Bare cupboards

22 Jul 2004 By Edward Hadas

Germany and Italy call it privatisation, but selling Russian debt and real estate looks more like fiscal despair. The problem is political governments can t both get elected and keep their budgets balanced. The end game could be grim.

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The German government issued E5bn of Aries securities on 19 July. These bonds are backed by bilateral debt from the former Soviet Union. The German government has repackaged the obligations, but the credit risk remains entirely Russian. The revenue from the sale will be counted at privatisation. The government has about E15bn of similar debts.

The Italian 2004 budget includes some E10bn of revenue from the sale of building and land. The government retains a substantial inventory of underused property.

Before oneoff items of this sort, both the German and Italian governments are expected to have underlying budget deficits of about 4% of GDP in 2004.

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