Europe set for pounds 32bn of state sell-offs

European governments will sell a record $53bn (pounds 32bn) of state assets in 1997 compared with $43bn last year as they rush to reduce debt interest payments to improve their chances of qualifying for monetary union, according to a report by JP Morgan Securities.

Over the next three years, $118bn of companies and other assets are expected to be privatised, more than half the total since the state sell- offs began in 1977, according to the investment bank's annual privatisation report. An acceleration of privatisation aimed at improving the national accounts of potential EMU members is likely to reinforce fears that the single currency project is being rushed through too fast and that accounts are being massaged to qualify.

Although some of the higher level of privatisations in 1997 will be due to slippages from last year, JP Morgan said the increase was to " a great extent a reflection of the urgency to complete some of the privatisation programmes ahead of EMU".

The proceeds from state asset sales are one-off items and do not count directly towards the Maastricht criteria for budget deficits.

However, the cash income does reduce government debt service costs, so indirectly helps spruce up the national accounts.

JP Morgan said: "We believe European governments may feel under increasing pressure to accelerate their privatisation programmes to place themselves on track to meet the Maastricht 3 per cent deficit criterion."

Lower debt servicing payments were particularly important for France, Italy, Spain and Sweden.

The investment bank added that some countries were also employing one- off operations to bring down their deficits, such as the payment to the French government by France Telecom for assuming the state company's future pension liabilities. This is expected to reduce the French government deficit by 0.5 percentage points.

The report said other countries were relying on lower transfers to state- owned corporations, offset by higher government guaranteed borrowing, which does not count against the Maastricht debt criterion.

The Maastricht Treaty sets a maximum deficit of 3 per cent of gross domestic product while total government debt must not exceed 60 per cent of GDP.

JP Morgan said Italy stood out as having the most ambitious privatisation programme for 1997, at close to $20bn, or 37 per cent of the European total.

France is second, accounting for 20 per cent of privatisation revenues, followed by Spain and Germany.

The UK, having largely completed its privatisation programme under the Tories, is at the bottom of the league with no sell-offs predicted over the next three years.

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