Table of Contents

Structural Challenges for Europe

Structural Challenges for Europe

Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner

The main thrust of the book is that the sharing of mutual experiences is important for generating an acceptable policy mix, both at EU and national levels. The contributors highlight key financial issues, including the role of FDI and of foreign banks in the still ‘under-banked’ acceding countries, the re-launch of social security systems and the fiscal challenges of financing the catch-up process. They also examine the ongoing EU debate surrounding the application of the Stability and Growth Pact in Central and Eastern European Countries (CEECs) and go on to explore the contrasting evidence that some CEECs have shown more extensive privatisation efforts than some EU countries.

Chapter 20: The case of privatization of network utilities

Willem Buiter and Maria Vagliasindi

Subjects: economics and finance, money and banking

Extract

Willem Buiter1 and Maria Vagliasindi2 1. INTRODUCTION The sale of state-owned enterprises to private investors during the past two decades represents a political, social and economic phenomenon of the first order. It has been associated with major redistributions of wealth, power and influence – economic as well as political. It also has had important social consequences, both through the reduction in (and often the complete ending of) the role of the privatized enterprises in the provision of the social safety net and of other public goods and services, and through the large-scale redundancies often associated with the restructuring that preceded or followed privatization. These privatizations were part of a broader reversal of public policy – a withdrawal by the government from direct economic engagement in many industries that had come to be regarded as ‘strategic’. The financial consequences of these privatizations have also been significant. The financial impact of the privatization of network utilities, in terms of market capitalization, trading volumes and investor participation, has been remarkable. In particular, telecom share issues often accounted for 30 per cent of total capitalization and even a greater share of total trading value. As the experience of the Western and Eastern European countries demonstrated, in order to be effective, privatization should be complemented by reforms stimulating competition and by broader regulatory reforms. For instance, public policy should take into account the fact that a privatized monopoly will often attempt to use its money and political influence to stifle reforms, especially...

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