Most European equity markets have performed very poorly year-to-date due to the sovereign debt crisis. While policy makers and regulators have proposed various types of measures to solve the crisis, almost none have discussed the privatization of remaining state-owned enterprises in order to generate more revenue and stimulate economic growth.
In a recent research report, Deutsche Bank noted that France, Greece, Ireland, Spain and other countries have opportunities to reduce the state’s relatively high control of the economy by privatizing many of the publicly-owned companies.
The following are some of the key takeaways from the report:
State-owned company holdings account for about 5% of the GDP in France, Italy and Spain.
Margaret Thatcher started the big wave of privatization in Europe by reducing the British government’s share of the economy from about 10% of the GDP to 0% in the early 1980s.
Despite large scale privatization in banking, highway, telecom and other sectors in the past decade, the French government owns a substantial volume of assets. For example, the railway company SNCF, La Poste and airports are largely owned by the state.
According to one study, the French government's portfolio of corporate holdings had a market capitalization of EUR 88.0 billion on September 1, 2011 or about 4.6% of GDP.
The electric utility EDF (OTCPK:ECIFY) is 84.5% owned by the French government.
Despite extensive privatization and deregulation, the Italian government is a major player in the economy. As of September, the state’s corporate holdings had a value of 80.0 billion euros or 5.2% of the GDP.
The Italian government holds 421.0 billion euros worth of real estate out of which 42.0 billion euros worth of property is not used. These assets can be sold off with little expense to generate a sizable revenue.
Faced with high deficits, Spain has planned to dispose of large stakes in airports. Further potential for privatization exists in mining, railway, postal and shipbuilding sectors.
The Greek government owns 70% of the country’s land, some of which could be sold to private investors to raise funds.
Portugal has planned to sell stakes in utility and air transport sectors, including the 25% stake in Energias de Portugal (OTCPK:EDPFY), by the end of this year or in January.
In Ireland much of the energy sector, airports and seaports, the transport and water sectors are publicly-owned. These assets can be privatized to generate substantial revenues for the state.
Disclosure: No positions