Quote of the Day

Financial Times news article

“Real estate development could become a catalyst for emerging from the crisis,” said Yiannis Stournaras, director of IOBE, an Athens think-tank.

That’s the Greek crisis that we’re talking about.  And although suggesting real estate as a path out of crisis sounds like a hair of the dog cure, since real estate didn’t have much to do with Greece getting into crisis, the point has validity. 

The tricky part though is that the scope for real estate development is linked to privatization — historically a touchy word in IMF lending programs and a word that showed its lightning rod capacity over the weekend.   Consider the full paragraph from the troika (IMF/ECB/EU) statement that touched off the row

Concerning financing, the government continues to work toward securing a gradual return to bond markets at affordable interest rates. Strong program implementation, with financial support from the international community, remains key to achieving this. It is equally important that the government notably scales up its privatization program, and more generally realizes better returns from its extensive portfolio of assets. Work is proceeding to establish a comprehensive inventory of the government’s real estate assets, and to define a phased action plan.

Leave aside the question of how the Greek government found itself reacting to a sentence that it must have known was going to be in the troika statement before it was issued.   It’s worth noting that the discussion of privatization appeared not in its customary place as a structural reform, but as part of the government’s financing.  In other words, it was being pitched first and foremost as a fundraising measure, and not for its efficiency potential (although no doubt the troika would see that as an advantage). 

The subtext here of course is a key problem with the Greece and Ireland programs — given the governments’ debt loads and financing needs, the programs aren’t big enough.   There is also a review of state assets with privatization potential in Ireland.  But whereas privatization proved to be the political sore spot for Greece, it’s the status of unsecured bonds in Irish banks that is resulting in the first serious friction between Ireland and its official lenders. 

Unfortunately, Ireland can’t claim that the prospects for real estate development could help generate cash for the government.  What it can do is provide many cautionary tales on what happens when private developers are let loose on government property.  We’ll assign the Dublin Docklands Development Authority as the case study.

One thought on “Quote of the Day

  1. For quite some time, there has been an uncontrolled and totally unmanageable situation in the greek real estate sector. The absence of cadastral register (which is about to be completed) and a total lack of oversight in project development, again due to the clientelistic practices of the past, have established a regime in real estate that is an absolute mess.

    These are the institutional reasons, of course, and there are others that present themselves as hard constraints: the country is full of ancient ruins, to the point where the archaeological ephorates run over the heads of every project developer the minute he reaches something of interest. This was the main reason Athensl didn’t have a metro system up to recently, and the reason it takes so much time to develop further. Historically, the waves of re-patriated greeks have pushed development needs to its limits. The image of most provincial cities is ugly, in total contrast with the natural environment.

    The $50b proceeds from privatizing public real estate and property that the troika announced (which was to be announced by the greek government first, hence the lividity of the greek officials) is a reasonable figure. Think about the big projects of the electricity company ($700m for a solar park in the north (see FT for details), wind parks in the Aegean, etc), or the privatization of huge pieces of land that are in the portfolio of the greek government.

    Crowding-out has been historically the way to do business and extract rents from the private sector in Greece. This is no more, with the new regulations for public procurement and subcontracting, with all contracts being publicly available on the internet first in order to be valid and executable (a new transparency measure nobody talks about, in addition to the “Clarity” system of real-time supervision of public spending, all publicly on the web).

    Papandreou has announced his commitment to privatize. In addition to the fundraising potential of the public property portfolio, efficiency is being attained.

    So where exactly is the problem?

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