by Evangelia Antoniades
Introduction
The purpose of this article is to provide a concise description and analysis of the process of privatization in Greece from 1993 to the present, so as to assess its impact on the economy, the society and polity. The issue will be primarily examined within a general theoretical framework regarding state intervention and privatization policies performed by the Greek state in order to emphasize that policy decisions in a small country, such as Greece, are practically always made under conditions of political compromise between the competing interests groups and the state. The underlining theme is that even problems that seem to be of a clear economic nature are closely related to, if not dictated by, political considerations, a characteristic which largely explains the grave resistance to the notion of denationalization by both the conservative and socialist parties that have consecutively been in office in the five year period under examination. Patterns of nationalization and privatization will be viewed briefly in a historical context dating back to the 1960s, a period when Greece was considered to be an economic miracle. The emphasis, however, is on the current context in which the Greek economy functions. It is thus necessary to place the Greek privatization ventures within the general European Community environment of the 1990s. The Community has acknowledged the need to place privatization as one of the primary objectives of the EC's Commercial and Industrial Policy, as well as one of the necessary requirements for the convergence of the EU-fifteen national economies.
In Greece, both the conservative New Democracy party (1990-1993) and the socialist Pasok party (1993-present) planned a series of denationalization, deregulation and privatization projects of public owned utilities and enterprises as well as publicly controlled problematic firms in various declining sectors. However, both administrations were and are confronted with great difficulties, that mainly appear in the form of trade union opposition to the mandatory downswing of many of these firms and consequent job loss. In addition, there is opposition by various political parties or factions of parties that simply do not recognize that privatization is the main mechanism that will render the Greek economy capable of growing and becoming competitive in European and global markets. Thus, the central position of this study paper is that the costs of privatization, that is, job loss for some and short-term increase in unemployment are outweighed by the long-term benefits of increased efficiency, competitiveness and ultimately convergence of the Greek economy with its European Union partners.
PART I: Patterns of Nationalization and Privatization in Greece since the 1960s
In order to comprehend the nature of the process of privatization in Greece, one must first examine the development and consequent growth of the public sector in this small Southern European country. To historically trace the expansion of the public sector it is necessary to focus on three variables. Primarily, one ought to look at the domestic endowments and international economic factors surrounding the country during the period of expansion of its public sector. Secondly, there are value centered arguments that should be considered, such as assessing the size of the welfare state, which is after all determined by the desires of the electorate or by national values, as well as the public budget. Finally, the traditional institutional framework of the state must be analyzed; the argument here is that the size of the public sector derives from the nature of class organization and affiliation, from the character of state bureaucracies and the socialist or conservative identification of ruling parties. It should be noted that the idea that partisan control is a major determinant of policy decisions is one of the most widely accepted conceptions in the comparative public policy literature, a factor that certainly holds true for decision making in Greece.
Pertaining to the above mentioned variables, Greece's small open economy did not consist of many public enterprises, prior to the Second World War. In the immediate post-war period, the Bank of Greece estimates that public enterprises contributed approximately 7-8% to GNP between 1959 and 1961. The dictatorship, between 1967 and until 1974, did not fundamentally alter this picture. With the restoration of democracy in 1974, the public sector was still relatively small by European standards. Greek economic policy at the time, unlike that of the United Kingdom, France, Italy, and Germany was basically reliant on free markets. However, this did not last for long, as the public sector expanded substantially during the period of redemocratization.
In the mid-1970s, the center-right government of Constantinos Karamanlis nationalized Olympic Airways, the Greek air carrier formerly owned by the Onassis family, established the Public Petroleum Corporation and took control over lignite production. Most importantly, the Karamanlis administration nationalized the Commercial Bank of Greece, through which the state gained control over many other enterprises. It seems that democratizing forces used the public sector to mitigate the conflicts that the process of redemocratization unleashed. For instance, firms that might have been allowed to go bankrupt under the dictatorship were often taken into the state sector to prevent job loss among the newly mobilizing working class. Such actions allowed the new government to use public enterprise as means of legitimizing itself and absorbing the many shocks associated with regime transition.
The vast nationalization process did receive some opposition by capitalists' associations, as was expected. However, the impact was minimal, as the organization and autonomy of industrial and financial capital has been very limited in Greece. This is largely due to the fact that economic growth has traditionally been concentrated in the service sector, and in particular in tourism and shipping. Overall investment in industrial activities has been low compared to most OECD countries. Consequently, there was a concentration in traditional industrial activities, such as textiles, food processing and a plethora of "industrial minifundios." Due to the peculiar configuration of the Greek economy, domestic industrialists were relatively weak both in number and in organization. They were also key in any privatization lobby, since they were most dependent on domestic interest rates and were most disadvantaged by the diversion of state funds from private to public enterprises. The Federation of Greek Industrialists (SEV), the most active lobby group representing private interests, had very little impact in influencing the state.
Where capital is weak, labor is strong and the role that trade unions have played in shaping policy making in Greece has been dramatic, even for European standards. This particularly became obvious in the period following the Socialists' rise to power in 1981, a period that also coincides with the Greek accession to the European Community. The Panhellenic Socialist Movement (Pasok) and its charismatic leader, Andreas Papandreou, were known to base public policy decisions on voter preferences rather than on rational economic considerations. Thus, despite the fact that most socialist European leaders at the time, such as Miterrand in France and Gonzales in Spain, performed a U-turn in their nationalization policies and decided to privatize certain sectors of the economy, Mr. Papandreou began a nationalization process that expanded the public sector more than any previous government in Greek history. As a result, by 1987, the state controlled, either directly or indirectly, 60% of the nation's textile potential, all large paper mills and pharmaceutical companies, as well as more than half of all production in shipbuilding, mining, fertilizer, sawmill and cement production.
In order to trace Papandreou's rationale for nationalizing such a large segment of the economy, it is also useful to examine technocratic traditions in Greece. State planning produces more than just plans or state initiated economic change; it also produces planners or technocrats. However, Greece has had a very weak technocratic tradition and Greeks who were interested in policy oriented fields were often forced to study abroad. Andreas Papandreou came close to the model of a technocrat. A graduate from a prestigious American university, he served as advisor to the Bank of Greece and headed the nation's major economic research organization in the 1960s. He was likely to be an innovator. For Greece, with a modest tradition of public enterprise, the innovation at the time was nationalization, but economically, it was not the wisest choice. There certainly were some technocrats within Pasok that disagreed with the party leader's policies, but they were disadvantaged by the nature of Pasok party governance, where decision making had been concentrated in the personality of Papandreou.
The pursuit of such policies did not come without a cost. Soon after the Socialists' second term began, the losses and debts of the inefficient public sector rose, the state borrowing requirement and interest rates escalated and the amount of capital available to domestic investors shrunk even further. As a result, Pasok was forced to introduce austerity measures in 1985 that were centered around the curtailment of nationalizations. State policy seemed to fundamentally alter course in 1987, when the progressive minister of industry, Mr. Simitis, announced that 19 problematic firms would have to be closed and that the government agency- the Industrial Reconstruction Organization (IRO)- founded to help them, would be converted into a holding company.
The 1985 moderate privatization measures were almost exclusively responses to demands of the European Investment Bank (EIB). Yet, the effects of an international actor, such as the EC, should not be overstated because, even if the dictates of the EIB loan agreement were unambiguous and well known, Papandreou eventually proved willing and able to reverse austerity measures and take wholly independent action, due to domestic electoral concerns. Essentially, the EC's position was sometimes ambiguous and often ignored. The Greek law that granted assistance to problematic firms prompted EC complaints, but they went unacknowledged for at least three years. For instance, Greece was supposed to start dismantling the state petroleum monopoly in 1979, but still had not done so in 1987. Despite Papandreou's reversal of the austerity program and subsequent dismissal of the progressive industry minister, he did not succeed in regaining popular support and lost the 1989 elections to the conservative New Democracy party.
The preliminary conclusions drawn by the above historical overview of nationalization and privatization patterns in Greece are decisive in understanding the denationalization process that followed from 1990 and is taking place till this day, since the political and economic structure of the Greek reality has not gone through a major transformation in the post-1974 period. Thus, past experience demonstrates that periods of expansion and contraction of public enterprise in Greece are not related in any simple way to whether the ruling party is socialist or conservative, since it was the New Democracy conservatives that expanded the small public sector in the 70s and the socialists expanded it even further in the 80s. Additionally, nationalization or privatization decisions had not been very susceptible to pressure from external actors. On the contrary, they were practically always dictated by domestic considerations over the political cost of disappointing the voters.
PART II: The European Community's Position on Deregulation and Privatization
The extent of influence exercised by the European Community on domestic economic policy decisions in Greece, is debatable. Even so, it is useful to trace the evolution of welfare state practices of Community members, in relation to the changing European economic and political environment, as such changes have had an impact on policy formation in Greece. In the post-1945 period, the European model of commercial and industrial policy was characterized by heavy state involvement, in contrast to the United States. The traditional European social welfare states of the 50s, 60s and 70s placed industries that were losing their competitive edge under state protection. Strict labor laws that forbid lay-offs, subsidies, favorable orders, and nationalizations allowed the state to safeguard job positions in companies that the market would have placed out of business. Such policies were very popular among trade unions, that were justly trying to protect their members. These laws had an positive effect on employment, as they initially put a break on unemployment.
However, it became evident in the late 70s and early 80s that such costly policies could not be sustained for much longer by the heavily burdened European state budgets. Thus, on the national and regional level, EC members were witnessing the huge opportunity cost tied to interventionist policies, as funds were being diverted from investing in the promising sectors of the future to supporting the problematic industries of the past. Support policies were also socially unjust, in the sense that workers of the declining industries were often maintaining their jobs at the expense of young people that were searching for a position in the rising unprotected sectors. Finally, stringent labor protection laws contributed to the rise of unemployment (especially youth unemployment), as it was practically impossible to fire someone, and at the same time, very costly to hire a new employee.
In addition, on a global level, there occurred a fundamental transformation of the production processes in advanced industrial countries. Technological advances transformed the traditional Fordist mass production model and led to the post-industrial phase of specialized, high-skilled production. The revolution in information technology brought the transformed national economies into greater competition in the new global economic context. European countries became interlinked with the world market and consequently could not ignore the impact of deregulation policies in the US and Japan. For instance, the US had performed massive deregulation projects in the 70s in the airline, telecommunication and transportation sectors, which had become more cost-efficient and productive than the their European counterparts.
The above realization led the EC to take a progressive move toward privatization, so as to eradicate what seemed as an unfair advantage held by state-aided business. New rules were being introduced in the early 1990s by the Commission and in particular by EC competition commissioner, Sir Leon Brittan, that would force state companies to submit financial reports so that Sir Brittan and his team could detect early signs of government intervention. The anti-subsidy drive was not an outright "declaration of war" on the public sector as a whole, but it was a struggle against distorting state-aid policies in declining, non-competitive sectors, particularly in financially burdened countries such as Italy, Greece, Spain and Portugal.
One of the biggest debates on the issue of deregulation and privatization in the EC, and a point that greatly concerns Greek policy makers, is the case of telecommunications reform. In view of the completion of the Single European Market in 1992, the Community initiative on restructuring the telecommunications and transportation sector came in 1987 with the issuing of a Green Paper by the Commission on the development of the Common Market for telecommunication services and equipment. The specific EC policy saw telecommunication reform as a major issue in the general transformation of the European economy into a modern, post-industrial service economy. The emphasis was on three basic issues:
1. the general economic impact of telecommunications within the context of a post-industrial, service based European economy
2. the major objectives of EC telecommunications policy defined as the liberalization of use of the network, unrestricted connection of terminal equipment to the network, unrestricted provision of services via the network, while accepting national diversity of each member-state's infrastructure
3. the modification of regulation with the scope of optimizing the economic role of telecommunications.
The principles of the EC telecommunications reform of 1987 can be summarized in the following points:
1. There was a general trend toward liberalization on a European and global level made possible by the new technological innovations.
2. There were new participation potentials for users and public telecommunications operators. As a result, regulatory and operational functions had to be separated in a competition-oriented environment, new rules for Open Network Provisions (ONP) had to be put in place, and tariffs had to be cost-oriented.
3. All member states had to acknowledge the need to create a more competitive telecommunications environment.
4. Safeguards had to be put in place to secure the integrity of the network, especially in the Mediterranean counties, as well as in Britain and Ireland.
The Maastricht Treaty on economic and political unification went even further on the issue of telecommunications liberalization, so that, according to the decision of the EC Council of Ministers of Transportation and Communications, a specific timetable has been set up that called for the implementation of existing legislation by December 31, 1995. Additionally, the liberalization of intra-community public telecommunications by January 1, 1996 was the necessary precondition to total liberalization of telecommunications, scheduled to occur by January 1, 1998. It should be noted that safeguards, in the form of additional 5 year adjustment periods, were provided in this treaty for the countries with less developed telecommunication channels, a provision that also applies to Greece.
PART III: The Privatization Program of the Conservative Party, 1990-1993
The Greek economy entered the 1990s burdened with serious macroeconomic and structural rigidities, many of which originated in the policies of the 1980s. During the latter period, the average GDP growth was only 1.5% annually, as opposed to 7% and 5% in the 60s and 70s respectively. Inflation, on the contrary rose continuously to reach approximately 20% in 1989. Most economic indicators demonstrated a significant deterioration of the economic situation in Greece. In the center of this unflattering picture lay the pervasiveness of state intervention in all aspects of economic activity. This translated into persistently high government deficits which led to an explosive debt, to extensive wage and price controls that undermined the profitability of many sectors, to a gradual disintegration of the civil service, to widespread nationalizations, to a reduction in public investment in infrastructure in favor of government consumption, and to a loose monetary and exchange rate policy.
The conservative (center-right) New Democracy party that was elected in 1990 promised to undertake the task of reforming the economy and creating the necessary conditions that would place the country on a non-inflationary growth path. The economic strategy of the government was based on two premises. One was an ambitious plan for structural reform, centered on the reduction of state intervention, regulatory reform and infrastructure investment to create a more efficient economy, a sustainable rise in private investment and a rebound of the growth rate to the respective 1960s levels. The second premise was financial discipline, namely a restrictive monetary and fiscal policy that would decrease the public debt and the inflation rate.
What is mostly of interest to the present paper is the first strategy of structural reform. The measures undertaken to achieve this were related to privatization, deregulation and market liberalization, public sector reform and infrastructure investment. Privatization, that was thought to be a cure all for the country's economic ills eventually turned into a major political headache for prime minister, Mitsotakis. The attempt to privatize public sector enterprises, which accounted for 60% of output in the industrial and services sector, was a very slow process. Primarily, the Prime Minister had to discredit the traditional view, held by some cabinet ministers and many conservative party supporters that the justification for the existence of public sector corporations was to provide jobs for party followers. Additionally, it soon became clear that the government had underestimated the legal and administrative complexities of dismantling a large section of the public sector. New legislation had to be drafted and harmonized with EC directives on privatization. Another issue that had an adverse affect on the financial picture and the potential sale of such entities was the lack of transparency, characteristic of the public sector, concerning accounting practices and procedures.
At the same time, a lack of coordination between the various bodies involved in the process of privatization-the Industrial Reconstruction Organization (IRO), the state owned banks, the industry ministry and the ministry of national economy-slowed procedures even further. In particular, the ownership of some IRO held enterprises was challenged in court, creating more legal difficulties and raising questions about the feasibility of privatization. IRO, set up by the socialists in the 80s, invited firms in financial distress to apply to the organization for restructuring. However, the organization was not particularly successful in rendering the companies under its wings competitive. As a result, of the 170 enterprises available for denationalization 75 were held by banks and 54 mainly problematic firms were controlled by IRO (Table 1). IRO was not particularly successful in its privatization efforts, as by the end of the Summer of 1991 only 10 of its firms were sold and 20 were in liquidation (Table 2). The organization itself had become so problematic that the government announced its liquidation in August '91, as otherwise an additional Drh 100 bn ($0.5 bn) in subsidies would have to be provided to keep the company in operation.
Last but not least, Socialist and Communist opposition raised objections to the Conservatives' policy on curtailing public ownership. The center-left and left parties respectively, did not want to accept that job losses were inevitable, if the public sector deficit was to ever meet EC criteria. One of the conditions set by the Commission when it granted Greece the Second Delors Package of Ecu 2.2 bn was that the public sector staffing should be cut by 10%, at a time when 40% of the inflated state debt (120% of GDP in '91) was salary and pension payments to public employees.
The privatization process finally gained momentum in early 1992, when a new privatization law was passed. Law 2000/91 could affect 700 existing public sector enterprises and organizations. Among them were the telecommunications corporation (OTE), the public power company (DEH), the national organization for tourism (EOT), Olympic Airways, and so on. The law would allow their merging or abolition, transfer or rental into private control, or liquidation. In charge of implementing the new legislation was the Interministerial Privatization Committee (DEA) headed by the Ministers of Industry and Commerce, National Economy and Finance. For the following 2 years, until 1994, DEA had the task to evaluate all public sector enterprises to determine which ones should be privatized. Once that was decided, DEA would assign within 30 days an agent to complete the privatization procedure that could not extend to more than 6 months. For exceptional cases, this period would be extended to 1 year. Privatization could take place by means of a private treaty sale, listing on the stock exchange, by rental or lease, or by a management contract or licensing agreement.
The new privatization law created the appropriate conditions so that interested foreign investors could find lucrative opportunities in Greece, through acquisitions that fit general strategic plans for the EC market. A strong indicator of these opportunities was the case of the sale of Aget Heracles, Greece's largest cement company and Europe's largest cement exporter, to the giant Italian industrial group, Ferruzi Finanziaria S.P.A.
In addition, a number of foreign multinationals had entered the Greek market. Nestle bought Loumidis, a top coffee maker; Jacobs Suchard, another Swiss company, acquired a majority interest in Pavlides, a confectionery manufacturer; a British company, Grand Metropolitan, that also owns Burger King and Pillsbury in the US, purchased Metaxa brandy manufacturer; United Distillers bought into a joint venture that included a minority share in Boutari, a wine and spirits producer; and the French BSN group took over Henning Beer. The government also prepared to transform the Public Petroleum Corporation (DEP) and its oil distilleries (ELDA) from a state agency into a public sector enterprise.
In the meantime, most of domestic and international attention was placed on the plan for the partial privatization of the telecommunications network, OTE, an issue of financial concern that evolved into a major and protracted political battle, which continues until today. The New Democracy party of K. Mitsotakis proposed a plan that called for the privatization of 49% of the company's capital, of which 35% of OTE shares were to be sold to a strategic investor, 10% was to be offered to the general public through the stock exchange and 4% was to be offered to the company's employees and pensioners. An additional legal proviso was that the management of OTE was to be transferred to the strategic investor. This last point became an extremely contentious issue that raised serious reactions from the Socialist and Communist opposition. The main argument against the Conservatives' plan was that placing management of the telecommunications company in private, or even worst, foreign hands, primarily, created a grave national security risk. The second and more pragmatic argument was that the potential new managers-particularly if they were foreign-could very easily come into confrontation with the company employees and it would be timely and difficult to recreate the balanced relations that exist with the Greek state appointed managers.
The position of the Minister of National Economy at the time, Stefanos Manos, was that the particular privatization plan was necessary, as it would allow the transfer of funds from the Second Delors Package for the completion of important infrastructural projects, instead of them being used for the OTE investment project. Concerning the issue of management, he emphasized that OTE was in need of new technology and technical know-how both which a strategic investor would provide. At any rate, the choice of the potential future managers of OTE would only be made with the approval of Parliament. The 6 potential strategic investor candidates were France Telecom, STET, GTE, NTT and Korea Telecom. The particular OTE privatization scheme was calculated to add Drh 550 bn ($ 2.6 bn) into the state budget in '93 and '94 and at the same time it would prepare the organization to face the liberalization of telecommunications in the EC scheduled to take place on the first of December 1998.
However, Mr. Manos' arguments did not seem to convince the parliamentary opposition or the Greek voters, that could no longer withstand the weight of the government austerity program or its privatization decisions that could possibly cost them their jobs. Consequently, Mr. Mitsotakis had to face the political cost of his unpopular policies and the October 1993 elections brought the Socialists and Andreas Papandreou back to power.
PART IV: Privatization Projects Under the Socialist Government, 1993-1995
Throughout the summer of 1993, prior to the October general elections, as a reaction to the conservative administration's privatization program of the Greek public sector, unions began massive strikes. Banks and post offices were closed across the country and transport workers stopped work during rush-hours. OTE workers followed their example. The power company, DEH, threatened the capital with blackouts. The unions, at the time were backed by the socialist party opposition that turned its electoral campaign into a battle against Mitsotakis' preparation of legislation enabling the transfer of management of public utilities to the private sector and permitted them to be listed on the Athens stock exchange.
Mr. Papandreou followed a harsh line against privatization up until his electoral victory, when he was reinstated to power. However, once he became Prime Minister of the country again, he performed a U-turn, at least as far as his rhetoric was concerned. Suddenly, Pasok's economic priority was to implement policies to promote convergence with the rest of the European Union. It seems that the Prime Minister had become aware of the EU's unwillingness to tolerate his "rebel" anti-European policies of the '80s. So, the Socialist party pinned its hopes to the twin weapons of tax reform and moderate privatization or privatization with a "human face", as Mr. Papandreou preferred it. In the latter area, the government went so far as to overrule objections from certain factions of its own party and decided to proceed with the privatization program initiated by its predecessor, New Democracy administration. However, it soon became obvious, from the actual events that followed, that merely the rhetoric had changed, nothing else.
Regarding OTE, the new legislation that was initiated by the Conservatives was eventually approved by Parliament in October 1994, which called for the restructuring of the company as a public corporation and allowed for the partial flotation of only 25% of the company shares in the Athens stock market. In addition, certain provisions were added; management had to remain under Greek control, with 6 of its 11 board members being appointed by the state, instead of transferring management to a strategic private share holder, according to the initial New Democracy plan. The law did not make any provisions for the appointing of an international telecommunications operator as a technical consultant either. Local analysts described the new legislation as a compromise to appease OTE's unionists, that strongly opposed any type of flotation.
The following month, Mr. Papandreou announced his backing to the Economics Ministry plan to sell minority stakes in state utilities, with OTE being on the top of the list. The government was planning to sell 18% of the company to European institutions, the US and Japan through a book building procedure and the remaining 7% to domestic investors. Although government officials stressed that the restructured OTE would operate like a private company, the unions were promised that redundancies would not be permitted. At the same time, divisions within the Socialist party had mounted over the company's future. The climate of political uncertainty over the flotation had been further poisoned by threats from the Conservative opposition in Parliament to take legal action against the government, if the offering price was too low. Concerns were stated regarding a possible last minute change of plans.
Indeed, only two days after the approval of the law opening the way for 25% of OTE shares to be sold on the Athens stock exchange, the government decided to postpone the flotation at least until December '94. The reason for the delay, according to government officials, was that CS First Boston and J. Henry Schroeder Wagg, the international advisers to the issue, warned that the governments target of raising more than Drh 320 bn ($1.5 bn) from the flotation would not be met at the time in question. Consequently, the flotation was postponed indefinitely, or at least until a new board of directors was put in place and the political atmosphere was less tense.
However, some credit must be attributed to the minister of National Economy, Yannos Papantoniou, for diverging from the traditional rivalries of old party politics in Greece. His true commitment to privatization was primarily demonstrated when he was rounding deputies in the halls of Parliament to convince them to vote for the flotation of OTE shares. Most important, in January 1995, he presented the final guidelines for the privatization of the telecommunications company that had, for the first time, two clearly stated objectives:
1. The postponement until 1996 of the offer of OTE shares abroad, that would then take place on the London exchange market.
2. The offer of 10% of the company's capital shares of the value of Drh 160 bn ($0.7 bn) on the Athens exchange.
Finally, Mr. Papantoniou's break from the hard-line Socialist mentality was evident when he announced the conclusions of the Financial and Social Committee's research on ways to increase the competitiveness of public firms. The emphasis of this pilot plan was on the redefinition of the role of management of these companies, so that the appointment of future managers should be based on merit and not party affiliation.
The Pasok government did not only stumble on difficulties on the process of privatizing public enterprises, such as OTE, but also reached an impasse when attempting to address the issue of problematic firms, especially those that were under the control of the Industrial Reconstruction Organization (IRO.) It became obvious that the common element between companies such as the Elefsina Shipyards, the Plastic producers of Kavala and the Spinning Mills of Filiata was that they were forced to shut down one after the other, after having been privatized in 1992. They were not able to meet the expectations of their new owners nor were they able to withstand competition. Thus, after approximately 10 years from the spread of problematic enterprises and the placement of most of them under the protection of IRO, as well as 3 years after the privatization of some of them, the threat of loss making firms, that were kept alive by consuming hundreds of billions of drachma of national wealth and mostly tax revenue, became eminent once more. They constitute a threat not only because the appropriate economic measures were not taken to make them viable, but mostly because, with the excuse of social unrest, policies were put in place that were economically unsustainable and socially and morally unjust.
Unemployment was still mounting, regardless of the huge fiscal transfers to maintain jobs in these companies, and privatization once again had been delayed, so that from the 74 firms under IRO only 12 were sold by June 1995. The problems that were identified to cause the delay-that may very well be the reasons for the failure of privatization attempts - were unclear sale provisions regarding the price setting, absence of guarantees of the potential buyer's credit, contradictions between IRO sale provisions and the actual final sale provisions, absence of a legal framework and documentation of negotiations, among others.
The failed attempt to privatize certain companies in the shipbuilding industry was by far the most problematic of all unsuccessful privatization schemes and one that has had the greatest socio-political impact. Income earned by the Greek merchant navy is the second most important source to cover the trade gap, after remittances. Ships flying the Greek flag make up the world's third biggest merchant fleet, after Liberia's and Panama's, and account for 40% of the EU total tonnage. But, shipping has its limits too, especially since shipping, as a sector, has been going through a severe crisis on a Greek, European and global level.
In Greece, neither of the administrations since 1990 have been able to tackle the shipyard problem head on. There has been no overall agenda for nursing the sector back to health, which is strange, considering the amount of political rhetoric over the strategic importance of the yards and their place of pride in the nation's wealth. The Mitsotakis government seemed to have been moving in the right direction with the sale of Eleusis Shipyards to the Peraticos group in 1992. However, New Democracy failed miserably when it came to Hellenic and Neorion repair yard, Greece's largest and third largest facilities, respectively. In both cases, the government and the Hellenic Industrial Development Bank-the latter being the nominal owner of the two shipyards-failed at the last moment to close the deal with the prospective buyers, mainly due to opposition from yard workers.
By the time the Conservatives lost power, Neorion had been closed, despite having received private offers, and Hellenic was placed under Greece's protective liquidation laws and thus, the problem was passed to the Socialists. The present government's division on the issue of weakening the state's role in the economy extends to the shipping sector as well. Papandreou's main accomplishment was the reopening of Neorion, that was sold to a consortium of local ship owners.
The sell-off of Hellenic was still pending, an issue that turned into a modern day Greek tragedy. With the expiration on September 6th 1995 of another EU deadline for selling or shutting Hellenic, in line with EU directives on ending state subsidies to the shipbuilding sector, the then Industry Minister, Mr. Simitis, at a time of desperation, took everyone by surprise by conjuring up an offer by the Kalogeridis group that was supposedly supported by an international consortium including Japan's IHI, Norway's Kvaerner, and other international shipping giants. However, representatives of the various companies named denied the existence of the consortium, thus, the credentials of the Kalogeridis group were blasted, and the deal collapsed. As a result, Mr. Simitis resigned, something that deepened the division between the pro-European Socialists, like Simitis, who are committed to modernizing the economy, and Pasok hard-liners. Mr. Simitis' resignation also placed the future of the shipyard and its 3,000 workers in doubt, as the latest Commission extension until the thirty-first of December 1995 has run out.
Conclusion
These are difficult times for Greece. The country's superficial gloss of European prosperity can no longer disguise the structural problems that are an obstacle to long-term growth. The political parties, obsessed with personal rivalries and keeping the pervasive patronage system dominant in the public sector, show little awareness of the country's economic predicament. With a slow growth rate of barely 1% and a public debt of 114% of GDP at present , privatization must be enforced as the primary tool to increase the competitiveness of the national economy. It is no longer sustainable to allow Greek entrepreneurs to face international competition with ridiculously high interest rates of 25%, with bad quality telecommunications and infrastructure and at the same time expect them to cover the inflated state debt.
Other alternatives to privatization have been presented at times, such as, for instance, the idea of liberalizing the telecommunications market and allowing large European companies to enter into a joint venture with OTE. However, it is doubtful that a state monopoly, such as OTE, would be able to withstand free competition by foreigners in a completely liberalized market, even if it were to form a partnership with another European company. In any case, most of the European telecommunications operators are currently in the process of being privatized themselves (Table 3).
If privatization is the key to reviving the Greek economy, then what measures should be taken from now on to ensure that future ventures produce positive results? Primarily, it is necessary to accept that in some enterprises the number of workers must decrease. This is the short-term cost that Greek society has to accept in order to avoid the closing down of many other private companies that do not enjoy the assistance of state subsidies. To exhibit social consciousness, the state can instead retrain and reposition those that used to be employed in the problematic sectors.
Secondly, an institute should be activated, as a counselor to the public sector for the reorganization and rationalization of public sector companies in order to prepare them for a painless transition into private hands. Management is to play a pivotal role in the process of modernization of public enterprises. Thus, new professional and experienced managers must replace the political appointees of the past with no managerial talents. This would allow the therapy of the ills of the political system that reproduced mediocrity, narrow mindedness, and old party politics. Finally, the financial portfolios and general credibility of potential private investors or buyers have to be analyzed carefully to prevent a repetition of the Hellenic Shipyard sale saga.
Modern times require modifications, not merely in relation to the way people look at the increasingly interdependent global economy, but mostly regarding traditional mentalities. Fortunately, it seems that the present day Greek political elite with the pro-European and progressive new Prime Minister Costas Simitis as well as the Greek peple have understood the unsustainablitlty of past policies and seem to be commiteed to move forward to a fundamental transformation of the country's financial map, with much less state intervention and much more nerve, determination, creativity and economic responsibility.
Evangelia Antoniades is a graduate of Johns Hopkins University, School of Advanced International Studies (SAIS).