ECONOMY

Structural reform acquires a higher priority as imminent entry into eurozone turns up the heat

Feeling the heat of the coming entry into the eurozone on January 1, which will usher the economy into a more competitive setting, the government appears determined to accelerate the pace of structural reforms. The ministers of economy and finance, Nikos Christodoulakis, and of transport and communications, Christos Verelis briefed Prime Minister Costas Simitis on Monday evening on the progress of privatizations, some of which have been plagued by long and exasperating delays. According to Christodoulakis, discussion focused on the sale of a majority stake in ailing Olympic Airways in view of the recent slump in the air transport sector and related issues now under consideration in the European Union. Sources close to Verelis said discussion additionally touched on all other prospective privatization schemes such as OTE Telecom (flotation of a further 8-percent stake), the post office (Hellenic Post) and its subsidiary the Postal Savings Bank. The government’s adviser on the privatization of Olympic Airways, Credit Suisse First Boston, is set to begin this week substantial negotiations with Australian-led consortium Integrated Airline Solutions (IAS), the second preferred bidder, after an initial round of negotiations with Axon Holdings earlier this month proved inconclusive. Sources say the government considers a broadening of the consortium desirable so as to ensure capital sufficiency for the carrier. The negotiations are projected to last until about the end of the year. Regarding OTE, the government is said to be already looking beyond the flotation of the 8-percent stake by abolishing the 33-percent floor for its stake dictated by existing legislation. The Postal Savings Bank is slated for conversion into a societe anonyme, required for listing on the bourse. The French and Dutch postal companies have submitted technical bids for Hellenic Post and the government is expected to invite their economic bids for the final selection. Shipyard Deputy Development Minister Alexandros Kalafatis yesterday rejected reports that the privatization of Hellenic Shipyards was now in doubt after the initial approval of Germany’s HDW Ferrostaal as the winner of the tender. The issue of the sale of Hellenic Shipyards will be over shortly before Christmas with the signing of the final agreement. Negotiations with the Germans are continuing smoothly, he told Flash radio station. According to press reports on Tuesday, the negotiations had hit a hitch after HDW had raised objections regarding penalty clauses in the shipyard’s contracts with Hellenic Railways for the construction of carriages, and demanded assurances that an option for the building of a submarine for the Hellenic Navy would be executed. According to sources, the two sides agreed that the delivery date for the carriages would be pushed backwards by two months, from January 1, 2003 to March 1, 2003, and that the submarine option would be activated. The same sources said that the government also accepted any fines that the European Commission might impose on the shipyard for various subsidies granted to it, including the cost of a voluntary retirement scheme. The scheme is formally subject to the approval of the European Competition Commission. The successful privatization of the shipyard would also open the way for that of the Hellenic Industrial Development Bank (ETBA), which holds a 51-percent stake in the shipyard. The sale of a majority stake in ETBA to Piraeus Bank was recently approved, on condition that it shed this stake. Papademos Bank of Greece Governor Lucas Papademos yesterday added to the sense of urgency for a speeding-up of structural reforms and fiscal adjustment. Speaking to an event organized by foreign commercial chambers in Thessaloniki, he said that beyond monetary stability, the adjustment of the modes of operation in both public and private sectors was also a prerequisite for Greece’s convergence with other EU economies. Fiscal adjustment would make further substantial contribution. But, according to Papademos, for convergence to be attained, there must be increases in productivity and competitiveness, along with the tapping of opportunities and the facing of challenges posed in the new environment of the eurozone. The completion of the transition to the euro, with its circulation in physical form, can boost the real convergence of the Greek economy, he said. Papademos sounded a warning that failure to promote structural reform, and persistently high inflation rates would cause erosion of competitiveness, with adverse consequences for the balance of payments, the gross domestic product and employment. IAS wants to restore OA to ‘glory’ By Dina Kyriakidou Reuters The Australia-based group vying for Olympic Airways plans to restore the ailing Greek company to its former glory as an airline of the five continents was undeterred by the world airline crisis, one of the group partners said yesterday. The environment is difficult…but this is our vision and the vision of all participants in our group, Grigoris Konstantellos, president of the Hellenic Airline Pilots Association (EHPA), told Reuters. EHPA is a main partner in the Integrated Airline Solutions (IAS) venture capital group which started 35-day negotiations for the sale of a majority stake in Olympic on Oct. 19, after talks with front-runner Axon Airlines failed. Originally placed third behind the small Greek airline Axon and Cyprus Airways by privatization adviser Credit Suisse First Boston (CSFB), IAS was told its business plan was overambitious and its management team too weak. But after the Cypriot airline pulled out and negotiations with Axon collapsed, the group now has a chance to convince the Greek state it can rescue the cash-strapped Olympic. Though based in Australia, IAS is made up of the pilot union, prominent Greek and Greek-American businessmen and Britain’s Brown and Root, a subsidiary of the US energy and petroleum giant Halliburton Co., which is primarily interested in Olympic’s technical base, Konstantellos said. Criticized for its management plan, IAS has recruited a team of 10 senior executives from other airlines to run Olympic. The shareholders will check their performance twice a year. IAS has also had expressions of interest in flight schedules and other cooperation from Australia’s Qantas and a subsidiary of Dubai’s Emirates airline. Analysts say it would be difficult for Axon or IAS to get Olympic on their own, and Greek ministers urged the two to work together to improve their plans. But IAS said it wanted to try to make it alone before considering cooperation. After a meeting with CSFB in London last week, IAS has asked for updated figures and assets from Olympic before setting up a new meeting with the advisers in Athens, Konstantellos said. Olympic expects losses of over $200 million in 2001 as a result of a global slowdown. Its assets are roughly estimated at $275 million, but its debts are thought to be much larger. The group, which is offering 130 million euros for 51 percent of Olympic, has changed its earnings expectations after the September 11 attacks in the United States and downsized initial flight network plans by about 18 percent. We will enter marginal profitability in three to three and a half years, Konstantellos said. September 11 has put us back by about two years. But, unlike the other bidders who envisioned a much-shrunk regional airline, the group will keep Olympic’s north America routes. Up for discussion is the final price, whether IAS will also purchase subsidiary Olympic Catering and the number of Olympic employees IAS will keep – slightly more than other bidders who had plans to halve staff.