Patterned after the Treuhand

Privatization Experience

The Deutsche Bank has participated in privatizations, imposed within the framework of the Euro crisis, also in Portugal. To receive financial aid, Portugal, like Greece, was compelled to relinquish public assets under German pressure. The Deutsche Bank was involved in the re-privatization of the BPN, the Portuguese bank, nationalized in the course of the crisis. The Deutsche Bank also served as a consultant for the energy group China State Grid in its acquisition of the Portuguese REN power grid group, as well as for the Chinese enterprise, Three Gorges, in its acquisition of the Portuguese electricity supplier, EDP. The Bank has also been active in privatizations in Great Britain. It assisted in the sale of the Northern Rock Bank, nationalized in 2008 when it was threatened with collapse, to the Virgin Money bank.

Considerable Potential

The Deutsche Bank considers its involvement, as a consultant for the privatization of state assets, as a lucrative business. "Even though the topic has been on the economic policy agenda for at least twenty years, there is still considerable privatization potential in a number of EU countries," according to its recently published "Revenue, competition, growth" report.[1] That publication details the "potential for privatization in the Euro area," appraises European national economies country by country and sector by sector hardly missing potentials for privatizations: "In principle, there are also benefits to be had from the privatization of government services of general interest, e.g. water supply and water disposal, healthcare facilities and non-sovereign administrative tasks." The paper also provides concrete numbers. It lists potential revenues from the sale of Italian state assets and from granting concessions to be between 150 and 210 billion Euros.

Conflicting Balance Sheet

However, the ambitious German expectations have not been fulfilled everywhere. In February, Greece revised its forecast and is now expecting privatization revenues worth only 19 rather than 50 billion Euros by 2015. Berlin is reacting with more pressure on this slowdown of Greek privatizations. Generally, Athens is not resolutely removing alleged "obstacles" to investment projects, according to a memo leaked to the press in March to expose the Greek government.[2] Economic Minister Philipp Rösler has recently confirmed that Berlin is demanding a speedup of privatizations.[3] Last year, however, the Spanish government had also stopped selling shares of its Madrid and Barcelona airports, for which the German companies Fraport and Siemens had been bidding. The Spanish government hopes to achieve higher revenues within an improved economic climate, rather than in the current crisis. It will not sell its national lottery for the time being. According to the EU, IMF and European Central Bank troika, Portugal and Ireland are fulfilling the privatization plan with a volume of five and three billion Euros respectively.

Privatization Obstacle "Permanently Employed"

Privatization transactions are presently not only slowed down by the resistance of the governments in Greece and Spain, but also by the uncertain economic forecast, the situation of financial markets and the increased restrictions on lending by banks, as well as by growing popular resistance. Popular resistance has forced the Irish government to renounce on its plans to completely privatize the ESB national energy company. German officials voiced their fear that new protests could be organized in Greece. The GTAI sees "open issues" in its attempt to exploit the local water sector, such as the "regulation of pricing policy of the two water and sewage companies in Athens and Thessaloniki, which are expected to cause price increases."[4] The Deutsche Bank complains that a similar project in Italy has already provoked the intention to hold a referendum. The bank is also pointing to another privatization obstacle: "One potential obstacle in this case and in general, when state-owned companies are put up for sale, is the sometimes large number of employees whose jobs cannot, in principle, be terminated."[5]

Homework

This is why the OECD is recommending that Portugal, for example, should first increase the productivity of state owned enterprises, before offering them for sale. Spain is already applying this principle. In mid-March, the Madrid government announced comprehensive restructuring measures for the state enterprises. Greece already has on its agenda the cancellation of additional pay and premiums for state employees as well as the review of work time arrangements. This should facilitate the HRADF's selling state shares worth two billion Euros by the end of the year. The official sales list not only names OPAP, but, for example, also the DEPA public gas company, the Desfa gas grid operator, the Hellenic Petroleum Company as well as land. The water works of Athens and Thessaloniki, highways, sea ports and regional airports will be added to the list in the second half of 2012. Athen's Airport will probably be added to the list, by 2013, at the earliest, and Franport is very interested. However, the Essen Hochtief AG already owns more than 40 precent of its shares.

[1] Erlöse, Wettbewerb, Wachstum - Möglichkeiten der Privatisierung im Eurogebiet; www.deutsche-bank.de
[2] Deutschlands Ungeduld mit Griechenland; www.dw.de 13.03.2012
[3] Griechenland muss sich anstrengen; www.liberale.de 08.03.2012
[4] Investitionsklima und -risiken Griechenland; www.gtai.de
[5] Erlöse, Wettbewerb, Wachstum - Möglichkeiten der Privatisierung im Eurogebiet; www.deutsche-bank.de