Greece Sells Islands?
By Staff News & Analysis - June 25, 2010

Greece puts its islands up for sale to save economy … Desperate attempt to repay debts also driven by inability to find funds to develop infrastructure on islands … Greece is raising cash by selling off an area of state-owned land on Mykonos for luxury tourism. There's little that shouts "seriously rich" as much as a little island in the sun to call your own. For Sir Richard Branson it is Neckar in the Caribbean, the billionaire Barclay brothers prefer Brecqhou in the Channel Islands, while Aristotle Onassis married Jackie Kennedy on Skorpios, his Greek hideway. Now is making it easier for the rich and famous to fulfill their dreams by preparing to sell, or offering long-term leases on, some of its 6,000 sunkissed islands in a desperate attempt to repay its mountainous debts. The Guardian has learned that an area in Mykonos, one of Greece's top tourist destinations, is one of the sites for sale. The area is one-third owned by the government, which is looking for a buyer willing to inject capital and develop a luxury tourism complex, according to a source close to the negotiations. Potential investorsalso looking at property on the island of Rhodes, are mostly Russian and Chinese. Investors in both countries are looking for a little bit of the Mediterranean as holiday destinations for their increasingly affluent populations. Roman Abramovich, the billionaire owner of Chelsea football club, is among those understood to be interested, although a spokesman denied he was about to invest. – UK Guardian

Dominant Social Theme: A terrible thing but Greece deserves it for its profligacy.

Free-Market Analysis: On the surface it seems shocking that a nation would sell off parts its physical environment because of public sector debts. But this has been going on for a long time in impoverished nations. First profligate nations are lent a lot of money by private sector banks. Then the nation becomes over-extended revenue-wise. Finally the IMF is called in to provide a "loan" that must be paid back. The impoverished nation cuts its bloated public sector, raises taxes and sells of chunks of its public portfolio, maybe to the fraternity of banks that lent it money in the first place.

It is an incredibly cynical operation that was developed by the Anglo-American axis that still controls the IMF and it depends in large part on human greed. The money that is initially lent to troubled nation-states is funneled through government channels. It often ends up lining the pockets of the officials involved in the transactions. Additionally, it used to purchase influence with interest groups that can provide political support. It is basically wasted money. The only thing it does do, briefly, is purchase a spasm of prosperity that is as evanescent as the funds themselves.

Continually, free-market oriented critics complain that the money being lent – if it is to be lent at all – ought to be going to the private sector itself. But if the loans went directly to the private sector without government strings, it might generate projects of sufficient success to repay the debt. This is the last thing that these banks and financial institutions actually want. They want the money to be dissipated so that they can call on the IMF to implement "austerity."

Often, in these cases, we may hear that a swath of the West's largest banks are headed for bankruptcy if the IMF does not rescue the nation-state in question. It is all quite dramatic and usually the IMF arrives on the scene sooner or later. The West's money center banks are saved. Profitable country assets are privatized and sold off. The middle class, the unwitting victim of all this, is savaged, debilitated and in many cases bankrupted by higher taxes and fewer services.

Having written all this, however, we want to add that we are not theoretically opposed to government asset sales. We simply believe that the way they occur, through these phony loans and equally phony calls for IMF intercession, does NOT constitute the proper environment for privatization.

From our point of view, as a free-market publication, the government should be out of the business of owning land, resources, utilities and even, for the most part, basic infrastructure. Historically, there are plenty of case studies where every kind of infrastructure has worked within a private environment. Public ownership, monopoly ownership, in fact does not work because it reduces the discipline that competition provides. Over and over, when the market itself is not allowable as a corrective, government entities let public assets degrade, often ruinously so.

There is another reason why the government ought not to be in the business of owning property and infrastructure. That's because the more that the government owns, the more fractious immigration arguments are likely to be. As we've pointed out on numerous occasions, if all property was in private hands in a given state then immigration policy more likely would be determined by individual citizens and employers. It is only when immigration is subject to political debates and policy is adjusted by special interest groups that the issues grow poisonous.

Finally, the Greek sell-off of some of its island properties may be seen as positive because it is an admission that the government itself has failed at its primary "modern" function of providing an environment for development. The sale of some of these assets functions as a kind of emphatic metaphor for the uselessness of government control of assets. In truth, governments are lousy administrators of property and infrastructure. Here's some more from the article:

Only 227 Greek islands are populated and the decision to press ahead with potential sales has also been driven by the inability of the state to develop basic infrastructure, or police most of its islands. The hope is that the sale or long-term lease of some islands will attract investment that will generate jobs and taxable income. "I am sad – selling off your islands or areas that belong to the people of Greece should be used as the last resort," said Makis Perdikaris, director of Greek Island Properties. "But the first thing is to develop the economy and attract foreign domestic investment to create the necessary infrastructure. The point is to get money." In its battle to raise funds, the country is also planning to sell its rail and water companies. Chinese investors are understood to be interested in the Greek train system, as they already control some of the ports. In a deal announced earlier this month, the Greek government also agreed to export olive oil China.

The above excerpt re-emphasizes the points we have tried to make in this article. It is a good thing that the Greek government must sell certain properties because it has done a lousy job administering them. But it is a bad thing as well, because the Greek government is looking to unload monopoly utilities such as its rail and water companies. Governments often jealously guard these assets and do not allow competitive development. Thus, when they are forced to sell, they are actually selling single, precious resources, often to a foreign country as well as a foreign company.

It is good for the Greek people to see how thoroughly incompetent their government really is. It is bad however that Greece is forced to sell its water and transportation infrastructure to a country like China. But let us take a step backwards and look at the bigger picture. We have written before that we don't think the citizens of countries like Greece are going to tolerate these sorts of "austerity" measures in the long run. Tax hikes, public service cuts, the sell-off or major, monopoly resources are all standard procedures for the IMF. But that doesn't necessarily make them tolerable in every instance.

After Thoughts

It will be interesting to see the outcome of IMF demands aimed, possibly, at countries like Spain, Greece, Italy and maybe, eventually, France. We wrote yesterday of George Soros' warning that Europe's tribes may not stand for a long-term austerity interregnum. We agree with this warning. We think the elite is worried. In fact, we think the power elite may have overreached in numerous ways regarding the EU and its potential to tolerate austerity measures and political consolidation. The Greek asset sales are in this sense the first salvo of a larger war.

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