Greece staved off the immediate threat of default at the weekend but now faces severe restrictions on its sovereignty and must push through a wave of privatisations akin to the vast sell-off of East German firms in the 1990s after the fall of communism.
Jean-Claude Juncker, chairman of the Eurogroup of finance ministers, told Germany’s Focus magazine that teams of privatisation experts from around Europe would now be heading to Athens to push through the state sell-offs, which are slated to raise €50bn (£45bn): “The sovereignty of Greece will be massively limited,” he said.
Juncker’s interview appeared just hours after Eurozone ministers signed off the fifth tranche of last year’s bailout, worth €12bn. The payment must now be rubber-stamped by the International Monetary Fund (IMF) and pushed through by 15 July in time to meet several bond repayment deadlines. Agreeing the latest IMF payout, on 8 July, will be an early task for Christine Lagarde, the new IMF boss, who starts work in Washington on Wednesday.
Juncker said Greece needed to adopt a process similar to the Treuhand agency, used by Germany to sell off 14,000 former East German firms between 1990 and 1994 – even though Treuhand failed to deliver any profit, oversaw huge job losses and eventually closed its books with a deficit.
But he did appear to acknowledge that the Greeks were hostile to foreign officials appearing to take charge: “One cannot be allowed to insult the Greeks. But one has to help them. They have said they are ready to accept expertise from the eurozone.”
Athens, together with European leaders and the IMF, must now start work on a second €110bn bailout for Greece, which must be finalised by September and is likely to include private-sector involvement.
The European commission conceded on Saturday, after the two-hour Eurogroup teleconference agreed the fifth tranche payout, that any plan to cut Greece’s debt of 160% of economic output would be at risk of being derailed by internal unrest or external economic conditions. Growth just one percentage point below expectations, it said, would push Greece’s debt to 170% of GDP, and rising, past 2020.
For the first time, the commission’s report also discusses debt restructuring, including a possible 40% “haircut” – a forced reduction in the value of Greek bonds – which would devastate Greek banks and, the report warns, could reverberate on Ireland, Portugal and Spain.