Privatizations in Greece: Myths and realities

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Foreword Τhis booklet was created by the radiobubblenews team in order to inform the public about the program of mass privatizations that Greece is currently trying to fast-track. Its goal is to deconstruct the myths through which social acceptance for the biggest sellout package of public property in the history of the Greek state was achieved, to break stereotypes promoted by mass media outlets and to reveal the truth, both with regard to the results of past privatizations as well as the purpose of the new ones. These are privatizations that have nothing to do with benefitting society, but will instead eliminate Greece’s huge and valuable developmental capital with dire consequences for its future. Under the fast-track privatization program, the powers that be put a gun to society’s head. But it is in society’s hands to prevent the State from pulling the trigger. The obligation to keep oneself informed and, most importantly, to participate in decision-making is a personal matter for each one of us, as is realizing what handing over the public sphere to private hands and transforming the social State into a private enterprise oriented exclusively towards profit truly mean. The information is available, as are numerous international examples. However, understanding what the sellout of public property means is not enough. It is not sufficient to realize that giving away infrastructure and public control eliminates all the development tools that are normally under the indirect control of society and leads to a Third-World economic model from which this country's citizens have nothing to gain. We must investigate alternative uses of public infrastructure. We must analyze its yields for citizens, with methods of social economy and public and democratic control. We must examine ways of restructuring production through real utilization of public wealth. And most importantly, we must promote the participation of every citizen as a member of society and not as an isolated unit seeking individual gain, in this new productive model. If these things don't happen and we confine ourselves to drawing conclusions, then, and only then, will public wealth have been truly squandered. Then we will have pulled the trigger... THE RADIOBUBBLENEWS RESEARCH PROJECT This on-going research project about privatizations began in the spring of 2012 and its first phase was completed last October. It was carried out by citizen-journalists, but also by professional journalists who all volunteer with the radiobubblenews team. The research material gathered about privatizations (articles, radio shows and interviews) can be found on the web page: This study was conducted with financial support from the Isvara Foundation.

Paving the Way with Myths Since the dramatic collapse of the Greek economy in 2010, Greek society has been in a state of permanent confusion. This environment of a deep economic crisis, together with brutal changes caused by Memorandum policies, acted as fertilizer in a field planted with myths, which had been systematically cultivated for several years with a view to extort social consensus for a series of changes oriented towards granting benefits to the private sector to the detriment of the public sector. Greek society is acutely fragmented since the 1990s, when this systematic effort to invert the economic model of the 1980s began. The fundamental confusion concerns the very meaning of the words we use: its origin goes back to the fact that we fail to differentiate between the State and the public sector and, even worse, we fail to differentiate successive governments from the State and, as a consequence, from the public sector as a whole. Public wealth, enterprises, forests, rivers, mineral wealth, seas and lakes do not belong to the State in the sense of an owner who can define as he wishes the fate of his belongings. Governments on the other hand have a mandate to manage public wealth to the benefit of its legitimate owner, who is none other than society as a whole. Even if we admit that a government can sell at will any of the above assets, its minimum obligation is to secure gains in excess of the asset's loss for the citizenry. Furthermore, equality, and equality before the law are essential preconditions. Because however the recent past is rife with instances of scandalous concessions of public infrastructure to private individuals, in combination now with a deep recession which annihilated market values, these things cannot be taken for granted. Nonetheless, the dominant line pushed forward on a daily basis by most mass media outlets reverses the logical order of things and has managed to convince a majority of our fellow citizens that the national economy, and by extension the citizenry itself, will benefit from unburdening itself of public wealth. The purpose of this booklet is to dismantle the five basic myths though which social consensus for privatizations was built over the last few years. Recently in particular, this consensus was built under tremendous pressure.

Myth 1: The last Soviet State in Europe It is not the purpose of this analysis to define what the Soviets were, which is only distantly related to what proponents of privatizations imply with their favourite line “Greece is the last Soviet State in Europe”. We will therefore analyze directly what these people actually mean, which of course constitutes a tremendous myth. In the last two to three years, in order to extort social consensus for looting public wealth, which has already started, the spokesmen of mainstream opinion aim at activating the anti-Stalinist reflexes of a western society like Greece and at persuading people that the State is unduly operating as the one essential entrepreneur who holds a monopoly over all key production activities. Moreover, they say, the State blocks private investors from participating in the production process, either by confining them to a supporting role or by forcing them to engage with the Stateentrepreneur. Of the five myths we will analyze here, this one is the crudest but also the most ridiculous. The following paradox can be found in the post-World War Two history of Greece: right-wing governments conducted nationalizations while centre-left governments conducted privatizations. During his two longest periods in office, the historical leader of the liberal wing, Konstantinos Karamanlis, conducted nationalization of key infrastructure in the sectors of energy and water. In 1955, more than 400 private enterprises producing and distributing of electricity were merged in the Public Power Corporation of

Greece, which had been founded just five years earlier. In 1974, Karamanlis ceded the rights of ULEN to the National Bank of Greece. Then, in 1980, the Athens Water Supply and Sewerage Company was established. Earlier, in 1949, the Hellenic Telecommunications Organization was founded and within a few years all telecommunications services were unified under the control of the State. In general, the reconstruction of Greece after WWII and the Civil War was channelled through the creation of bundles of State corporations for all basic infrastructure. It is no exaggeration to claim that the recovery of the country after the 1950s was based on these public utility companies. A second wave of nationalizations was conducted by Andreas Papandreou during the 1980s. This time however, they had nothing to do with promoting the public interest, but aimed at consolidating tens of faltering private companies, also known as problematic companies. This policy created bigger problems for the economy than it actually solved, since the boosting shots they received did not make them any healthier. As a result, these companies were equally loss-making for the state. Governments took a decisive turn towards privatizations in the early 1990s, when it became a steady central policy to give away, one way or another, State companies and public wealth. Konstantinos Mitsotakis may have failed in the first experiment of mass privatizations in 1990-1993, but Andreas Papandreou picked things up from where Mistotakis left, despite being re-elected with the slogan “save Greece from mass sell-out”. The brains behind the new liberalization economic programme was Papandreou’s Minister of Finance, Alekos Papadopoulos, and the main spokesman of the wave of privatizations that followed was the social-democrat leader of PASOK, Kostas Simitis. Greece has constantly proceeded with listings, privatizations and integration of private businesses in the management of state monopolies for the past twenty years. “Privatization, denationalization, listing in the stock market, sale, clearance, utilization: the Greek language is rich in words for every (propagandistic) set of circumstances. And the (once rich) Greek state has a million ways to become poorer (...) From 1987 to 2006 Greece was proven to be a champion in bank denationalization relatively to the size of its domestic market. The Greek public sector collected €4.5 billion (2.5% of GDP) from bank denationalization alone”. (1) The above quote was not taken from a speech of some communist member of parliament or from an analysis by a journalist from the SYRIZA-affiliated newspaper Avgi. These are the words of journalist and New Democracy MP Sofias Voultepsi. De-Sovietization began with the listing of public utility companies in the stock exchange in the 1990s. That is when the fundamental character of public enterprises changed, as orientation towards business became their main feature. Their management didn't have to be accountable to society, but to shareholders and of course to political supervisors. The enterprises weren't evaluated anymore on the basis of their ability to provide services to society as a whole, but on the basis of their profits (or losses) at the end of each year. The costs of their services, their quality and their coverage were henceforth linked to economic and technical parameters. From there on, the full divestment of the State became much easier. It only required a law that would concede the management of companies through the stock market. Then another one to concede over 50% of companies to private investors. And finally another one to allow the full withdrawal of the State from public utility companies, which was voted in November 2012 by the Greek Parliament. Oftentimes, one or more private individuals were involved in this process, acting as middlemen to transfer a State monopoly into private hands. This allowed for avoiding the public

relations shock of a fast-track privatization and, moreover, the pitfalls of Europeans control mechanisms for competition. As you can see, under "Twenty Years of Privatizations", during a period of just eleven years (1998-2009) the amount generated by privatization reached 23 billion euros! Another method of indirect privatization, which was developed in the 1990s and flourished in the early 2000s was the so-called Public-Private Partnerships (PPPs). These consist, as their name implies, of public works projects co-funded by the State and private investors. The bridge of Rio-Antirrio, the Eleftherios Venizelos airport and the Attiki Odos Motorway were built through this process, followed by most new national highways. It worth noting here that the concession of the only national highway that remained in the hands of the State, Egnatia Odos, was decided recently. We will cover PPPs extensively further in this booklet, in order to analyze how concessions of public infrastructure to private investors are socially harmful. All we need to emphasize at this point is that, while the model theoretically stipulates three sources of funding for public works (the State, banks and private investors), in practice the State shouldered the burden of project costs while private investors invested a minimum start-up amount of capital (usually in the order of 10%), collected revenue even before projects were completed, secured profits through laws and finally transferred any risks to the public sector, who is the guarantor of all loans for the whole of a public works project. Consequently, the claim that Greece is the last Soviet State in the European Union can be seen only as a joke and as we will see with the following myths as a bad one.

Myth 2: The Oversized Public Sector The second myth has to do with the size of the public sector and the costliness of services provided by the State. The State, which has indeed a major part of responsibility for the economic situation of the country, is at risk of bankruptcy, allegedly because of the expenditure it incurs to provide services to its citizens and, of course, of the army of civil servants it maintains. With regards to both parameters, the perspective of proponents of mass privatizations relies on common creeds that were created by repeating ad nauseam a series of cliches and tossing around impressive numbers which have little to do with reality. This myth also reinforces confusion between the quality, quantity and cost of services on offer, as reality reveals that services provided by the Greek State are exceedingly expensive in relation to their quality as well as their quantity.

key sectors such as education and health, things are much worse, as our costs are lower than almost all OECD countries. As shown in Figure 3, in particular, public health spending, which was cut sharply in the last two years, was one of the lowest in the EU. Only in defense spending, Greece is in top position, namely the fourth after Israel, the U.S. and South Korea. A common argument to force this particular myth down citizensĂ­ throats is that the number of civil servants with tenure increased dramatically during the five years where New Democracy was in power (2004-2009). The truth is that the increase of the total number of personnel in the wider public sector (not limited to civil servants with tenure) has some very distinct characteristics, which cannot be translated blindly as an overall expansion. A table from a study conducted by the Ministries of Interior and of Finance focusing on 2006-2011 shows that the most spectacular increase until 2009 (116%) was staff employed on Stage contracts, meaning with extremely low pay (â‚Ź300/month) for the most insecure jobs. Incidentally, the transition from fixed-term employment contracts to work experience schemes (Stage) proves that job security in the public sector did not improve; quite the opposite, there was an increase in job insecurity for the population as a whole even before the economic crisis. In terms of regular personnel, we can observe a radical increase in local administration jobs. In this case too, project contracts multiplied, meaning that in general staff recruited in this sector did not have tenure. We have to admit however that a 20% increase in hiring implies that the practice of recruitment as a political tool spread to the lowest levels of the national administration. But our most noteworthy finding may be that State jobs actually kept expanding after the enforcement of the Memorandum, but only in the sector of security forces and the army, to whose size only few critics of the public sector have any objection. In any case, the overall increase in the number of jobs in the wider public sector never exceeded 3.9% over a four-year period. The famous horrendous increase in the number of civil servants constitutes yet another myth, while the most typical argument, mainly heard on TV, that civil service recruitments were not limited even after the Memorandum came into force is nothing but puff, since we can see that in 2010-2011 alone the number of personnel employed in the wider public sector shrank by 80,000 (Table 1).

In reality, Greece exceeds the mean averages of its European family of States only with regards to a few parameters. There are actually crucial sectors of public expenditure in which Greece turns out to be below the mean average, not only of European, but also of OECD countries, therefore including many countries of which one wouldn't say that they enjoy European benefits, meaning a relatively powerful Welfare State. Starting with public expenditure as a whole, not only did it remaine stable as a percentage of GDP over the last two decades, it is also close to the mean European average. This 45% ratio is a typical percentage for a European country, whereas the stated goal of the Memorandum is to bring public expenditure down to 3035%. This will take Greece to the levels of Latin American countries, as one can see in the diagram below, which includes OECD countries (Figure 1). If we take a look at the statistics per sector (Figure 2), during the period where Greece is accused of excessive spending, our country's social welfare spending remains close to the European average (although private spending in this area is the highest of the OECD, together with the U.S. and the Netherlands). However, in

Figure 1: Total Expenditure OECD (2007 - % GDP

Figure 2: Expenditure per sector OECD (2008 - % GDP)

And thus we come to yet another, more important element of misinformation that we were exposed to in recent years, regarding the total number of civil servants. Borrowing facts from research conducted by the Ios investigative journalism team, we can see that the Athens Chamber of Commerce and Industry (ACCI) played an important role in spreading stories of 1.1 to 1.4 million civil servants. With a so-called study which, it turns out, was more likely a guesstimate, the ACCI fed to the media outrageous numbers that have little relationship with reality, even reaching to a point where they counted conscripts performing their military serv-

public sector activities in Europe). The table which records civil servants as a percentage of the total number of employed workers in each country shows that Greece comes in 14th position out of a total of 17 European countries, at 11.4%. It ranks well below Sweden, which comes first at 30%, or Denmark (29%), both countries which were invoked as an exemplary model by George Papandreou in his election campaign. Greece also falls behind France (21.2%) and Great Britain (17.8%), despite the cutbacks imposed by the latter. It overtakes but only just only Ireland (11.0%), the Netherlands (10.7%) and Germany (10.2%). As the

Figure 3: Health Expenditure OECD (2009 - % GDP)

ice as civil servants. Even after the famous census of civil servants came along to verify through a head count the numbers written every year into the annual budget, and disproved triumphantly the reported millions of civil servants, most media outlets didn't give up. The number was usually complemented either by an estimate of the number of people employed by public utility companies, or, in an even more blatant generalization, by those who receive salaries or not (!) from the State's budget (To Vima 01/08/2010). The same Ios article also annihilates the myth of a constant enlargement of the public sector since the 1980s. It quotes figures of a scientific study conducted under the auspices of the European Commission's Competitiveness Report by four researchers of the Austrian Institute of Economic Research and the Universities of Strasbourg and Magdeburg (The size and performance of

study notes, the position of Greece in this classification remained steady over the last decades. (Figure 4) Even if we add to proper civil servant the employees of public utility companies and of all public and local administration companies (including legal persons under public law as well as private law), so as to reach the desired million, we have there again figures provided by the OECD, which include all those listed above for the landmark year 2008. Here again, one can see that Soviet Greece was just above the mean average of European countries, and, incidentally, is placed well behind formerly Soviet, currently capitalist Russia (Figure 5). It should be noted that according to the most recent census of civil servants in 2012, the total number of civil servants decreased to 623,500. A simple subtraction from the 2009 figure (824,657)

Table 1: Public sector workers (2006-2011)

which was collected just before the implementation of the 1-to-5 rule, the voluntary departure schemes and the exodus of thousands under early retirement for fear of cutbacks shows that the number of civil servants shrank by more than 200,000. All those who insist that employment in the public sector did not decrease should compare this figure with the following statement of thenMinister of Interior Giannis Ragkousis: at the end of our four-year mandate, 200,000 civil servants will have left. It is worth noting here that, had the Papandreou government not fallen prematurely, it would have completed its four-year mandate as late as 2013. There is however an element of truth in the increase of the mean gross salary, as according to the same study of Ministry of Interior it rose by approx. 20% between 2006 and 2009 (over the same period, GDP rose by 11%). But because mean averages don't always tell the truth, we will look next at the actual distribution of salary costs in the huge public sector.

lowed by spreading negative stereotypes for each category as a whole. As a result, all taxi drivers are thieves, all doctors are taxdodgers, all lawyers are privileged, but most importantly, each group separately constitutes an organized guild with powerful interests, which led the Greek State to bankruptcy. The dominant guild of workers is civil servants, who according to the dominant narrative were all recruited as a political favour, are all lazy, all get fat pay checks and in practice, are all useless. The most powerful propaganda weapon against civil servants and particularly against employees of public utility companies is their salary. More specifically, this is defined as the total staff costs (the cumulative total of net salaries, contributions, special bonuses, overtime, and travel costs where relevant) divided by the number of employees of each agency. Astronomic figures in the order of €50,000 to €60.000 per annum were thrown around with this calculation. A sample of the staff categories of 15 public utility com-

Figure 4: Labours expenditure of the General Government as part of the total labour (2000-2008)

Myth 3: The civil servants’ guilds The way the dominant narrative develops and evolves in public discourse is very revealing. Workers are first grouped in separate, opposing camps (private employees vs. civil servants, employees vs. the self-employed, pharmacists vs. notaries, etc). This is fol-

panies puts things in place (Table 2). In the beginning of 2010, before successive pay cuts were enforced under the terms of the Memorandum, the majority of the privileged employees of public utility companies had an annual gross salary ranging from €20,000 to €40.000. This translates into a monthly gross salary of €1,400 to €2,850 and a monthly net salary of €900 to €1,900.

Even such a wide-ranging definition of staff categories shows that the earnings of public utility companies’ staff were anything but exceedingly high. What this table points out however is the wide salary gaps within the public sector, and gives us a clue as to the number of staff in actually privileged positions.

of contracts and the salaries of the top executives of the colossal private monopolies that will be created. The truth is that it was the State blackmailing indirectly its employees, not the other way around. In Figure 6, the distribution of pay grades in the public sector (2010 figures) hides a secret, called the basic salary. Until recently, it was the only amount about which civil servants could feel relatively safe. The choice of successive governments to offer various additional bonuses (up to 29% of total pay) instead of proper pay rises always gave leeway to the State to cut its costs unilaterally without significant complications, by simply cutting back on the bonuses. This was already done in the first round of cuts in the public sector. With regards to the recruitment process for the vast majority of civil servants, it was conducted under the Supreme Council for Personnel Selection (ASEP) for the past fifteen years. This is a truly transparent council (for the vast majority of recruitments) whose authority extends to fixed-term contract employees in the public sector. ASEP has supervised the recruitment of approximately 300,000 tenured, regular and seasonal employees in the wider public sector, while also controlling the transition of 75,000 employees from fixed-term contracts to open-ended contracts. While we harbour no illusions about the existence of party politics and the ensuing entanglement of interests which enhances a guild-like mentality among some employees of the public sector, in particular among labour unionists who are at the same time party officials, the truth is that the majority of public sector employees were recruited through formal procedures unfathomable in the private sector. Who slipped through the net? As we saw above, some temporary staff and until recently the stagiaires at €300/month, whom only a vile mind wouldn't describe as nearbeggars with lamentably underpaid and insecure jobs.

Figure 5: Total public sector as part of the total labour (2008)

Another interesting element about payroll inequalities can be found in the Study of salary development in the public sector conducted by the Ministries of Finance and Interior in February 2011. The mean average income of employees showed differences of up to 50% between various State agencies, which translated into an average difference in net monthly income of €1,000 to €2,000. Imagine now, if there are such big inequalities in pay in the public sector, what will happen to the employees of these companies to those at least who won’ t get fired after the privatization process is completed; especially now, after the vote of the third Memorandum, which stipulates that monthly salaries can be compressed down to €580, while there is absolutely no provision for the type

Table 2: Public companies salaries (2010)

The only powerful and properly guild-like section of the civil service consists of those who were placed in senior administrative posts by successive governments and the personnel of special agencies which either are very close to political circles (e.g. Parliament staff), or belong to institutions where there is traditionally heavy political influence (e.g. university professors). But these groups will be affected last by any programme of restructuration and cuts at the public sector. Finally, with regards to the oft-repeated argument about tenure and job security for civil servants, it applies only to employees of the core public sector, who are no more than 400,000. However, a formula to fire them if needed has already been found: by simply disbanding the agency they belong to. And all this brings us to the next myth...

MYTH 4: Market competition is healthy One of the most common arguments in favour of privatizations has to do with blind faith in the self-regulation of free markets through competition. State dominance over the market is disadvantageous for consumers, this logic goes; therefore the magic wand of free competition should work in their favour after public enterprises are surrendered to private investors. Who will ensure that competition works? But, the State, of course. The very same State which, as we saw elsewhere, secures privileged relations to certain private suppliers and manufacturers and reins in strategically some of the public companies it administers in order to allow for certain private interests to grow. Even in areas where the State doesn’t have a monopoly, it refuses to control the market effectively, regardless of the level of pressure it is submitted to, and always under false pretences. As a result, instead of State monopolies, whose normal purpose is to serve society as a whole without discrimination, we witness the development of private monopolies and oligopolies, whose purpose is, by their very nature, to ensure ever-increasing profits for private investors. Examples of this are numerous, and, what is more, can be found in strategic sectors of the economy. Fuel: In theory, competition should work in a beneficial way in the fuel market, due to the existence of numerous distribution companies and thousands of privately-owned retail fuel stations. Nevertheless, this happens only up to a certain point, and only in big cities. Prices along the national road network are steadily higher than in cities, with only minor differences from one fuel station to another. The situation in the islands is similar, especially during the summer. These peculiar cartels have been operating undisturbed for several years. And this is the tip of the iceberg. The fuel market was theoretically deregulated in March 1992 (incidentally, its deregulation was followed by an immediate increase in the price of fuel, which peaked with the urgent fiscal measures taken

Figure 6: Salary distribution in public sector

in the summer of the same year.) However, the fuel market is influenced decisively by the de facto private oligopoly of refineries. The two largest refineries in Greece, MOTOR OIL HELLASCORINTH REFINERIES and HELLENIC PETROLEUM, are under the control of Messrs Vardinogiannis and Latsis respectively. These two companies represent 100% of the refining capacity in Greece and control 70% of the wholesale market and 60% of fuel stations. The public sector participates only in HELLENIC PETROLEUM, the larger of these two companies, of which ship owning magnate Spyros Latsis owns 41.9% while the State

owns 35.5%. It is mainly Greek owners of retail fuel stations who denounce the lack of competition and the fixing of fuel prices at the level of refineries. However, the IMF itself in a recent report, which was published by the Wall Street Journal, not only highlights this issue but also names the names of those in charge of this private oligopoly. The dairy industry: While this is a sector of intense competition, with a plethora of companies, in 2006 the General Directorate of the Competitiveness Commission accused 17 enterprises of cartel practices. In one of the few sectors where Greece is successful at exporting goods, a sector where numerous private companies are active, not one, not two, but seventeen companies had managed to come to an agreement and manipulate prices. It is also known that the very same products of some of these companies can be found in German supermarkets for a price up to 30% cheaper than in Greece. This case can be interpreted in two ways. On the one hand, it reveals that a plethora of private companies with similar products does not guarantee competitiveness or benefits for consumers. On the other hand, the State, in this case, was able to detect and control these cartel practices; therefore, it can in its capacity as a control mechanism force competition to work for the common good. This second interpretation would be valid if the State had managed to crack down on tens of other well-known cartels, or at least to collect the fines it imposed on the dairy companies. However, we know from experience that the same State we deem failed as an administrator of public enterprises was never successful at controlling private companies. Air transport: In early November 2012, the largest air carrier in Greece, Aegean Airlines, launched its third attempt for domination of air transport by reviving its proposal to purchase Olympic Air, this time through a stock market buyout. Previous attempts had drawn the attention of the European Committee for Competition Monitoring, which had rejected the merger proposal and opted for preserving two schemes, with Olympic Air remaining a subsidiary of Aegean Airlines. Olympic Air, the formerly dominant but heavily indebted (for many reasons which we cannot explain here) air carrier underwent several attempts at consolidation which favoured only some private managers who were involved in the consolidation plans, and ended up in 2009 on the portfolio of the Marfin Investment Group, owned by Mr. Vgenopoulos. What with the protracted crisis of air transport, what with the recession in Greece and internationally, Olympic Air became a shadow of its former self, but, most importantly, both Olympic Air and Aegean Airline found themselves making losses. The repeated attempts of Aegean Airlines to acquire Olympic Air were presented as crucial for the survival of Greek air transport in an international environment where competition is intense. What was not emphasized however is the fact that they operate together 89% of domestic routes. Thus, if the new merger proposal manages to overcome European objections, it will result in a private monopoly that will dominate the domestic flight market, which is subsidized by none other than the State. Telecommunications: Here we will see a different type of private monopoly. There is usually a private monopoly lurking behind each State monopoly, a monopoly in the form of the public sector's main supplier or contractor. In a country where corporations such as Siemens, Intracom and AKTOR thrive, there is no need to look far to draw this conclusion. The Hellenic Telecommunications Organization (OTE), which was fully dependent on the interests of businessman Kokkalis up to the early 2000s, shaped the landscape of telecommunications on the basis of Intracom products. While the rest of the world was adopting broadband connections (ADSL), OTE insisted on using the outdated technology of dial-up, ISDN. The author of these words had to endure in the year 2002 a sermon from the OTE general manager on the failure (!) of ADSL. As it turned out ex post facto, OTE wouldn't discover ADSL until all the Intracom ISDN modems had been promoted in the market.

Another very serious parameter altering competition is the matter of national networks and infrastructure. What will happen when the State surrenders them to a handful of private investors is obvious due to the dominance their new owners will have acquired on the market. However, even when a public agency owns basic infrastructure and private businesses are simultaneously active and making use of it, the key priority is not to expand services and compress their cost for the benefit of society, but to secure profits (or competitive conditions, as some like to call it) for private businesses. A recent example is the hefty fine imposed by the Hellenic Telecommunications and Posts Commission (€100,000/day) on OTE after a complaint filed by private companies Forthnet, HOL and Wind, because some of the cheap packages offered by OTE annihilated the profit margins of private investors who were making use of existing infrastructure for a wholesale price. Although it is obvious that the above-mentioned example can be interpreted the other way around, meaning that a public company manages its infrastructure as a monopoly and determines the cost of its services at will, the core issue is that a fundamental service such as telecommunications is subjected first and foremost to narrow economic and technical rules of profit instead of prioritizing services to society as a whole. This specific case actually reveals the risks of market manipulation through private acquisition of basic national infrastructure, as OTE was already a mixed company at the time of these events (Deutsche Telekom had already acquired its management). Let’s be realistic. Even if the very same State that is consistently considered incapable of achieving anything was suddenly able to control the market effectively and crush cartels from the cradle, the economy of Greece is too small for any form of private competition to function in the field of basic infrastructure. In the bestcase scenario, the public sector will shoulder the cost of infrastructure and networks and lease them for a derisory sum to five or six private companies, for which it will secure profits in every possible way. In the worst-case scenario, infrastructure and networks will be turned over directly to a handful of private investors and State monopolies will become overnight private ones. The minimal benefits that public utility companies managed to provide to society so far will be replaced by guarantees of profitability, and, what is more, with a guaranteed customer base, especially in critical supplies and services such as energy, telecommunications and water.

Myth 5: The public sector stands to gain from privatizations At this point, the fabrication that the public sector stands to gain from privatizations and more generally from limiting its role as an entrepreneur is refuted both by the overall economic situation and by individual cases of flotation and denationalization. It is however worth mentioning succinctly a few of them. To start with the big picture, as stated above, Greece engaged in selling public companies’ shares, transferring their management to private businesses and fully privatizing them since the early 1990s. In principle, this should mean that State revenues increased while deficits fell and that the external debt was cut down. However, the debt almost never stopped increasing during the twenty years where the Greek economy was modernizing into a liberal economy, especially during the Karamanlis government when a significant number of privatizations was completed (each one of them with a distinct flavour of scandal). This is, of course, a simplistic approach, but one that could, in and of itself, deconstruct the equally simplistic opinion that the debt will shrink if we privatize public companies. We must take note however here of one of the key reasons which led to a rise of the external debt, namely a surge in the trade imbalance, meaning the difference between imports and exports (Figure 7). This rise mirrors progres-

sive changes in private companies, their productivity and their competitiveness, as well as the deindustrialization of the country and its simultaneous transition to an exclusively retail-based private economic model. In short, factories were replaced with shops and importers. In special cases however, it is enough to refer to a sample of the dozens of cases of transfer of companies, infrastructure and mineral resources from the Stateís ownership to private hands, with contracts that were always biased in favour of private businesses Olympic Air was handed over to the Marfin Investment Group in 2009, for the derisory sum of €174 million, while the public sector shouldered burdensome obligations, paying no less than €1.3 billion in compensation, bonuses, social security and pension contributions, etc. to 5,500 workers. The State decided that Greeks living in Greece as well as those living abroad didn’t need a national air carrier. After going private, Olympic Air first stopped operating most international routes, then got rid of some exceedingly expensive planes for one-sixth of their estimated value, limiting itself to the role of a domestic air carrier, and is finally on its way to be acquired by the other owner of a peculiar air transport oligopoly. The former State monopoly shrank and, it seems, will be concentrated again in the hands of a single company, Aegean, but this time, it will be privately owned. Here is what the Economist had to say about the sale of Olympic Airís Airbus planes: A sale of surplus state assets that might have strengthened Greece's coffers by $180m in 2009 ends up raising just $40m, three years and two international bail-outs later. In part the most recent slump in value is because the buyer will have to spend up to $20m on repairs to make the planes fit enough to be ferried across the Atlantic with no passengers (which is cheaper than full restoration). At these prices it might have even been better to break them up for scrap in Athens: at least that would have provided a bit of work for jobless Greeks. In Chalkidiki, ore mines with identified gold resources worth up to €20 billion were sold for €11 million. The AKTOR group, which was the intermediate owner of the mines before 95% was taken over by European Goldfields and later Eldorado Gold, earned €174 million in this transfer, by creating a company with an initial capital of €60,000 (Source: Hellenic Mining Watch). In October 2012, the Agricultural Bank of Greece, which holds mortgages for millions of acres of agricultural land, was split in two. The State took over the loss-making component of bad loans, while the Piraeus Bank purchased the healthy part of the bank for €95 million. The privatization of the sound Hellenic Post Bank is planned along similar lines. This was preceded by the haircut of Greek government bonds, under the terms of which these two public banks are not eligible for recapitalization, as opposed to their private competitors, many of which have turned into zombie banks. The buyout was presented by the Greek government as vital for the banking system and the Greek economy, as well as a crucial step to secure workers’ jobs. The simple truth however is, as reported by To Vima newspaper on 15/7/2012, that the privatization of the Agricultural Bank is on the list of prior actions agreed with the troika for continued funding of the country. The recent vote by parliament of a law allowing full disengagement of the public sector from public utility companies, together with the vertiginous list of planned privatizations through the Hellenic Republic Asset Development Fund, makes future privatization scenarios even worse as far as losses are concerned, losses for the State, the public sector and society as a whole. This was already highlighted by Ethnos newspaper in January 2012:

One of the companies included in this year’s privatization programme is the Athens Water Supply and Sewerage Company (EYDAP). The plan is to sell 27.3% of its shares and to transfer its management to a strategic investor. If we take into consideration EYDAP’s current capital (approx. €337 million), while its real value, based on the valuation of its assets, is estimated at €1.5-€2 billion, we can easily conceive what will happen if shares are transferred through the Athens Stock Exchange, even if interested investors are granted a high premium. But what will happen if the private owner of a public utility company finds out that his investment isn’t worthwhile? If, despite price hikes, profits are derisory? If the investor goes bankrupt? International and domestic experience proves that the State will have to shoulder the cost immediately. When confronted with the possibility that large segments of the population might find themselves without access to electricity or water, the State will have no choice but to burden itself again with the company, its debts and its problems.

Twenty Years of Privatizations Greece had been constantly denationalizing private companies through flotation, long-term concessions and sales to private companies since 1991 until 2010, when it came under supervision by the IMF, EU and ECB. Here is a list of the family jewels that passed, one way or another, into private hands in the past twenty years:

DENATIONALIZATIONS 1991-2010 * 1991 Sale of the Piraeus Bank to a group of investors led by professor and banker Michalis Sallas Privatization of urban public transportation with the establishment of Transport Companies 1993 Flotation and listing of the Greek Sugar Industry in the Stock Exchange Sale of the Athens Bank to Hanwha First Investment 1996 First flotation of the Hellenic Telecommunications Company (OTE) 1997 Announcement of the flotation of the National Petroleum Company Group (DEP) 1998 First and second flotation of the Hellenic Duty Free Shops (revenue thus generated was 20 billion and 80 billion Greek drachmas (GRD) respectively) First and second flotation of the Athens Stock Exchange (revenue: GRD22 billion and GRD10 billion respectively) Second and third flotation of the Hellenic Telecommunications Company (revenue: GRD126 billion and GRD302 billion respectively) Sale of shares of the National Bank of Greece (revenue GRD63 billion) Sale of the Bank of Crete to Eurobank (revenue from down payment: GRD22 billion) Flotation of the National Petroleum Company Group (revenue: GRD35 billion)

Partial purchase of the Bank of Macedonia-Thrace by Piraeus Bank (revenue GRD 27.3 billion) Sale of the Bank of Central Greece to Egnatia Bank (revenue: GRD17.3 billion) Flotation of Olympic Catering (revenue: GRD2.5 billion) Flotation of General Bank (revenue: GRD14 billion) Announcement of the listing in the stock market of the following profit-generating public companies by 2010: Corinth Canal, Thessaloniki International Fair (DETH), Hellenic Public Real Estate Company (KED), Athens Water Supply and Sewerage Company (EYDAP), Thessaloniki Water Supply and Sewerage Company (EYATH), Hellenic Horseracing Betting Company (ODIE), Piraeus Port Authority (OLP), Thessaloniki Port Authority (OLTH), Olympic Catering, Olympic Tourism, Hellenic Football Prognostics Organisation (OPAP) 1999 Flotation of the National Bank of Greece (revenue: GRD281 billion) 3rd flotation of the Hellenic Duty Free Shops (revenue: GRD127 billion) 4th flotation of the Hellenic Telecommunications Company (revenue: GRD341 billion) Flotation of the National Petroleum Company (revenue: GRD50 billion) Flotation of the National Gas Company (revenue: GRD35 billion) Flotation of the Athens Water Supply and Sewerage Company (revenue: GRD60 billion) Sale of the Ionian Bank to Alpha Bank (revenue: GRD272 billion) New flotation of Olympic Catering (revenue: GRD3 billion) Flotation of the Hellenic Bank for Industrial Development (revenue: GRD75 billion) 2001 Flotation of the Thessaloniki Water Supply and Sewerage (revenue: €10 million) Flotation of the Thessaloniki Port Authority (revenue: €20 million) Flotation of the Hellenic Football Prognostics Organization (revenue: €90 million) 2002 Sale of the Hellenic Bank for Industrial Development to Piraeus Bank. (revenue: €511) Flotation of the Hellenic Telecommunications Company (revenue: €652 million) Flotation of the Hellenic Football Prognostics Organization (revenue: €508 million) First and second flotation of the Public Power Corporation (revenue: €814 million) Sale of a bundle of 2.3% of the Deposits and Loans Fund shares held by the Commercial Bank to Credit Agricole-CA (revenue: €56 million)

Sale of 58% of Olympic Catering to Everest (revenue: €18 million)

Capital restructuring of the Hellenic Post Bank and equity cooperation with Hellenic Post (revenue: €436 million)

Sale of 49% of the Mont Parnes Casino to the Hyatt-ET consortium, plus various investments (revenue: €170 million)

Listing of the Hellenic Post Bank in the Athens Stock Exchange together with the allotment of 34.84% of its shares (revenue: €612 million)

Long-term leasing of the Attica coastline, plus various investments (revenue: €32 million)

Allotment of 11.01% of the shares of the Commercial Bank (revenue: €364 million) 2007 Offer of 10.7% of the shares of the Hellenic Telecommunications Company to Deutsche Telekom (revenue: €1,123 million) Allotment of 20% of the shares of the Hellenic Post Bank (revenue: €510 million) 2008 Allotment of 3% of the shares of the Hellenic Telecommunications Company (revenue: €431 million) Concession of the Piraeus Port Authority Container Terminal to COSCO (revenue: €50 million) Concession of the SEF marina (revenue: €40 million)

Figure 7: Trade balance 1990-2010

2009 Allotment of 5% of the shares of the Hellenic Telecommunications Company (revenue: €674 million)

Sale of the Hellenic Shipyards in Skaramangas to HDW. 2003 3rd flotation of the Public Power Corporation (revenue: €636 million) Bundle sale of 11% of the National Bank of Greece (revenue: €490 million) Initial public offering of the Piraeus Port Authority (revenue: €55 million) Bundle sale of 33.4% of the Hellenic Stock Exchange (revenue: €89 million) 3rd flotation (24.61%) of the Hellenic Football Prognostics Organization (revenue: €736 million) Bundle sale (16.65%) of Hellenic Petroleum (revenue: €326 million) Bundle sale (40%) of the Hellenic Duty Free Shops (revenue: €174 million) 2004 Bundle sale (8.21%) of Hellenic Petroleum (revenue: €192 million) Bundle sale (7.46%) of the National Bank of Greece (revenue: €562 million) 2005 Allotment of 16.44% of the shares of the Hellenic Football Prognostics Organization (revenue: €1.266 million) Allotment of 10% of the shares of the Hellenic Telecommunications Company (revenue: €835 million) 2006 Allotment of 7,18% of the shares of the Agricultural Bank of Greece (revenue: €328 million)

Sale of Olympic Airways to the Marfin Investment Group (revenue: €177 million) Sale of the infrastructure of the Athens Airport (revenue: €9 million) * The above list does not include projects implemented through public-private partnerships. We can find a very interesting detail on the personal website of the Karamanlis government Minister of Finance, Giorgos Alogoskoufis, with regards to the achievements of the privatizations programme during the period when New Democracy was in government: “The last and most successful denationalizations took place between 2004 and 2009. [...] The denationalizations that took place between 2004 and 2008 were strategic in nature, as opposed to those conducted in the past. We put emphasis on the full denationalization of the banking system (except the Agricultural Bank) and of telecommunications [...] The total revenue generated by the Denationalizations Programme (2004-2009) reached €7.63 billion”. To these € 7.63 billion generated through denationalizations during 2004-2009, we must add €15.4 billion for 1998-2003, and a further US$3.16 billion for 1991-1997. Put simply, over a period of 11 years (1998-2009), denationalizations were in excess of €23 billion!

REVENUE FROM DENATIONALISATIONS 1991-2009 1991-1993: US$1,380 billion 1994-1997: US$1,780 billion 1998: €2,104 billion 1999: €3,971 billion 2000: €1,830 billion 2001: €1,651 billion 2002: €2,697 billion 2003: €3,148 billion 2004: €0,754 billion 2005: €2,101 billion 2006: €1,740 billion 2007: €1,719 billion 2008: €0,545 billion 2009 (1st semester): €0,868 billion

Denationalisations 1991-2011

With regards to the spike of denationalizations conducted in Greece, in particular during the 10 years which preceded the economic crisis a crisis which is due, according to proponents of privatizations, to the Soviet model of the State entrepreneur the following graph is eloquent enough: Sources : Ministry of Finance (denationalizations 2004-2009), Privatization Barometer, C. Melas (Professor of Economics, Panteion University, G. Alogoskoufis (former minister of finance).

Public-private partnerships: Milking the State and the People. They were initiated during the 1990s in order to promote the socalled large-scale projects such as the Attiki Odos Motorway, the Eleftherios Venizelos airport, the Rio-Antirrio bridge and more. The law which established them and has since expanded their scope of operation to infrastructure and national networks was voted in 2005 under the New Democracy government. We are referring here to Public-Private Partnerships (PPPs), a theoretically effective process to deliver public works and/or public services, especially at local level, which has become common practice in Western countries. Specifically, the Ministry of Finance offers the following outline: “Public-private partnerships (PPPs) are contracts, usually longterm contracts, which are agreed between a public sector body and a private carrier, aiming at delivering public works or services. Under a PPP, the private carrier takes responsibility for part or all of the implementation costs of the project and for a significant part of the risks involved in its construction and operation. The public sector focuses on defining the design and the technical and operational requirements of the project and repays the private party, either in installments coming from the public sector depending on the project’s advancement and its compliance with operational requirements, either through direct payment from the final users of the project”. The three main advantages of PPPs, as defined by the Ministry of Finance, are: The ability to finance additional projects The transfer of risks to private parties (reduction of construction cost overruns) An improvement of the investment climate

According to the conclusions of the study: The borrowing costs of the private party undertaking the project are clearly much higher than the borrowing costs the Public Sector would incur for the same project.

Banks financing such projects require that private parties take out insurance against any likely or unlikely risk, not only during the project implementation phase but for the entire duration of the contract. The State hires financial, technical and legal advisors who are responsible for preparing the highly complex, both legally and economically, tender process as well as supporting the Public Sector during the project. On the other hand, the banks financing the project and the insurance companies insuring it hire financial, technical and legal advisors who are called upon to examine every aspect of the parameters and potential risks involved in the project and to advise their employers. An independent engineer undertakes to monitor and control preparatory studies, to supervise construction and secure overall proper implementation of the contract. There is also an expected overpricing on services undertaken by the contractor for a very long time (20-30 years), such as maintenance, cleaning, security; the contractor should take into account unforeseeable future situations. The contractor will seek to make a profit, certainly not only through the construction itself but through the total cost which includes all of the above.

In reality however, the Greek experience related to the implementation of PPPs is very different, especially when it comes to largescale public works projects, which, in practice, evolved into private, long-term monopolies. These monopolies are extremely lucrative for those making profits and extremely burdensome for the citizens who have to use them. In 2010, a working group from the Central Macedonia Department of the Technical Chamber of Greece (TEE) completed a study which exposed the drawbacks of PPPs for the Public Investment Program and the economy as a whole. This was shortly before Greece engaged in the Memorandum, at a time when the expansion of PPPs to new projects as well as existing infrastructure was put forward by the government as a growth measure to counter the economic crisis. The TEE’s study, however, suggests that the State is paying three times over the cost of some projects implemented under a PPP scheme, favouring big construction groups. (Newspaper Macedonia, 21/2/2010)

Banks (and insurers) specializing in this type of financing are few and therefore can impose their terms and conditions. There are numerous PPPs on offer but those able to bid in tenders at least on the Greek side are extremely few, which makes competitive bidding substandard and even nonexistent. Things get even worse because of the unacceptable bonus system prescribed in tendering rules, which favours those who have already undertaken a PPP project or a concession project. Thus, the market of PPP projects is shaped into an oligopoly with all the consequences this may imply.

The example of the Attiki Odos Motorway It is clear that the conclusions listed above can be confirmed, one way or another, through an analysis of the largest (and most expensive) public works projects that were completed in the past years through PPPs, first and foremost the Attiki Odos Motorway, the agreement for which was ratified in 1996, thus making it a precursor for all projects to follow on the national road network.

As early as 2003, the Centre of Planning and Economic Research (KEPE) was labelling the operation of the Attiki Odos Motorway by the consortium as extortionate for citizens, because no public transport network was developed, forcing citizens to pay high toll fees even for short distances. KEPE also speaks of “bulking upí” the collateral works that were assigned to the contractor besides the main road. It also notes that the PPP agreement ensures the group’s revenues. The private party can determine the toll fees at will (within the price range specified in the agreement), while the agreement provides for the payment of compensation by the public sector in case the suburban railway contributes to the reduction of traffic on the motorway. (Eleftherotypia, 5/2/2011) Two years later, the public prosecutor’s office tasked with investigating overpricing cases that saw the light of publicity may have shelved the case, with the rationale that the construction was rightly executed from a legal point of view; but the findings of the District Attorney, Ms. Eleni Touloupaki, describe the agreement as inequitable. She also stresses that the control mechanisms of the public sector must monitor when the constructors’ investment is paid back, so that toll fees are either reduced or partly returned to the State (Kathimerini). Let us have look in more detail at how the financing pie was split for the construction of the Attiki Odos Motorway: The concession contract, which was signed in 1996 and ratified through law 2445/1996, forecasts that its operation from the concession holder could last for up to 23 years. The motorway will be delivered, provided that equity (the funds invested by the concession holder in the project) is paid back with a minimum return of 11.6% annually, irrespective of the maximum duration of the concession contract. The Attiki Odos Motorway cost €1.3 billion. Of those: 32% (€420 million) was paid by the State with EU co-financing, meaning: the Greek people paid for it. An estimated €675 million were loans taken out by the consortium, guaranteed by the Greek State. This means that if the job goes awry, the bank will take its money from the State. If it doesn’t, it will take the money from the tolls, meaning once again, from the citizens. The share of the consortium, which constructed and is operating the motorway, was approx. €175 million. In order for the consortium to abandon the operation it would have to receive a return of the same funds with an average yield of 11.6% for every year until repayment. To date (i.e. 2011), the total revenue generated the Attiki Odos Motorway during its 8 years of operation is in excess of €1.7 billion, which means that it exceeded not only the sum of equity and the agreed annual revenue and loans but even the total cost of the project. (EMDYDAS) In reality, the participation of the consortium was even smaller. The total cost of the motorway together with collateral works, expropriations, etc., is in excess of €3 billion. When Kostas Hatzidakis, who was then a European MP for New Democracy, put through a parliamentary question on the matter, the relevant EU Commissioner Michel Barnier replied that the final cost of the project amounts to roughly €3.2 billion. Since the additional expenditure did not burden the consortium’s share, its real participation is limited to a meagre 5.5%. [1] Despite this, the company continues to operate the motorway and to collect tolls, on the basis of a loophole in the 1996 concession contract. As opposed to the other five national motorways under construction, the concession contract that was signed stipulates

that the timeline for return of the regional highway to the State is based on the profit made by the contractor (Attiki Odos S.A.) and not on revenues. This is something that causes understandable reaction and it is characteristic that the State has not engaged in another such concession contract. In other words, the 2011 Report of the Bank of Greece concludes that, in spite of constantly increasing revenues from 2004 onwards, Attiki Odos should not have been passed on to the owner of the works, that is, the State. Instead, Attiki Odos S.A. achieved extensions of the concession contract, taking on the relevant new expansions of a Pharaonic project, which to date, remains fundamentally incomplete; incomplete in precisely those critical points through which it can blackmail citizens, as the Ministry of Development concluded as early as 2003. On the basis of this loophole, the technical companies of the consortium are receiving fat dividends without counting them towards the final bill. As described eloquently by Kathimerini (11/6/2006): The concession contract stipulates that the operation of the route by the consortium can be terminated if the average yield of the equity capital of Attiki Odos S.A. rises to levels higher than 11.6%. Profits however (in the form of dividends) from the other companies are not taken in consideration. Thus, technical companies already reap profits, which are not counted into the bill, on the basis of which they would be called on to hand over the motorway earlier to the State. Beyond the fact that the 1996 concession contract was biased in favour of the private party, its conditions were not even fulfilled, while the State did not seem to be particularly bothered. To be precise, because of the fact that collateral routes, which the State was obligated to complete, would have dropped the revenues of Attiki Odos, the collateral network remained incomplete under various pretences. As vehicles have to enter the motorway in order to move for a few kilometres, the consortium is guaranteed with the help of the State a steady clientele. The fact that, from early on, the actual user caseload for Attiki Odos was 30-40% larger than originally planned is highly revealing. Vasso Papandreou, the competent minister at the time, had not even secured a charge per kilometre for users of the motorway. Steady tolls upon entry and exit of this closed motorway continue to force drivers, to this day, to pay a steady fee even if they only use a fraction of the total route. Presumably, this choice was made in order to discourage occasional users of the motorway and maintain vehicles' high speeds on average. As mentioned above however, the opposite is happening. The commercial development of the Attiki Odos route, especially in the areas of Metamorphosis and Koropi, forces commuters to use this private road on a daily basis, in the absence of completed or reliable alternatives. In spite of Mrs. Papandreouís own admission that the original decision was a mistake, as well as the fact that her successors promised to change the calculation of tolls, nothing of the sort has materialized. We chose to develop the example of Attiki Odos purposefully as it became the yardstick for all the large network projects that followed across the country. It may very well be that more recent concession contracts are more mature and have less flaws, but they remain one-sided in favour of the private carriers that undertake the works. Since bank vaults started shutting down in 2008, the true nature of PPPs began to reveal itself: they burden the State with all the risk and the citizens/users of these monopoly infrastructure projects with all the cost. The successive toll increases in the national network, which reach up to 50%, happened solely in order for works which had been halted to resume, along with the liquidity of the banks. In order to deter the “I won’t pay” movement, the State on the one hand took over the task of guarding collection points, thus criminalizing the act of challenging a private transac-

tion (between a user and a company.) On the other hand, it ensured that it would cover the resulting gaps in financing to secure the continuation of works that remain incomplete and dangerous, even though they are being paid for by the citizenry. A simple example of this reality is the non-operation of the toll station in Aiginio, which is located a mere 8 kilometres from the Malgaron tolls, something that would greatly burden residents of the surrounding areas. Keeping to its contractual obligations, the State proceeded to return €7.5 million to Aegean Motorway S.A., a sum which represents foregone revenue by the company from the non-operation of the station. The halting of their operation had been decided by Deputy Minister of Infrastructure Giannis Magriotis, in order to offer financial assistance to those who use this part of the National Network daily [...] In fact, in order to counter losses from the non-operation of the Aiginio station, the fee at the Malgaron tolls was raised for about one year from €2 to €2.80, while today the fee is €2.40. All this was stipulated in the concession contracts signed by the New Democracy Minister of Infrastructure, Giorgos Souflias. In other words, the three basic advantages mentioned by the Ministry of Finance in relation to PPPs are being destroyed all at once in the case of the National Road Network. We should note that the few companies sharing these projects are already reaping the benefits of their parallel operation. We can therefore see that, even in cases where we donít have a formal privatization of public wealth and infrastructure, the State (which has otherwise been labelled Soviet-like) finds a way to concede monopoly markets to private carriers and in fact, to protect them from risk. In addition, without benefitting financially, it channels further burdens to its citizens, who have no choice but become users of these monopolies. Similarly meagre is the participation of private carriers in all other major projects that were constructed through PPPs. A typical example is the Eleftherios Venizelos airport with total financing costs of 659 billion drachmas, of which only 53 billion (7.8%) came from the consortium. This project was followed by a large number of favourable provisions for the German consortium, among which, the exemption of the equity capital from taxation during the first 15 years of operation, as well as the exemption from VAT payments for procurements.

The Greek Treuhand We deliberately avoided focusing on the financial crisis in our previous article, because the protection of public property and infrastructure of public interest is not a circumstantial matter. However, under the specific circumstances of an acute financial crisis, and in particular in a context of high unemployment and social insecurity, privatizations take the form of plundering. And Greece is no exception. While the political leadership and the media incessantly repeat the mantra that privatizations happen for the benefit of the public sector, the truth is quite the opposite. The only thing one needs in order to determine this is to become acquainted with the method through which they happen, as well as the rather unsavoury taste of its (German) source of inspiration. The Hellenic Republic Asset Development Fund (HRADF) was founded with law 3986/2011 (Medium-term plan) under the guise of a need for speedy and efficient privatization and utilization of public assets. The HRADF is a kind of public asset supermarket, which can be accessed by investors who want to do their shopping. The Fund concentrates all the public assets that are meant for utilization and manages the process of divestiture in a unified way.

Theoretically, and from a technocratic perspective, one might claim that this indeed constitutes a logical choice for efficiency, transparency and speed of privatizations. One look at law 3986 is however enough for even someone observing these developments in good faith to decipher the true nature of the HRADF and the rationale behind its establishment. We are confronted with the ideological assertion that privatizations benefit the public sector and consequently society. Nothing could be further from the truth and we will see why. Starting with procedural matters, one can read in Article 2 of law 3986: (paragraph 4) transferred and placed under the Fund without a trade-off (paragraph 5) the above assets are placed under the Fund, with full ownership, legal and possessive, and the Public sector relinquishes all rights over them. (paragraph 7) The object or right that has been transferred or placed under the Fund, according to paragraph 5 of the present article, may not be transferred back to its previous owner or beneficiary, under any circumstances. In other words, on the one hand, the Public sector will not receive anything in return for any asset that passes the doorstep of HRADF. On the other hand, it stands to lose ownership of these assets once and for all. As a matter of fact, paragraph 7 clarifies that under no circumstances can assets be returned to their previous owner. It becomes then immediately clear that the procedure that was chosen bears no relation to gains for the public sector. The logical question that arises from here is: where will the sale or utilization money go? Further down in the same article it is stated that: (paragraph 14) The amount collected by the Fund from the utilization of its assets is transferred within a maximum of ten (10) days from its collection, by credit to a special account named Hellenic Public Sector Income Account Denationalizations, after attributable operating expenses and administrative costs of the Fund have been deducted for the utilization of the asset. It is therefore a fact that the public sector does not receive a single euro for the property it thus lost and that the revenue generated by the sale or utilization of assets is entirely transferred to a special account. At this point, let us point out a detail: The HRADF’s operating expenses (among which, the salaries of its officials) are paid from a sale of public assets for which the public sector receives no trade-off. If indeed the aforementioned individual observing these developments in good faith claimed that the special account was created in order to receive money that will in turn be later passed on to the public sector, the segment from Article 2 that follows would blithely contradict such a claim: (paragraph 18) The revenues of the Fund are allocated to: The repayment of public debt The repayment of possible debts incurred by the Fund, The coverage of administrative costs The payment of all sorts of expenditure necessary for the fulfilment of this purpose. Therefore, the entire value of the assets put up for sale by the public sector will go directly to the lenders and, of course, to HRADF officials. Nothing is stipulated for indemnification of the previous owner, either by way of liquidity, or in the form of tradeoffs, services or infrastructure. The common property of the citizenry of the country is liquidated in order to pay back the debt.

At this point, the defender of privatizations will counter the seemingly logical argument that the reduction of the debt will benefit the national economy and that the benefit to the citizenry from the process of divestment through the HRADF lies therein. To put it otherwise, the public sector wins because it’s paying its debts. Let us then accept, in good faith, that the repayment of debt indeed constitutes an indirect benefit for the Public sector. However, simple mathematics proves that the chosen method is the worst possible method and that the argument regarding a possible benefit for the public sector is flimsy at best. Either way, the obvious impression given by HRADF is that of a bankrupt person that has taken his or her household belongings out in the street to sell them off at any price. The Hellenic Gas Transmission System Operator, HGTS: The Fundís estimate for the sale of the HGTS is €300-500 million. Without taking in consideration the value of assets owned by the HGTS, the profits of the company in a single year (2011) were €125 million. Therefore, if the company remained in the hands of the State, it could cover this sum within 3 to 4 years, since all profits would go to the public sector. With its sale however, after four years, the State will face a loss of earnings of more than €100 million annually, since it will be earning back only a fraction of the original revenue in the form of taxation. As for the new owners, they will redeem their investment in 3 to 4 years and will own all of the companyís assets (which we did not take in consideration in the calculation above.) It is worth mentioning that the investment plan of the HGTS for 2013-2022 is in the order of €400 million (upgrade of the Revithoussa LNG terminal, the stations in Megalopoli and Aliveri as well as the compressor station in Nea Mesimvria). The Greek Organisation of Football Prognostics (OPAP): A much more succinct example is that of OPAP. Last September, the government decided to sell the 33% of shares it still owns, instead of the planned 29%, thus exiting entirely from the company. The stock value of the package is approx. €500 million, while estimates of the final price of its sale do not exceed €800 million. In the first half of 2012 alone, the Greek State generated €258 euro from OPAP! The vertiginous list of public assets scheduled for privatization that have been placed under the HRADF includes, mainly, profitable public companies such as OPAP, the Public Gas Corporation DEPA, HGTS, the Public Power Corporation DEH, Hellenic Petroleum, and more. All of these cases are similar. The State will throw out of the window hundreds of millions in profits which go directly to the public sector, swapping them for a small fraction of the real value of its assets to cover an equally small percentage of the public debt. Coincidentally, with the kind of policies which have led Greece to a deep recession, the public debt according to the 2013 National Budget is expected to rise to €346 billion from today’s €340 billion. Taking under consideration the official recession projection of 4.5% for 2013, the debt-to-GDP ratio will spike at 189% only two years after the PSI haircut. At the same time, according to the 2013 budget, revenues from the above denationalizations will amount to €2.6 billion. Therefore, one wonders, how valid is the claim that the HRADF benefits the Public sector? The setting for this generalized divestment through the HRADF does not end with public utility companies but extends to almost all public infrastructure (e.g. ports, airports etc.) including even some islands. More specifically, according to Kathimerini: “The HRADF is examining the possibility of leasing forty uninhabited islets. Up until now, the Fund has examined 562 islands with the prospect of utilizing them. In 40 of those islands, the Fund sees potential for the development of leisure resorts of high standards. The utilization, as mentioned by an HRADF official, will materialize through a transfer for 30 to 50 years”.

In practice, this means that the HRADF has seized even proper public property (and not only the private property of the State), since land, coasts, rivers, forests etc. are included in the definition of public ownership (common property). In order to avoid the pitfalls of privatizing common property, the Medium-Term Plan reintroduced the notion of surface, notwithstanding the Civil Code, which requires that no distinction is made between a superstructure and land or water. More specifically, Article 18 states: (paragraph 1): Surface is the right in rem of a physical or legal person to construct a building on public land, which he/she/it does not own, and to exercise in this building the authority provided by the right of ownership. And Article 19 determines the right of surface which is given to the tenant of public land: Establishment of the right of surface By way of derogation from articles 953 and 954 of the Civil Code, it is permitted to establish the right of surface over public land. The right of surface is included in real estate according to article 949 of the Civil Code. [...] the duration of the right cannot exceed fifty (50) years, unless it was established for a shorter period, which however cannot be less than five (5) years. Consequently, not only is all public infrastructure, such as airports, ports, highways, bridges, tunnels, railways and more, placed under the HRADF but also, land itself. The 40 islets mentioned in Kathimerini’s report will be given to private parties for up to fifty years, during which they will be able, under the rights granted to them as surface, to utilize public land. It is critical at this point to mention that all revenue generated from leasing islets, which undoubtedly raises the very sensitive issue of sovereignty, will go to a closed account from which not a single euro will be allocated to infrastructure or public interest services, but instead, will go exclusively to banks. Do it like the Treuhand Since however, even after all of the above, it is possible that there are still a few people observing these developments in good faith, and who think that the HRADF is a necessary institution which can help out to pull the country out of its present predicament, this account from recent history will dissolve their last illusions. The HRADF is not a Greek invention. Well before the Mid-Term plan was voted in 2011, a model of mass privatizations had already been developed in Germany between 1990 and 1994, during the reunification of the East and West Germany after the fall of the Berlin Wall. This was a disastrous plan which practically annihilated the huge infrastructure of East Germany, leaving more than 2.5 million workers without jobs. This period saw the creation of a public asset management company in the former East Germany, under the name Treuhand (meaning trusted hand), which the HRADF faithfully replicates. About the Treuhand, which undertook the largest privatization package of public property in the history of Europe (factories, infrastructure, land, even retail shops), managed within four years to destroy a country, to fire millions of workers and to leave tremendous debts which burdened the German federal government: “The truth is however, that in 1994 it was dissolved amidst industrial action against huge number of ‘unnecessary’ lay-offs (2,500,000 workers, most of whom never worked again), complaints that profitable companies were closing in favour of West German competitors and all sorts of other scandals: 500 cases

related to fast-track sales, from bribery to abuse of funds to fraud, were under investigation by the judiciary during the period of its dissolution. And apparently not without reason: with an initial valuation of the assets for sale at 600 billion West German Deutsche Marks (€300 billion), it sold 85% of East Germany’s public property for DM44 billion (among them, some of the most popular enterprises were sold at auctions with a single bidder for DM1). A final review of the transfer of public wealth to the private sectoríshows US$170 billion of damages (!) thanks to the activities of its 3,000 young employees who were seconded by the largest West German business groups for ‘specific purposes’”.

and always under the unbearable pressure of time (the latter was of course the case in the Treuhand operation). In most companies that will pass into private hands, the part that presents a liability will remain the property of the public sector, burdening the Greek people exclusively. Moreover, the process is not domestic but is not even controlled by the Greek Parliament. It has been imposed by foreign parties and is supervised to a large extent by them, outside of institutional authority. The pressure for complete isolation of the parliamentary process in control of mass privatizations culminated in the voting of the new Medium-Term Plan (or Memorandum 3) in early November 2012.

Nadia Valavani (Avgi, 15/7/2012)

In addition to Greece’s recent experience with collusion of private interests, the case of the Slovakian HRADF expert, who was implicated in a corruption case last August, is indicative of the HRADF character. Anna Bubenikova was recommended by the European Commission for this HRADF role but is accused of being an invisible middlewoman in the service of private interests in her home country’s privatization process in 2005-2006.

The Treuhand became a synonym of corruption and patronage in supposedly-exemplary Germany and, as described in Imerisia newspaper: “It became for years the most loathed organization in Germany, with accusations and hatred taking murderous dimensions, when its chairman died under the bullets of terrorists. The organization concluded its mission in four years, with the final net cost estimated at US$175 billion”. And yet, it is this sweeping model for the divestment of public property, which at one point sold 20 companies daily (!), that was proposed in May by Swedish Finance Minister Anders Borg and was adopted by Eurogroup President Jean-Claude Juncker. As pointed out by To Vima: The role of the Treuhand is controversial, since the question often arises whether the company held a fire sale of public property and whether there were any alternatives to fast-track privatizations. However, leading European politicians leave this discussion aside and propose the Treuhand model for Greece. And so it was. A few months later, the HRADF was born through the 2011 Medium-Term Plan. Do it worse than the Treuhand Advocates of privatization recognize the flaws of the Treuhand model, but proceed to reassure us that the two cases have few things in common. They claim that Greece is already a unified economy instead of two separate ones, as was the German case. Also, in Greece’s case, there will be no attempt by a more developed part of the productive infrastructure to absorb a less developed part, as was the case in 1990 between the two parts of Germany, but only a change in ownership and the utilization of large, undeveloped sections of land and infrastructure. In addition, the private interests of West Germany desired the dissolution of hundreds of companies in East Germany which could be domestic competitors. This is not the case in Greece, they say. Indeed, a comparison with Germany is likely to lead to false conclusions. What is more likely is that the Greek case will prove even worse. First of all, it may be that West Germany acted as a suzerain to East Germany, but that doesnít stop the Treuhand’s work from being domestic. Secondly, both the revenues - if there were any at all - and the restructuring of production would be channelled into the economy of a reunited Germany. Thirdly, the purpose was the reconstruction of former East Germany, with the aim of reinstituting an internal balance in the German economy and society. Finally, the initial plan provided for compensation of the people of East Germany, since it was their property that fell into private hands. In Greece, the primary goal is to divest and draw liquidity from the sale or leasing of public property, the value of which will go to escrow accounts and in turn directly to banks and the country’s lenders. In Greece we are not talking of sales, or even liquidations of problematic companies owned by the State, but of profitable companies and prime real estate, which are to be auctioned off in many cases at prices several times below their real, stock value

It must be noted here that the salaries of HRADF consultants are not affected by the pay ceiling of public sector officials. In the eight months between July 2011 and March 2012 alone, their salaries and expenses rose to €6.9 million. Some individuals earn in excess of €20,000 monthly. In relation to the intentions of HRADF officials, but also to specific individuals, it would be better to not harbour any illusions either. HRADF’s new chairman is Takis Athanasopoulos, a former deputy CEO of Toyota Motor Europe and former head of the Public Power Corporation (he was appointed by the New Democracy government in 2007). Its Chief Executive Officer Yiannis Emiris was up until recently the head of the Investment Banking and Project Finance division of Alpha Bank. After taking over his HRADF duties, Mr. Athanasopoulos compared Greece to the legendary Eldorado: “If we could win the game of perceptions, Greece could become an Eldorado for investors. Our advantage is that the country is not saturated in any sector, especially not in tourism”. In any case, the common denominator which no one can ignore is the element of corruption and lack of transparency. If in Germany, the process was compared to the activities of the mafia, what will happen in Greece? As German ZDF journalist Ulrich Stoll wondered when he heard that the Treuhand model had been approved for Greece in a documentary by Kostas Argyros: Do you trust in the services in Greece to make it? Indeed, do we?