Greece’s Debt Reconsidered

Das Parthenon - Acropolis, Griechenland

On Saturday, 3rd June, the German political scientist Egbert Scheunemann gave a talk about the privatization of Greece in a small setting, hosted in the cozy Café Siebenstern in Vienna. He organized this event himself. Scheunemann graduated as a doctor of political science at Hamburg University and he has worked as a lecturer there at irregular intervals. He is the author of several popular science books dealing with the subject of neoliberalism.

To start off the lecture, he gave an overview of the complex topic.

The Greek sovereign debt crisis, and the attempts to solve it in the wake of the international banking and financial market crisis outbreak in 2008, have been central themes of political debate in Greece, Germany and the entire European Union.

The financial aid granted to Greece by the EU, the European Central Bank (ECB) and the International Monetary Fund (IMF) since 2010, in the form of three aid packages, has been subject to strict conditions.

These include massive budgetary cuts, particularly in the social sector, a massive reduction in the number of public sector employees, a partially drastic reduction in the remuneration of the remaining state officials and also obligations to privatize state property and real estate as well as infrastructure facilities such as the State Railways, airports or seaports, in other words, to sell or to lease out.

The proceeds from the privatizations are to be used for the recapitalization of Greek banks, for the repayment of government debts, but also for investments. The EU, the ECB and the IMF are hoping for service and efficiency gains, a strengthening of the international competitiveness of Greece and increasing tax revenues from the privatized enterprises.

Next, Scheunemann considered the aid packages.

Within the framework of the three lending commitments granted to Greece by the IMF, the ECB, the EU and the ESM (European Stability Mechanism, a financing institution for over-indebted Member States based in Luxemburg) in 2010, 2012 and 2015, Greece has been granted a total swing of €368.6 billion. Of that, only €215.9 billion had been used by 2015. What actually reached the Greek state budget was only about €10.8 billion, ie less than 5%.

The remainder flowed into debt repayment, ie restructuring, meaning a risk transfer from private banks to public institutions such as the EU, the ECB, the IMF and the European Stability Mechanism, but also in interest payments and incentives for private creditors to participate in the debt restructuring program.

The austerity programs required by Greek creditors and, above all, by Germany as a contribution to aid packages, have led to an unprecedented collapse of the Greek economy. The Greek gross domestic product has fallen by about 25%, the unemployment rate has risen to 25%, wages, pensions and state health expenditure have been cut by up to 30%. The suicide rate has risen dramatically. As a result of this collapse of the tax base, the Greek government debt rose from 146.2% of the gross domestic product in 2010 to 176.9% in 2015, ie by a good 30 percentage points.

The attempt to reduce Greek sovereign debt through privatization proceeds must be regarded as unsuccessful, according to Scheunemann. By the end of 2015, only €3 billion had been grossed, although the most profitable Greek state-owned enterprises were privatized, and by 2018 it is estimated to be only €6 billion. These are small sums, measured by Greece’s debt of € 314 billion in 2015, and still tiny sums measured by the interest alone, which Greece paid to its creditors by 2015 (€52.3 billion) and the total of  €70.1 billion it will have paid by 2018. Until now, it has mostly been profitable state-owned enterprises which were privatized, costing the Greek state large sources of income.

Among these are the 14 most successful airports and the largest Greek port. The natural monopoly, namely, the state lottery company, was also privatized, which made it possible to issue several clearance licenses for gambling. A “natural monopoly” occurs when the fixed costs are high, but the average costs decrease with increasing production. It is simply not worthwhile for a second company to offer the product. Examples of natural monopolies are, for example, the public water network or the electricity network.

An increase from one to three monopolies would, therefore, increase prices for the end customer. Every single monopoly would have to provide the supply of, for example, water, which is more expensive than if a single monopoly were to provide it. As a result, there is usually no privatization in this area, as the price of basic supplies, such as water or electricity, would increase.

In Greece, however, this is not taken into account at the moment, and thus companies which are in fact profitable, are being privatized, thereby taking money from the state. In the case of the Greek lottery monopoly, the proceeds from sales amounted to 1.5% of the previous profit. One of the few loss-making state enterprises is the state railways, which is hardly modern and has made great losses. Although it was sold for €45 million, Greece had to take over €700 million to successfully privatize the railway.

The battle against the forced privatization of the water and gas supply still continues today. Over the past few months, the IMF has proposed that Greece be granted debt relief and pressure has been put on European creditors to reduce their claims, as the IMF would otherwise no longer support Greece with cash injections. These points are currently under discussion.

The creditors are mainly German banks and insurance companies, so the money returns to Germany with interest. However, the largest creditor is the European Central Bank. It is also significant that, in the crisis, Germany has led the opposite policy in its own country. Successful economic stimulus packages have been implemented instead of austerity programs. Why this was not done in Greece is inexplicable.

It is also interesting to note that Japan, for example, has a much higher level of public debt, but it also does not resort to rigid savings programs.

It is, therefore, high time to heed the IMF’s advice if Greece is to emerge from the crisis more successfully than now. Scheunemann mentioned that he only extracted official data from the reports of the EU and the conservative press.

Translation from German: Serena Nebo


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