PARIS — What if German savers were to help rescue Greece, Portugal or Spain by investing in their state assets and companies rather than bailing them out with taxpayer-backed loans? That novel idea for recycling Berlin’s huge current account surplus, avoiding fire-sale privatizations in the weakest euro zone states and fueling growth in southern Europe comes from the French economist Olivier Garnier.
Mr. Garnier, the chief economist of Société Générale, argues that creating an agency in charge of purchasing, restructuring and privatizing state-owned assets could, over time, solve several of Europe’s deep economic problems.
Such a “European Treuhand (Trust) Agency” would offer a “debt-for-equity conversion” that could repair the public finances of the euro zone’s bailed-out states, reduce North-South current account imbalances in the 17-nation currency area and generate investment in Europe’s periphery.
Mr. Garnier argues that the idea would offer German savers a better return than parking their surplus cash in domestic bank deposits earning zero nominal interest, and would be politically more palatable for Germans than risky taxpayer loans to governments that might never be able to repay the debt.
The fact that such long-shot proposals are doing the rounds four years into the bloc’s debt crisis highlights how few of the underlying problems that caused it have been resolved.
This idea may be timely as Chancellor Angela Merkel tries to soften Berlin’s image as Europe’s stern austerity enforcer and show a gentler side with initiatives to help fight youth unemployment in crisis-stricken euro zone countries. But to bitter Greeks or Spaniards, it might look more like an exercise in German colonization than a helping hand. While Dutch, Austrian or Finnish savers might join, the “European” agency would inevitably be dominated by German money.
When the top-selling German daily newspaper Bild ran a headline at the start of the debt crisis in 2010 screaming “Sell your islands, you bankrupt Greeks! — and the Acropolis, too,” it caused fury, rekindling resentments smoldering since World War II.
Quoting Finance Minister Wolfgang Schäuble’s comment that “we want to show that we are not just the world’s best savers,” Mr. Garnier says: “He should have added that the Germans have to show they can be wiser investors, making a more efficient use of their savings and of their related taxpayers’ guarantees.”
His idea has a German precedent. After the fall of the Berlin Wall and German unification in 1990, a trustee agency known as the “Treuhandanstalt” was set up to restructure, wind up or sell off East German state enterprises. Some top talents of West German business were recruited to help shake out and spin off eastern companies.
But this example points to some of the obstacles to Mr. Garnier’s proposal. The Treuhandanstalt was criticized for laying off nearly 2.5 million workers of the 4 million it had inherited and for closing businesses that critics said were profitable. It contributed to East-West resentment over the social and financial costs of unification, and its first president was assassinated by (West German) Marxists.
Privatizing state-owned companies and property are a key part of the bailout programs prescribed by the European Union and the International Monetary Fund for the euro zone’s debt-laden governments. Yet Greece’s consistent failure to meet its privatization revenue goals highlights just how hard it is to attract serious investors to countries mired in deep recession, and to sell even profitable businesses for a fair price.
An attempt by Athens to sell its natural gas company, Depa, collapsed in June, blowing a hole of €1 billion, or $1.3 billion, in its bailout plan, and raising further doubts about plans to hawk the state gambling monopoly and the money-losing railroad.
Elsewhere in the region, so-called vulture funds of private equity investors are looking to pick up stakes in blue-chip Spanish companies at knock-down prices after bailed-out banks were forced to divest.
With Mr. Garnier’s model, a long-term investment vehicle funded by both private sector savings and the German government, or with a state guarantee, would buy up the assets, taking them off their governments’ books, then restructure and run them until they could be sold off profitably.
The German economists Daniel Gros and Thomas Mayer suggested last year that Germany should create a sovereign wealth fund, like those of Norway, Singapore and Saudi Arabia, to invest excess savings. Such a fund would be a safer and more efficient way to place German savings than in unremunerated deposits, they argued, and would have the side benefit of lowering the euro’s exchange rate, which would benefit struggling south European economies.
Mr. Garnier would put that money to work inside the euro zone. He notes that Germany’s state-owned development bank, KfW, is already dipping a toe in these waters by providing loans through its Spanish counterpart to credit-starved small and medium-size businesses.
Mr. Garnier’s proposal raises three other issues: Would the agency be able to run the assets more efficiently than current owners? How would the risk to German savers’ capital be mitigated? And how could the assets be valued at prices acceptable to all?
His answer to each question is that the status quo is worse: The assets are moldering while governments desperately need the money. Germans face risks from the bailed-out countries as taxpayers, so why not get some return on their savings? And the assets could be priced in a way that allowed for some upside for south European states if they fetch more on the market.
“I see all the hurdles, but it would be ill-advised to rely only on fiscal transfers to share risks among euro zone economies,” Mr. Garnier said in an interview. “A European fiscal union raises even bigger obstacles than this — abandoning budget sovereignty — and writing off official debt would be fraught with legal and political obstacles.”
Paul Taylor is a Reuters correspondent.
Article source: http://www.nytimes.com/2013/07/23/business/global/23iht-inside23.html?partner=rss&emc=rss
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