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22 February, 2016

The European industry of sell-off public property

Privatisations of state-owned assets have become a central plank of EU/Troika agreements with debtor nations such as Greece, Ireland, Italy, Spain and Portugal, but there has been little examination of their track record nor an examination of who really benefits. This report puts a spotlight on the legal and financial corporate giants making millions out of the new wave of privatisations across Europe.

European citizens have witnessed a wave of privatisations in their countries in recent years. Transnational Institute (TNI)’s report, Privatising Europe, published in 2013 showed how the European Union (EU) and the International Monetary Fund (IMF) used the economic crisis as a way to push through privatisation programs in indebted EU countries, despite major popular opposition. Three years on, this briefing examines the consequences of those privatisations. It puts a spotlight on the process, the corporate players that have profited, and examines whether the sale of state-owned assets has delivered on the promises used to justify their privatisation.

A study under the title “The Privatising Industry in Europe” by the Transnational Institute

Key points:

  • The rationale put forward by advocates of privatisation does not stand up to the evidence. Privatisation has been justified on the basis of providing revenue for indebted states and increased efficiency. Yet in nearly all cases, only profitable firms are being sold and consistently at undervalued prices. Meanwhile research by the IMF and by European universities shows that there is no evidence that the privatised firms are more efficient. Instead privatisations have undermined wages, weakened labour conditions and growing income inequality.

  • A small coterie of legal and financial firms is reaping significant profits from the new wave of crisis-prompted privatisations. These include the financial and legal advisors and the accounting firms. These players are active advocates for privatisation throughout Europe, and have benefited from the highly lucrative business, winning contracts worth millions of euros.

  • A number of the key lead corporate players, such as Lazard, have been involved in both advising on privatisation and then profiting from their advice. For example, Lazard advisory branch was the principal financial adviser for the privatisation of Royal Mail thus directly influencing the price setting for it shares, yet its asset management branch was one of 16 firms to be given priority investor status. This allowed the firm to make an 8 million pound profit from purchasing and then reselling shares.

  • Despite the rhetoric in favour of private management, many of those who win concessions and buy formerly privatised assets are state-owned companies. Chinese state-owned corporations have for example become dominant players in buying up European energy companies, buying stakes in Portuguese, Greek and Italian public utilities. German and Azerbaijani state-owned companies have also been involved in buying in up privatised assets in other European countries.

  • Privatisation in Europe has encouraged a growth in corruption, with all-too-frequent cases of nepotism and conflicts of interest. In Greece, this has led to constant scandals at the HRADF, the main body responsible for privatisation, with three HRADF board members currently being charged by the Greek Corruption Magistrate for corruption. Similar cases have emerged in Italy, Spain, Portugal and the UK.

  • The bailout negotiations between Greece and the ‘Troika’ (European Commission, European Central Bank and International Monetary Fund) in July 2015 put the issue of privatisation back in the headlines. The Syriza government, elected on a platform that opposed the deeply unpopular privatisation of key state-assets such as water services, was humiliatingly forced to agree to sale of state assets. In fact, privatisation plans imposed on Greece under the latest and third Memorandum of Understanding (MoU) are even more extensive than previous ones. While Greece stands out as the most emblematic case of Troika –forced privatisations, the Mediterranean country is not the only one being pressurised into implementing such programmes. Portugal, Italy, Spain, Ireland and the UK have all seen a renewed effort to privatise the last remaining state services.

  • The IMF, the European Central Bank (ECB) and the European Commission (EC) see privatisation of public utilities and state companies as a panacea for Europe’s economic woes. They claim that private ownership will make companies more cost effective and competitive and that the public will benefit from lower prices and better service. Yet, as this report explores, they ignore the evidence of recent privatisations which have more often led to reduced state revenue, increased corruption and poorer services. They also ignore the wage losses, redundancies and erosion of labour rights that have resulted from privatisation that have further exacerbated the economic crisis. The blindness of the Troika to the detrimental effects of short-term liquidation of state assets may be ideological in nature, but it is bolstered by the growth of a powerful privatisation industry in Europe that profits immensely from these sales and actively lobbies for continued business.

  • The evidence shows that state companies are consistently undersold and even end up costing governments extra money (undermining the argument that privatisation generates revenue). Particularly in Greece, state assets have often been sold for prices far below their true market value. Research also shows that privatisation has negative implications for labour rights and what consumers pay for public services.

  • Due to the different, complex levels of financial and legal advice and the many parties involved in privatisations, the processes tend to be very susceptible to different kinds of corruption and conflicts of interest if they are not strictly supervised and monitored. Whereas cases involving flagrant corruption occur relatively often in countries accused of loose transparency and accountability like Greece, conflicts of interest also take place in countries that serve as global hubs for financial and legal services, like the UK.

The question remains therefore why the Troika insists on making privatisation a cornerstone of the austerity packages it has imposed on European debtor nations. Not only do the privatisations fail to deliver the revenues and efficiency that justify them, they are also fuelling nepotism, corruption and profiteering by small privileged groups at a time when the social costs of austerity are more blatant than ever. They are therefore exacerbating a social crisis of growing inequality and leading to social unrest and growing disaffection with the political system at national and European levels.

The fact the EU institutions are responsible for overseeing the implementation of privatisation programmes makes their capacity for good governance an additional concern, especially in the current circumstances where there is an increased transfer of sovereignty from member states to bureaucrats in Brussels.

The fact that the European Commission (and the Troika) persists in its privatisation agenda despite the evidence of its failures and the growing economic and social costs suggests two possible motives. One, that the European Commission is so ideologically wed to neoliberal policies that it unwilling to even consider the concrete evidence of the economic, social and political costs of privatisation for its own member states. Or two, that there is such a powerful corporate industry at work in support of privatisation, from the advisers to the corporations that buy up state assets, that it is impossible for the EU institutions to reverse course. Either motive or the likelihood that both are true reflects very badly on the European Union. It also goes along a way to explain the growing disaffection and popular resistance to the privatisation agenda and more broadly to the whole European Union project.

Full study:

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