An Evaluation of the Sale of Public Assets as Alternative Public Debt Reduction Strategy in European Countries

• Author: Irina Bilan
• Pages: 335-344

Performance and Risks in the European Economy

335

An Evaluation of the Sale of Public Assets as Alternative Public Debt

Reduction Strategy in European Countries

Irina Bilan1

Abstract: Against th e backdrop of the recent crisis, many European countries have been confronted to high

and unsustainable public debts, the issue of conceiving and implementing debt reduction strategies becoming

one of great interest to both the scientific community and public policy-makers. Several options have been

put forward, some of th em (like fiscal consolidation) explored in depth by researchers and already applied in

many countries, while others have benefited of less, even minor attention. Thus, our paper aims to evaluate

the sale of public (financial and non-financial) assets as possible alternative for restoring public debt

sustainability in European countries, contributes to existing literature by providing a more thorough analysis

of a usually overlooked alternative. The paper is d esigned as a case study, mixing qualitative and quantitative

evidence on the topics of interest with regard to the situation of 20 European countries, selected on criteria of

data availability. The general con clusion is that the sale of public assets should, at least in the most indebted

countries, be incorporated into public debt reduction strategies, but in addition to other measures (mainly

fiscal consolidation ones) and always on the basis of realistic and extensive cost-benefit analysis.

Keywords: financial assets; non-financial assets; economic crisis; government debt; public policy

JEL Classification: G01; H27; H63; H82

1 Introduction

Not long after the outbreak of the global economic and financial crisis, in late 2009, it became obvious

for some European countries that the worst was yet to come, as a new, sovereign debt crisis, was

emerging. As a result of the economic recession, but also of the financial support measures aimed at

helping banks and other financial institutions in trouble, public debt severely increased in many

countries, becoming unsustainable. In just two years, by 2011, the general government gross debt

overpassed 100% of GDP in Belgium, Greece, Ireland, Italy and Portugal, but increased substantially

in many other European countries. This was adding to preexisting fiscal vulnerabilities, like the large

amount of implicit liabilities resulting from unsustainable public pension schemes (Nuta, 2014). As

public authorities realized that the issue of high and increasing public debt should be immediately

addressed, it became imperative to conceive and implement public debt reduction strategies aimed at

restoring debt sustainability. Several policy approaches were considered, namely fiscal consolidation

1 Senior Lecturer, PhD, "Al. I. Cuza" University of Iasi, Facult y of Economics and Business Administration Finance, Money

and Public Administration Department, Romania, Address: 22, Carol I Bvd., 700505, Iasi, Romania, Tel.: +40 232 201440,

Corresponding author: irina.bilan@uaic.ro.