Saturday 26 June 2010

First Steps in Consolidating the Greek Debt: OASA/OSE

Back in February, I posted on this blog that the Greek government had at least a further EUR 40 bln, and possibly up to EUR 50-55 bln, in debt which was not declared on the central government’s balance sheet.

Today Kathimerini reported that the “Troika” of the European Central Bank, IMF and Eurozone have finally gotten around to demanding that the debt of certain semi-governmental organisations be transferred onto the Central Government balance sheet. These are:

·         OSE, the National Railroad Organisation, who’s total debt will hit EUR 10 bln this year
·         ETHEL, the natural gas-powered bus network
·         HSAP, the electric tram line that runs from Pireaus to Kifissia
·         HLPAP, the trolley lines in Pireaus
·         OASA, the bus and trolley company for Athens and suburbs.

These organisations are estimated to owe at least EUR 12.5 billion, with their annual 2010 loss estimated at EUR 1.26 bln. They are entirely public sector organisations, and the debt is guaranteed by the central government.

If the Greek government accepts this demand, it means that Greece’s debt-to-GDP ratio will rise by at least 5.4% (assuming a minimum 4% GDP fall in 2010 to EUR 230.4 bln).

In turn, this means that Greece’s deficit in 2010 will be around 12-13%, well above the 8% target in the Stability and Growth Plan.

Together with the agreement in the hospital procurement sector, we can assume that approximately EUR 18-20 bln have been added to the central government’s debt so far this year. This means that, not counting current expenses and added interest costs incurred so far in 2010, the total national debt will now be approximately EUR 328-330 bln, or 143% of 2010 GDP.

In the meantime, the government has embarked on a political courageous process of social security reform, which contains many of the elements PASOK voted against over the past 5 years. They have also launched the process to consolidate public sector organisations which, though it will not result in the reduction of permanent government workers, will result in the reduction of temporary staff and theoretically some overhead costs.

These are all very necessary reforms, and long overdue. But they will not be enough to make a significant reduction to the public debt burden, and thus the annual financing requirement, by 2013-2014. The government will have to identify at least EUR 10-15 bln additional spending cuts or revenue raises per year to give Greece the chance to survive without a debt restructuring.

The government also needs to start acting faster. Particularly the Ministry of Economics, led by Dr. Louka Katselli, is not working anywhere near as fast as it should be. As a result, several key pieces of legislation have been delayed, while the absorption of EU funds is at extremely low levels.

This Ministry probably needs to be split up into 6 units if any of these sectors/functions is to operate effectively:

·         Shipping
·         Investment Promotion
·         Public Sector Reform / eGovernment
·         Economics / Competitiveness
·         European Union Cooperation

Normally, I am against fragmentation, but the inter-ministerial cooperation framework is so dismal in Greece, the only solution is a temporary increase in the number of Ministries until things get sorted out.

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