Greece’s last-ditch bailout requires the country to sell 50 billion euros ($55 billion) of assets, an ambition it hasn’t come close to achieving under previous restructuring plans.
The government of then-Prime Minister George Papandreou in 2011 set the same financial goal, which it sought to achieve by hawking airports, seaports, and beachside real estate. Since then, such deals have yielded just 3.5 billion euros, according to the state privatization authority.
Making the asset-sale math work as the economy contracts will be difficult for Greek Prime Minister Alexis Tsipras, who on Monday bowed to demands from European creditors in exchange for a bailout of as much as 86 billion euros that will keep his nation in the euro zone. Half the money from asset disposals is earmarked to pay off emergency loans for teetering Greek banks. They need cash to rebuild their capital buffers and without it may no longer be able to operate.
“Fifty billion euros is a very unrealistic target,” said Diego Iscaro, an economist at research firm IHS Inc. “Asset prices have been badly hit by the economic depression and we do not expect them to significantly recover any time soon.”
The current goal would see Greece attempting to find buyers for the equivalent of just over a fifth of its annual gross domestic product. Since the debt crisis began in earnest in 2010, Greece’s attempts to raise cash from state property have been fraught with difficulty.
A 915 million-euro deal to sell the seaside site of the former Athens airport, a plot three times the size of Monaco, has stalled and no money has yet changed hands. Tsipras’s government had said it wanted to halt the transaction on environmental grounds.
His Coalition of the Radical Left, or Syriza, had also expressed skepticism about selling the Piraeus seaport just outside the capital. A concession to Fraport AG to operate 14 provincial airports for 1.2 billion euros hasn’t been closed.
All told, 7.7 billion euros in sales have been agreed, with less than half that actually being paid so far, figures from the Hellenic Republic Asset Development Fund show.
The remainder are tied up in the national parliament, government agencies, courts and city planning departments. A broad constellation of non-governmental groups -- among them trade unions and environmentalists -- have challenged some transactions.
Halting asset sales was one of the key planks of Tsipras’s anti-austerity platform, which brought Syriza to a landslide victory in January’s elections. Selling off state holdings will thus require a U-turn as dramatic as the one the premier has promised on spending cuts and tax hikes, which he’s agreed to at the behest of creditors led by Germany.
Of the major assets that could be sold, the state holds stakes in the current Athens airport, oil marketer Hellenic Petroleum and Public Power Corp., the biggest electricity supplier. The state also has shares in banks that were valued at about 7.5 billion euros before the Athens stock market was halted at the end of June. The government took ownership of the bank stakes in previous attempts to shore up the financial system.
Potential investors will tread carefully in a country still in the grip of a harrowing economic crisis and waiting on dozens of promised reforms to taxes, labor markets, and legal protections.
“At this point there are so many structural rigidities that it’s almost impossible to invest in Greece,” said Athanasios Vamvakidis, a strategist at Bank of America Corp. in London. That will only change, he said, if the Tsipras government follows through on promised changes -- itself an uncertain prospect.
Even if Greece manages to execute billions of euros in disposals, it may not be enough to pay back the European Union for shoring up the country’s banks, which have been closed for more than two weeks to stem withdrawals. The Finance Ministry on Monday extended capital controls through Wednesday, and banks will remain shut.
The banks’ capital requirements are impossible to determine, and will depend on when Greece’s economy finally begins to recover. The European Central Bank is keeping Greek lenders on a drip feed of liquidity assistance until a bailout agreement is finalized to help meet their cash needs.
Clouding banks’ future is the growing stock of non-performing loans, the risk of more deposit outflows, and a lack of clarity on exactly where fresh capital would come from as well as how and when current capital controls would be lifted. The structure of a recapitalization is hard to predict, along with consequences for bondholders, investors, and depositors, who may be forced to contribute to capital injections.
The four biggest banks -- National Bank of Greece SA, Alpha Bank AE, Piraeus Bank SA and Eurobank Ergasias SA -- will probably need 19 billion euros in capital, Morgan Stanley analysts Samuel Goodacre and Magdalena Stoklosa wrote in a note to clients on Tuesday. In that case, the amount of aid envisioned in the bailout deal would be sufficient.
“The ECB will need to find out how much damage has been done over the last few months,” said David Green, a former Bank of England official and a member of an independent commission that reviewed Cyprus’s stricken banks.
Capital controls to restrict outflows “will need to remain for some time because nobody can be certain if banks can get into trouble again. Others may still want to get their money out,” he said.
Hanging the critical issue of bank recapitalization on a highly uncertain program of asset disposals has left some observers skeptical of the plan.
“If it doesn’t happen, so how would the funding happen for the bank recapitalization, for the debt reduction?” Moritz Kraemer, a managing director for sovereign ratings at Standard & Poor’s, asked in a Bloomberg Television interview. “What are the actual assets? For me it just sounds like a rabbit out of a hat.”