Download Liberalisation, privatization and the European Social Model

Liberalisation, privatization and the European Social Model
WP1: Background and history of liberalization and privatization in the EU
Country report: GREECE
1. Public enterprise creation
The first significant public enterprises were set up in Greece in the late 1920s. They
comprised a number of specialized credit institutions, notably the Agricultural Bank of
Greece, the National Mortgage Bank and the Bank of Greece. These were followed by a
number of public enterprises created in the sectors of telecommunications, transportation,
energy, military equipment, etc., after the end of the Second World War and through the
1960s.
There followed two waves of nationalization of industries in financial distress in the
1970s and in the 1980s. More specifically, following the end of the military dictatorship,
in 1974, the first elected government nationalized a number of large, mostly ailing
companies, including the Olympic Airways, the Commercial Bank of Greece (the
country’s second largest banking group at the time) and Aspropirgos Refineries ( a major
refinery).
The withdrawal of private capital from these sectors is largely explained by the rising
costs of production, mainly due to the oil crises. Whereas in other areas of Europe,
industry responded through mergers and acquisitions, in Greece the response was for the
creditors (state banks) to take over the loss making firms, which were then acquired by
the state (Patronis & Liargovas, 2004).
A further nationalization wave occurred in the early 1980s, as it became apparent that a
growing number of large private concerns were in serious economic difficulty. Again,
the government stepped in, in an attempt to salvage them. Their debts were turned into
equity and the Industrial Restructuring Organization (IRO) was set up, as a public
holding group for non-profitable enterprises. The aim of the IRO was to return these
companies back to the private sector, having restructured them.
Thus, by the mid-1980s the presence of public enterprises in the economy was quite
strong in Greece, comparable to that in Spain and Portugal (Table 1).
Table 1
Presence of public enterprises in the economy (%)
Spain
Greece
1980 1985 1980 1985
Size of the public enterprise sector (1)
i. share in value added
ii. share in investment
9.0
22.0
14.0
21.0
n/a
12.7
n/a
19.0
Portugal
1980 1985
13.0
18.3
17.6
17.0
iii. share in employment
Borrowing requirement/GDP (2)
State subsidies to public enterprises as
per cent of GDP
5.0
6.0
3.5
4.5
5.2
4.7
-0.7
-1.2
-1.9
-2.7
-9.3
-6.2
2.1
2.4
2.4
3.0
4.8
4.3
(1) For Spain, the size of the public enterprises sector is measured with respect to the non-agricultural
sector. For Portugal, data refer to non-financial enterprises.
(2) For Spain, it refers to the operating deficit of the main non-financial public sector groups
Source: OECD Economic Studies No. 16. Spring 1991, Table 2, p. 180
It is interesting to note that the above periods of public enterprise creation in Greece have
been called (i) the “developmental” wave (1950s & 1960s), aiming at supporting the
country’s industrialization process; (ii) the “democratization” wave (1970s), occurring at
the end of the military dictatorship in 1974 and signifying the return to “democratic rule”
and (iii) the “socialist” wave (1980s), aiming at rescuing a large number of over-indebted
firms and in this way, saving jobs (Pagoulatos, 2005). As we shall see, the policy of
privatization has followed a reverse order. The first enterprises to have been privatized
come from the two nationalization waves, while it is relatively more recently that the
public enterprises set up in the 1950s and 1960s have come into focus.
2. Rationale of privatization policy
The first enterprises to become privatized belonged to the 1980s nationalization wave.
They were related to the policy of industrial restructuring under the IRO.
In particular, the IRO was set up in 1983. Under it, the state acquired control in a number
of industrial sectors: 20% in the cloth industry; 50% in cement, 40% in paper mills, 50%
in fertilizers and 100% in the shipyard industry. By the early 1990s, the number of
enterprises under the IRO auspices amounted to 62, employing 22,000 individuals.
The sole aim of the IRO and thus of the state was to restructure these companies and to
return them to the private sector. In actual fact, most companies under it were privatized
on the basis of a special, fast-track liquidation procedure. The IRO was itself liquidated
in 2002, having absorbed considerable amounts of public funds to little effect in terms of
enterprise restructuring.
It has been argued that the IRO was from the beginning doomed to fail, insofar as it came
under pressure from a multiplicity of interest groups, with divergent interests (Patronis &
Liargovas, 2004). Namely, businesses, banks and workers. To the extent that a number
of successive governments failed to take the necessary organizational and structural
measures to implement the policy of industrial restructuring, the IRO could not indeed
succeed in its task.
The privatization of non-IRO public enterprises has been combined with market
liberalization measures relating to the network industries, such as telecommunications,
transportation and energy. The rationale for this policy has been expressed largely in
terms of the EU requirement for the opening of competition and a leveling of the playing
field in the markets where public enterprises operate as monopolists or oligopolists. Yet
another aspect of this policy has been the need to comply with the Maastricht Treaty
convergence criteria in view of membership of the Economic and Monetary Union.
Overall, calls for the “deep restructuring” of public enterprises, in order for them to
survive, have been quite common (OECD, 1999).
The public enterprises under privatization from the mid-1990s to the present day include
some of the largest enterprises in Greece - usually monopolists (or oligopolists) - in
communications (telephony and mail), energy (electricity, lignite mining, petroleum and
natural gas) and transportation (air, rail and urban transport). There are few industrial
firms in this group. Their share in the public sector and in the economy as a whole is
quite significant.
In particular, in the late 1990s, they comprised nearly 50 enterprises – other than those of
the IRO - and employed about 130,000 individuals, equivalent to about 3.5% of total
employment and 6% of wage earners. Approximately 10 firms dominate. Table 2 shows
the size and structure of the public enterprises under privatization, as in 1997.
Table 2
Main public enterprises by sector 1997
Reve
L- term
Employ Employ
nue
Reve Invest Invest
debt L- term
ment ment (% (Drs.
nue
ment
ment
(Drs
debt
(persons) of total) Bio)
(%) (Drs bio) (%)
bio)
(%)
Transportation
OASA(Athens urban)
OSE (Rail)
OA(air)
Energy
DEH (electricity)
Hellenic Petroleum
DEPA (natural gas)
Communication
OTE (telecom)
ELTA (post)
ERT (TV & radio)
Water & sewerage
EYDAP (Athens)
Thessaloniki w&s cos
Industry
EAB (military equipm)
EBO (military equipm)
31,521.0
9,586.0
11,758.0
10,177.0
37,570.0
33,999.0
3,350.0
221.0
38,421.0
23,387.0
11,581.0
3,453.0
5,380.0
4,745.0
635.0
4,617.0
2,886.0
1,731.0
24.5
341.5
7.4
38.1
9.1
25.4
7.9
278.0
29.2 1,427.5
26.4
830.6
2.6
596.9
0.2
29.8
964.5
18.2
840.0
9.0
83.2
2.7
41.3
4.2
86.7
3.7
69.7
0.5
17.0
3.6
48.2
2.2
33.1
1.3
15.1
9.5
1.1
0.7
7.7
39.5
23.0
16.5
26.7
23.3
2.3
1.1
2.4
1.9
0.5
1.3
0.9
0.4
111.3
3.1
88.3
19.9
484.9
277.7
93.4
113.8
271.4
268.9
0.2
2.3
18.6
13.4
5.2
11.7
8.2
3.5
8.5
513.1
0.2
166.7
6.7
338.7
1.5
7.7
36.8 1,311.0
21.1 1,227.4
7.1
8.0
8.6
75.6
20.6
157.0
20.4
128.0
0.0
0.2
29.0
1.4
24.5
1.0
12.4
0.4
12.1
0.9
69.8
0.6
66.0
0.3
3.8
26.2
8.5
17.3
0.4
67.0
62.7
0.4
3.9
8.0
6.5
0.0
1.5
1.3
0.6
0.6
3.6
3.4
0.2
SUBTOTAL
117,509.0
TOT PUB
ENTERPRISES
128,797.0
SUBTOTAL AS % OF
TOTAL PUBLIC
91.2
ENTERPRISES
SUBTOTAL AS % OF
ECONOMY (empl; GDP)
3.3
91.2 2,868.4
79.5
897.9
68.2 2,075.4
106.1
100.0 3,609.8
100.0 1,316.7
100.0 1,956.9
100.0
79.5
68.2
106.1
11.0
4.0
6.0
Source: Mylonas & Joumard (1999)
3. The legal framework
The first privatization law was passed in 1991 (Law 2000/1991). It prescribed a number
of different methods of privatization, while its main emphasis was on the rate of
implementation. The law was passed by the conservative government of the New
Democracy, which however collapsed shortly afterwards (1990-1993).
The ND party was succeeded by the “blairite” type socialist party of PASOK, which
ruled for the following 11 years (1993-2004). PASOK proved to be more effective in
implementing the privatization law than the conservative party of the ND. It has been
argued that this was due to the “pragmatic, gradualist and non-conflictual” style of the
Simitis government (1996-2004) (Pagoulatos, 2005).
The initial privatization law was reformulated in 2002 by Law 3049/2002, which lifted
many of the remaining restrictions to policy, such as the maximum state holding that may
be transferred to the private sector. Certain aspects of the new law are given in Box I
below.
BOX I
Denationalization Law 3049/2002
(Gazette of the Greek Government, A/212/2002)
1. The law introduces the abolition of control of public sector enterprises, whereby
“control” entails the possession of the majority of shares, or of the right to appoint
the majority of the members of the Board of Directors or the management of the
enterprise concerned.
2. Denationalization Ministerial Committee (DMC): Minister of Economy and
Finance (chairman), Minister of Development, Minister of Labour and Social
Security and minister supervising the enterprise to be denationalized. The DMC
decides on the method, extent and procedure of denationalization.
3. Methods of denationalization: Sale of an enterprise as a going concern; listing on
the ASE or other organized market; sale of the share capital or part of it, with or
without shareholders’ agreement; concession of licenses or other rights of the
enterprise; lease of the enterprise or of particular rights, assets, units or branches
of it; assignment of the management of the enterprise to a third party; the
exchange of shares of the enterprise with privatization certificates; the sale of the
share capital under special contractual agreement (e.g. buy-back agreements); sale
of the share capital to a domestic or foreign legal person with the latter issuing
securities exchangeable with the shares sold; issuance of bonds convertible into
shares. Enterprises to be denationalized have to take measures to facilitate
process within certain time limits.
4. “Special share” (art. 8): In the case of public enterprises offering services of
public interest and social utility associated with national defense and security,
public health, energy, transportation and communications, the exploitation of
national resources, the government may maintain a “special share” in the
denationalized enterprise, giving it enhanced rights and especially the right to veto
particular decisions of strategic importance. The circumstances under which the
“special share” regime may be applied are decided by a ministerial committee,
consisting of the Minister of Economy and Finance, the Minister of Development
and the minister responsible for the enterprise under denationalization.
Source: Panagiotis K. Staikouras, in European Journal of Law and Economics, May
2004, 373-398
Generally, Law 3049/2002 has been criticized for its lack of transparency, for offering no
protection to the workers of the enterprises under denationalization, as well as for
contravening the EU provisions on the freedom of establishment (art. 43 of the Treaty)
and the freedom of capital movement (art. 56 of the Treaty).
To the extent that the legal framework of privatization policy is further liberalized, the
quality of the regulatory framework becomes especially pertinent. Serious doubts have
been expressed regarding the quality of the Greek regulatory framework.
In particular, the National Competition Commission reviews abuse of dominant position
and competition issues arising out of the privatization of monopolies. Between 20002005, it investigated 5 cases in-depth, while concern has been expressed over insufficient
enforcement, as there have been reports of common and overt agreements among firms
about prices, operating hours and services.
The NCC operates with a particularly low budget and a small staff. Its enforcement
level – measured in terms of the human resources committed to it and adjusted for the
size of the economy - is among the lowest of OECD countries (OECD, 2005). Similarly,
the National Telecommunications and Postal Commission has a very low operational
budget, while it is also seriously understaffed.
Doubts with respect to the effectiveness of the Greek regulatory system have been
expressed by a number of authorities. In particular, the Inspectors-Auditors of Public
Administration have noted the following problems (i) regulatory overlaps &/or vacuums;
(ii) complicated, time-consuming and non-transparent administrative procedures; (iii)
bad-quality legislation codification (2001 Report).
Furthermore, the Global
Competitiveness Report 2002-2003 of the World Economic Forum places Greece in the
52nd place (ranking from less to more corruption) out of 80 countries and in the last in
EU15.
The existence of significant weaknesses of the Greek supervisory system were further
revealed by the 1999 stock market crisis, as extensive market manipulation and insider
trading phenomena, with the involvement of government controlled portfolios, appeared
to be at the core of the crisis.
4. The Greek privatization record
Greece is a relatively late starter in the area of privatization. As shown in Table 3 below,
the proceeds from privatization were insignificant in the early 1990s, while it is only in
the late 1990s, that they became significant, e.g. in relation to the total privatization
proceeds recorded on the level of EU15, peaking in 1998-1999.
Table 3
Privatization proceeds of Greece - Share in EU15 1990-2000
1990 1991 1992 1993 1994 1995 1996
1997
1998
1999
19902000 2000
Priv/n
proceeds
35
73
44 558 1,395 3,960 4,880 1,384 12,329
(USD mio)
As % of
0.00 0.00 0.00 0.11 0.27 0.12 1.20 2.07 6.58 7.92 2.96
2.93
EU15
Source: OECD, Recent Privatization Trends, in Financial Market Trends, No. 79, June 2001
The late starting point of privatizations in Greece is also evident in relation to Spain and
Portugal, as shown in Fig. 1.
Figure 1
Share of Portugal, Spain & Greece in EU15 privatization proceeds 1990-2000 (%)
70.00
60.00
50.00
40.00
Percent
P AS % OF EU15
S AS % OF EU15
G AS % OF EU15
30.00
20.00
10.00
0.00
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Year
Source: OECD, Recent Privatization Trends, in Financial Market Trends, No. 79, June
2001.
The privatizations that have taken place over the period 1991-2004 is shown in Table 4
below.
Table 4
Privatization of public enterprises in Greece 1991-2004
1991
Bank of Piraeus
International competitive tender (67%)
1992
Heracles General Cement
Co.(AGET)
Trade sale (70%)
Athens Bus Company
Renationalized in 1994
Eleusis Shipyards
Trade sale
1993
Bank of Athens
Block trade through stock exchange (67%)
Hellenic Sugar
Trade sale
1994
Neorion Shipyards
Trade sale
1996
Greek Telecom (OTE) I
Initial public offering (8%)
1997
Greek Telecom (OTE) II
Second public offering (12%)
1998
Macedonia Thrace Bank
Block trade through stock exchange (33%)
General Bank
Private placement and listing (33%)
Bank of Crete
International competitive tender (97%)
Hellenic Petroleum I
Initial public offering (23%)
Bank of Central Greece
Block trade through stock exchange (51%)
Greek Telecom (OTE) III
Additional secondary public offering (10%)
Athens Stock Exchange
Private placement (10%)
1999
Ioanian Bank
Trade sale by holder Commercial Bank (51%)
Greek Telecom (OTE) IV
Additional secondary public offering (14%)
Public Gas Co.
Exercise of Hellenic Petroleum option (22%)
Break up into two entities: initial public offer
Athens Water & Sewage
of the services entity (30%)
Olympic Catering I
Initial & secondary public offering (25%)
Olympic Catering II
New public offering (25%)
Duty Free Shops
Trade sale (67%)
2000
Hellenic Development Bank
Initial public offering (30%)
Hellenic Petroleum II
Secondary public offering (12%)
Trade sale to strategic investor (43% &
Hellenic Vehicles Industry
management)
Athens Stock Exchange
Initial & secondary public offering (10%)
COSMOTE
Initial public offering (15%)
Commercial Bank
Strategic investor and alliance (7%)
Agricultural Bank
Initial public offering (13%)
2001
Football Prognostics Org/n
(OPAP)
Corinth Canal
Salonica Port Authority
Skaramanga Shipyards
Public Power Corporation
(DEH) I
Greek Telecom (OTE) V
2002
Hellenic Industrial
Development Bank
Football Prognostics Org/n
(OPAP)
Greek Telecom (OTE) VI
Attica Beaches - marinas
2003
Hellenic Petroleum III
Duty Free Shops
AGNO Dairy Company
Greek casino of Mont Parnes
Football Prognostics Org/n
(OPAP)
Athens Stock Exchange
Piraeus Port Authority
Public Power Corporation
(DEH) II
2004
General Bank
Hellenic Petroleum (IV)
National Bank of Greece
Initial public offering (5%)
Concession agreement (100%)
Initial public offering (25%)
Trade sale (100%)
Initial public offering (16%)
Exchangeable bonds (9%)
Trade sale (67%)
New public offering (19%)
New public offering - accelerated book building
(8%)
Long-term operation contracts
Trade sale to strategic investor (17%)
Trade sale (33%)
Trade sale (100%)
Trade sale to strategic investor (49%)
New public offering (25%)
Last tranche (33%) leading to 100%
privatization
Initial public offering (25%)
New public offering (12%)
Minority stake to strategic investor (22%)
New public offering (8%)
Accelerated book building (7%)
Source: Ministry of Economy & Finance, as quoted in Pagoulatos, 2005
As we can see, twelve banks were privatized through merger or acquisition over the
period 1991-2004. Over the same period, the presence of the state was drastically
reduced in certain cases, such as that of the telecommunications organization (OTE),
where it now amounts to as little as 39%. In other cases, such as in the electricity and
petroleum products sector, it has also been significantly curtailed.
In addition to the above, it is worth noting that novel types of privatization have also been
introduced in Greece, such as the “build – operate – transfer” (BOT) type concession
agreements. For example, the Athens airport, the Rio-Antirio Bridge, the Athens ring
road and all major projects for the 2004 Olympic Games were constructed on the basis of
BOT agreements.
Overall, following its late start, Greece is well on the way to privatizing as much of the
public sector as possible. For example, the present conservative government is
contemplating constitutional changes that will further enhance the role of the private
sector at the expense of the public one, in such areas as education, health, etc. Similarly,
the use of public-private partnerships is spreading fast. In this sense, the Greek case
constitutes a paradigm of particular interest in relation to the social implications of
privatization.
M. Frangakis
May 2006