Guest Blog: Greek SWF — Not such a bad idea

Adam Dixon

Yes, Greece is in a difficult situation. Some see default on the horizon. Some see an exit from the euro. Some see German taxpayers providing a yet larger lifeline. Whatever the scenario, all agree that the Greek economy needs to grow faster and the government needs to do something with its balance sheet.

While the announcement the other day about setting up a Greek SWF may seem fanciful, it is actually a rather compelling idea. The assets of the state are apparently quite substantial. A couple of weeks ago the IMF’s Antonio Borges indicated that the government’s Real Estate Development Company had a portfolio worth €280bn. The government also has large holdings of the national telecommunications firm OTE, the Piraeus and Thessaloniki Port Authorities, the Athens Airport, and the postal savings system. Suffice it to say, the government has more tools at its disposable than simply raising taxes (or collecting them better) and making people work longer, both of which are inevitable.

Yet, don’t count on a fire sale, and don’t expect the Greek public to acquiesce so readily to privatization. Hence, a Greek SWF doesn’t sound like such a bad idea. But, setting up a SWF isn’t simply about limiting a public backlash and protecting “sovereign wealth”. It is about accounting and price discovery.

If asset privatization occurs at a measured pace, the government has a more accurate means of valuing the assets that it continues to hold. With a transparent SWF, the market would then have a better picture of the government’s ability to pay. But, this is just a drop in the bucket. Ultimately, the market wants to see real growth and more manageable liabilities.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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