Fisher Investments Editorial Staff
Developed Markets

Greek Privatization Physics

By, 03/12/2013

According to Greek lore, pre-Socratic philosopher Heraclitus once said, “Everything flows, nothing stands still.” Without question, Heraclitus was an intelligent man. But from the quote, it’s woefully apparent he couldn’t envision the works of the Greek privatization agency.

In one way, Heraclitus’s saying is on target with respect to the Hellenic Republic Asset Development Fund (HRADF). Its leadership is very fluid—a point proven again over the weekend when privatizer-in-chief Takis Athanasopoulos was privatized at the behest of Finance Minister Yannis Stournaras. The change comes only months after he replaced Costas Mitropoulos. Monday, the Greek government brought charges against Athanasopoulos related to alleged mismanagement of a power plant while he worked for the (still) state-run power monopoly, PPC. According to the filing, Greece believes Mr. Athanasopoulos and other government officials intentionally constructed a natural gas plant at an inopportune location to benefit contractors, inflating costs to the company. PPC is state-run, meaning about €100 million of wasted taxpayer money. Should the government win in court, Mr. Athanasopoulos faces up to life in a Greek prison (probably not a privately run jail, either).

Athanasopoulos’ defense seems to be he’s inept—the losses weren’t intentional. However, should the charges prove true, it would seemingly be just another chapter in the long story of Greek government officials doling out cash and jobs to curry supporters’ favor. One reason Greece’s government is involved in the power generation business is the country has a very long history of using such direct employment as a means to reward supporters—something that didn’t change much when the nation shifted from military junta rule to democracy in the 1970s. Athanasopoulos is actually only one of several government figures ousted in corruption probes in just the last few months—and that doesn’t include the many politicians included on IMF Managing Director Christine Lagarde’s list of Greek tax dodgers.

One path to limiting all these smoke-filled rooms with allegedly untoward wheeling and dealing is to sell the rooms themselves. Yet here is where Heraclitus might be surprised by the standstill. On HRADF’s action-verb heavy website, they list only three privatizations complete. One was the sale of a soccer-wagering business–Mitropoulos’ first privatization. The second was himself. Athanasopoulos added two more, though it appears these are more “pending” than complete. For example, a broadcast center is cited as evidence of action, but the action appears to be listing it for sale—not actually selling it. It’s hard to see much difference between that status and that of the Athens police station, open land in Cyprus, Greece’s version of CSI or either of two Ministry of Culture buildings—all of which are also currently listed for sale. Non-binding bids have been received for a third, the sale of natural gas firm DEPA.

According to HRADF’s latest report, the program was slated to pick up steam in the first half of 2013—but that’s now in doubt as a result of the leadership shuffling. Perhaps it accelerates under the leadership of Stelios Stavridis, installed in this (ejector) seat Monday. He seems off to an active start, as HRADF invited the public to the auction of 28 buildings today. But skepticism seems warranted—after all, Stavridis takes the reins of HRADF after leaving his post as CEO of Athens Water Supply, another state-run business he’ll be charged with selling off.

So it seems the more things change, the more they stay the same. And that’s true of many things in the eurozone lately. Consider the headlines from this weekend: Italy was downgraded by Fitch, economic data was mixed (Germany’s was more positive than the periphery), and Spain was assessing plans involving its highly troubled cajas. Elsewhere in Greece, the troika and government were reportedly debating the next bailout tranche, with negotiations hinging on the Greek government laying off more public-sector workers. All rather recycled headlines.

There are nascent signs of change in the Greek economy. The pace of its 18-quarter-old recession marginally slowed in Q4 2012, with GDP falling a less-than-estimated 5.7% in Q4 2012—sharp, but slower than the 6.7% drop recorded in Q3. Perhaps more significantly, Greece has seen foreign capital flow into the country in recent months. A few Greek corporations have been able to access credit markets. And some foreign firms now seem to be seeing an opportunity to expand European operations cheaply there. While there appears to be popular opposition, a Canadian firm plans to open a gold mine in Greece—an ironic phrase, given Greece’s economy. Things are not well in Greece, but reduced euro-splintering and/or “Grexit” fears seem to have helped.

On HRADF’s website, a banner scrolls atop the page: In it, gears turn … arrows flow upward … and the text “Putting the Greek Economy Back Into Motion” dramatically appears. If HRADF is to meet that lofty language and prove Heraclitus’ words true, we’d suggest they learn from physics: Objects in motion tend to stay in motion, while objects at rest tend to stay at rest.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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