No to securitization could put Greece in a difficult spot
Greece, which resorted to securitization revenues to bring down public debt and improve its budget balance in the runup to eurozone membership, could face severe problems if Eurostat decides to place restrictive rules on the use of this financial technique. The European Union statistics office last month said that Greece, along with Austria, Finland, Ireland and Italy have been the biggest users of securitization transactions in recent years. This strategy, which allows the issuer to borrow now and repay later, with assets, or revenues generated by assets, has found favor with many countries because it allows them to collect the proceeds without the debt or interest payments showing up on the balance sheet. Signaling its intention to streamline accounting rules, Eurostat said it would decide on the accounting treatment of securitization by the beginning of July this year after a consultation process at European level. A ban on this ingenious technique could spell trouble for Greece, the largest user of securitization operations in the eurozone in terms of gross domestic product. «The party will be over for Greece if Brussels says no,» said Miranda Xafa, economist at Schroder Salomon Smith Barney. Greece ventured into the securitization market in 1999, raising 775 million euros from the monetization of National Bank equity through a Luxembourg special purpose vehicle. Desperate to reduce public debt in line with European Monetary Union requirements, the government went heavy on the off-balance sheet financing in the next two years, securitizing OTE and Hellenic Petroleum shares and future receipts ranging from European Union structural funds to state lotteries. All the transactions were either directly or indirectly guaranteed by the government. To date, Greece has secured 5.8 billion euros from issues of convertible bonds, privatization certificates and securitization receipts, equivalent to 4.4 percent of GDP. Italy, another heavy user, on the other hand, is in a better position as securitization proceeds amount to less than 1 percent of its GDP. The innovative financial technique gave an invaluable boost to Greece’s finances. According to Eurostat data, Greece posted a budget surplus equivalent to 0.1 percent of GDP in 2001, improving from a 0.8-percent deficit in the previous year. Investment bank Credit Suisse First Boston calculated that the inclusion of such revenues would have pushed the budget surplus up to 2 percent of GDP. Greek public debt fell below 100 percent of GDP. The statistics office, however, warned of a likely increase in gross debt with the inclusion of securitization revenues. This off-balance sheet financing and other off-budget expenditure such as capital infusions to state-owned companies and funding for the ailing social security system raise doubts as to whether Greece can reach its target of bringing public debt down to 60 percent of GDP by 2010, said Xafa. «It will need to revise its objectives,» she said. Or it could slash expenditure and speed up structural reforms, a task, however, make highly unlikely in view of forthcoming local government elections in October. Inactivity could cost Greece dearly, Xafa said, as it could see invaluable resources diverted to servicing public debt, the scope of future tax cuts would be limited and its competitiveness could be hamstrung. More importantly, «potentially down the road, Greece could be downgraded,» she warned. In a research note issued early this year, credit rating agency Moody’s said Greece’s unchanged rating could be traced to its «backtracking on essential reforms.» I think it is too early to say. We don’t know how the present collaboration of Strintzis and ANEK will develop in future. We must first arrive at a point where there are signs of a monopoly, which I consider do not exist. Hellas Flying Dolphins already controls a large segment of the Aegean routes and is a big competitor.
