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The European Commission is sanctioning Greece over illegal subsidies

08 November 2014 / 20:11:33  GRReporter
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Brussels has been investigating illegal state subsidies for the privatisation of state enterprises over a past period of 20 years. This is alarming for the Greek government as it could frustrate the country’s privatisation programme. Besides, EU authorities have not closed the file of guarantees provided by the Greek government to public and private organisations; investigations of the development law are also ongoing.

The icing on the cake is the detailed investigation of DG competition into the sale of the National Natural Gas System Operator (DESFA) to Azerbaijani SOCAR by the State Privatisation Fund and Hellenic Petroleum. Government sources admit that the commission has been putting pressure on Greece to assure creditors that no ‘departures’ will take place from whatever has been agreed on the country's development.

Nerve wracking across ministries

Greek government departments taking part in the privatisation programme have been overcome by jitters as, on the one hand, Brussels has been pressing them to speed up procedures, and on the other has been freezing privatisation contracts to carry out checks for possible state aid or competition distortions. Recently, DG competition came up with a decision on Greece’s postal system, Hellenic Post, which was put on the market back in 2012, but there were no developments at the process was stuck at the Commission.

The Commission's decision allows Greece to keep subsidising the so-called ‘universal postal services’ until the end of 2015. However, the Commission has concerns that the compensation fund mechanism to be established for the following five-year period may unduly favour ELTA over competitors and has therefore opened an in-depth investigation. It will include alternative suppliers of postal services over the period 2015-2019 to allow ELTA to guarantee the provision of universal services. To compensate ELTA for the net cost incurred in fulfilling its obligations as universal postal service provider, the Greek authorities have established a five-year compensation fund mechanism, requiring other providers of postal services active on the Greek market to contribute to the financing of the universal service.

This decision was preceded by another one, on Larco General Mining and Metallurgical Company, also listed in the privatisation programme. LARCO was required to restore the amount of €136 million over breaches of EU state aid rules and undue advantage over its competitors, even though the company is the only ferronickel producer in the EU and has no competitors. The Commission's investigation started in 2013.

Another investigation has kicked off into state aid extended to Hellenic Defense Systems (EAS), for sale since 2012. According to Greek data, the company has received state guarantee on loans amounting to €942 million, with the state having covered costs amounting to €240 million through its own funds. The EC regards this guarantee as provision of a ‘financial advantage’ to the company and insist on countermeasures.

Meanwhile, investigations have started into Greek railways, the electricity supplier DEI and other companies raising concerns in society and potential investors.

State guarantees on loans

The Greek government is also fretting over what will happen to guarantees granted by the state on private and public company debt. This is a very sensitive issue as the report by the General Inspector of Public Administration Leandros Rakintzis has shown problems with state guarantees on loans amounting to €2.7 billion over the period 2006-2011.

The commission has interfered by a letter to the ministry of finance demanding the amendment of legislation governing state loan guarantees. At the time of Yannis Stournaras as finance minister two groups were set up – a legislative commission designed to amend the framework of state guarantees and a working group to draft a new law in this area. Nonetheless, no progress seems to have been made, and, sooner or later, the issue of state guarantees will resurface.

According to the Greek Council of State (the Supreme Administrative Court) the EC decision qualifying state subsidies in the form of debt settlement by state guarantees as illegal state aid implies that these guarantees are invalid.

If the ministry of finance agrees with this view, this might have a domino effect and result in unforeseen developments, according to well-informed sources.

Another EC investigation is curently underway following its auditors’ finding that Greek subsidy mechanisms are in breach of EU law. If this is proven, Greece will end up paying back enormous amounts.

Tags: European Commission government subsidies privatization violations
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