Privatization is best avenue to boosting economic growth

The deterioration of Greece’s public finances makes it imperative that the government brings down the budget deficit and the public debt as a percentage of GDP while fostering growth. Given their decision to hike indirect taxes and the limited capacity in cutting primary spending, the authorities have no option but to go for market-friendly solutions to turn the economic tide in their favor – even it means displeasing large segments of the population, say bankers and businessmen. «The government has until Easter (end April) to show it is in charge of the situation, change the momentum and help improve market sentiment,» says a top executive at a large private bank. «They have no option but to take market-friendly measures and please the market even at the expense of displeasing the unions and others if they want to save their term.» He says the government should stop dragging its feet and move more decisively on the privatization front, and speed up payment to companies in IT and construction for completed projects to help prevent a developing liquidity squeeze in these two and other interrelated sectors from spreading beyond control. Trying to keep Greek companies from moving to neighboring countries by reviewing the price elements of their cost base set by the state is also important, in his view. Start too slow This top banker is not alone. Similar views are shared by many others in the Greek business community disappointed by what they regard as insufficient action. They all share the view that the government should have moved aggressively in the first six to eight months after coming to power to tackle Greece’s chronic economic problems. Not surprisingly, some government officials do admit in private that they did not do as much as they should have done at the time – even though they offer excuses such as «we were all going full speed on the stadiums at the time,» implying the Olympics had a role to play in the delay. Should a government reshuffle provide a solution to this problem? Perhaps, but only if it contributes to better coordination and teamwork in implementing policies in some key ministries and among different industries, they say. Such problems have been long cited in the local press, sometimes reflecting differences of opinion and in some other cases a clash of politically ambitious personalities. No elections, please Would holding early general elections so as to get a fresh four-year mandate and embark thereafter on a bold economic plan be another way out of the current economic situation? Well, most businessmen appear to be against early elections, citing specific reasons, although they all agree that the conservatives would win them relatively easily if they were held, albeit commanding a smaller lead over the Socialist party. The conservatives won the March 2004 general elections, by over 5 percentage points over PASOK. The gap widened further in favor of the conservatives in last year’s June elections for the European Parliament. «It is known that markets do not like uncertainty and elections have always had an element of uncertainty even when the pre-election polls showed the electoral outcome was more or less known,» says the CEO of a listed firm from the food sector. «The country needs a bold but predictable economic plan and this can be delivered by a strong government even if it has lost precious time.» Others point out that winning with a smaller margin would weaken the government, not renew its mandate; winning by a margin of less than three percentage points would make it a lame duck. «How do you think it feels to govern and implement strict economic policies after having won the elections by a very small margin? Ask the previous Simitis government,» says an economics professor associated with the Socialists. PASOK won the April 2000 elections by just over one percentage point (43.79 percent to 42.74 percent for New Democracy). Privatizations Having put to rest the case for early elections as a catalyst for a new beginning, bankers, businessmen, analysts and brokers strongly favor the implementation of a pro-market package of measures, including privatizations of state-controlled companies. They prefer a much quicker process, involving the privatization of large state-controlled corporations that epitomize the state’s influence, such as telecoms giant OTE. In so doing, the government can count on the strong appetite of non-resident funds for Greek paper at a time most Greeks have turned their backs on the Athens bourse. Bankers, however, insist the privatization mix should encompass more strategies, including just floating. It should involve strategic partnerships between domestic and large foreign corporations and even encourage linkups between domestic firms seeking to beef up their size while acting as consolidators in their sector. After all, they say, economies of scale and synergies in some cases can only be exploited if the Greek firms increase their size to come closer to European norms. With their backs against the wall, government officials at the highest levels convey the message that they will move decisively in coming weeks or days on the economic front, even if it means opening up politically sensitive issues such as labor market deregulation. It is to be seen whether talking will translate into action. The message, though, from the banking, brokerage and business community is loud and clear: Take market-friendly measures to turn the tide in the economy and steer it toward a sustainable growth path, even if it means going against public opinion if you want to be re-elected in three years’ time.