Could Land Privatization Help Greece?

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Source: http://www.flickr.com/photos/blueyeda73/

Greece’s international lenders are sponsoring a plan for the country to transfer state-owned real estate to a private holding company, Reuters reports.

The lenders advocate setting up a holding company in Luxembourg in order to capitalize on lower tax rates and then focus on improving for-sale plots of land to make them more attractive to buyers. The value of the properties that the company would stand to acquire could be as high as 28 billion euros. The company could also issue securities backed by the assets as an additional source of money.

This comes after promises by Greece to raise capital floundered when the sale of its national utility company found itself with no bidders, leaving the country with only 5 billion euros raised toward its initial 50 billion euro goal. Another fiasco occurred when the head of the Greek privatization agency was found to have been using an aircraft privately owned by the head of a business that had purchased land from the agency.

Greek officials have not met the plan warmly, claiming that moving the ownership of the property off Greek soil is not in the best interests of the company. Even if the Greek government would be nominally in charge of the holding company, it remains opposed to the plan. Some officials in the European Union agree with that point of view. European Commission spokesman Simon O’Connor said to Bloomberg, ”The ownership of this [privatization] process rests with Greece.”

Meanwhile, German finance minister Wolfgang Schaeuble expressed negative feelings toward a proposal for direct bank recapitalization in Greece, Bloomberg reports. Though the European Stability Mechanism has a nearly $60 million cap for financing bank recapitalization, Germany does not believe that recapitalization is the best way for Greece to dig its way out of its multiyear financial woes, perhaps indicating its support for the formation of a private holding company as an alternative.

Instead, plans are underway to prepare funds for what is projected to be a $10 billion or $11 billion bailout to alleviate a projected gap in the Greek budget in upcoming years.

All of this comes as the European community is assessing the effectiveness of the latest 240 billion euro bailout for the beleaguered Mediterranean economy. While Greece may not like having to move the ownership of state-held lands to a private holding company in Luxembourg, its leaders are finding themselves increasingly tied to the wishes of their creditors — especially if they want to be considered for aid funding in the future.

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