countries with budgets deficits above the 3-per-cent EU limit look for quick debt fixes in the absence of strong GDP growth. The Loterias privatization in Spain is expected to raise about €10-billion, valuing the company at as much as €25-billion, making it the second-largest gaming company in the world, behind casino manager Las Vegas Sands.

Portugal is also planning a slew of privatizations aimed at making its perennially sluggish economy more competitive.

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About the Author
European Columnist

Eric Reguly is the European columnist for The Globe and Mail and is based in Rome. Since 2007, when he moved to Europe, he has primarily covered economic and financial stories, ranging from the euro zone crisis and the bank bailouts to the rise and fall of Russia's oligarchs and the merger of Fiat and Chrysler. More

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