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November 7, 2012

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Home » Opinion » Foreign Views

Investing in Greece requires cold nerves, strong stomach

By Dan Steinbock | November 7, 2012, Wednesday | Print Edition

GREECE hopes to privatize US$50 billion of state assets. In the next few weeks, the Athens road show will also visit Shanghai. Should investors buy distressed assets?

In the past, the Greek situation was very bad. Today, it is a lot worse. Current plans require Greece's sovereign debt to decrease to 120 percent of GDP by 2021. Currently, the Greek debt burden is almost 170 percent. It is likely to climb to nearly 180 percent by the end of 2013.

At the same time, European officials claim that Athens has implemented only 60 percent of the required reforms.

On November 30, a group of high-ranking Greek officials will visit Shanghai, as part of a road show to promote the sale of the Greek assets. By 2015, Greece has pledged to raise 35 billion euro (US$50 billion) from state property, as part of plans to win more international aid and to avoid defaulting on its debt.

Should Chinese investors go after the proposed assets?

When the Eurozone crisis began around fall 2009 and spring 2010, I suggested that it could not be resolved without severe debt restructurings in several southern European countries, starting with Greece. Otherwise, a contagion effect could spread across Europe over time.

A year ago, finally, the Troika - the ECB, the European Commission and the International Monetary Fund - acknowledged that, in addition to the existing 219 billion euro (US$305 billion), Greece would need at least another250 billion euro (US$350 billion) in the next 10 years.

At the time, I argued that even those assumptions were flawed. Greece would need more support and new bailouts.

However, the US$50 billion Greek privatization plan should be considered seriously and realistically.

On the one hand, no investor can ignore euro economies in the long run.

The eurozone continues to have great strategic importance as a huge market, export destination and technology partner. Also, the debt struggle is moving to a new phase in Greece. Germany and France will seek new support to Athens for another two years, in return for structural reforms.

If Greece were to fail, the concern is that it would unleash a regional contagion effect.

On the other hand, after two years of muddling through in Brussels, investors should be weary. In the past, only private creditors were involved in these support plans; in the near future, public creditors must also be involved. And as economic challenges are about to increase significantly in Europe, taxpayers will now be less willing to pay the bill -and that means intense political debates.

According to Invest in Greece, the official investment promotion agency of Greece, a number of large investment projects are under way in the region, including those by Chinese investors.

In turn, Greece has expressed great interest in cooperation on ports, airports, highways, high-speed railways and even real estate development.

In the near future, investors are expected to pay a 30 percent discount on government-owned assets, due to underpriced Greek assets. However, Athens may prove unable to realize the US$50 billion privatization.

And if Greece ends up exiting the euro, the costs could potentially wipe out investors' business plans.

Consequently, foreign investors should expect the Troika (EC, ECB, IMF) to have a realistic plan for Greece, along with the support of Germany and France, and the fiscally conservative eurozone.

Foreign investors should prepare for the reality that the European debt crisis will take another 5-10 years to resolve. They should focus on attractive, strategic and long-term investment targets.

Great risks come with potential rewards. While Greek assets are no exception, they will require cold nerves and a strong stomach.

Dr Dan Steinbock is research director of international business at the India, China and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China). Shanghai Daily condensed the article.

Foreign Views


 

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