Barroso triumphant as jobless Europe wastes five (precious) years of global recovery

By Ambrose Evans-Pritchard Economics

Last updated: January 9th, 2014

José Manuel Barroso. (Photo: AFP/Getty)
José Manuel Barroso. (Photo: AFP/Getty)

José Manuel Barroso has declared victory again. The European Commission chief tells us that the eurozone crisis is over. The scorched-earth contraction policies have succeeded.

Ireland has conducted a "clean exit" and is tapping the bond markets again. Latvia has joined the euro and is now the EU's fastest growing country.

"This shows that the programs do work when they are properly implemented," he said.

Senhor, it shows no such thing. Ireland is highly competitive (second best in EMU after Finland on the World Bank gauge).

It has an open economy with a trade gearing of 108pc of GDP, giving it three or four times more export leverage than Club Med. It trades heavily with the dollar and sterling zones, now recovering. It has a current account surplus near 4pc of GDP.

Ireland was never unable to cope with the rigours of the euro as a "trade" currency. It was instead in the wrong interest rate regime, causing a destructive credit bubble (which it failed to contain by other means). This tells us nothing about the entirely different circumstances of Italy or Portugal where the intra-EMU exchange rate is overvalued.

But even if Ireland can make it without debt restructuring (and that is not certain), the underlying erosion of the workforce through hysteresis from mass unemployment – and from mass migration to the UK, US, and Australia – has greatly damaged the long-term growth potential of the economy.

Public debt is 125pc of GDP and the budget deficit is still the highest in Europe at 7.8pc of GDP. There is no margin for any error

Mortgage arrears are still rising to record levels. We will find out whether or not the banks need another shot in the arm from an Irish state that cannot afford any more.

At the end of the day, Ireland was forced by the EU authorities to take on the vast liabilities of Anglo-Irish to save the European banking system in the white heat of the Lehman crisis, and the EU has since walked away from its pledge to help make this good.

The Irish people have been stoic, disciplined, even heroic. They have survived this mistreatment. To cite it as a vindication of EU strategy sticks in the craw.

Ditto Latvia, another open export economy subjected to a brutal internal devaluation – in my view a morally indefensible policy since it works by breaking the back of labour resistance to pay cuts through mass unemployment.

Latvia should be a post-Soviet catch-up economy enjoying Asian Tiger growth levels. Instead its output is still far below peak a full six years after the country spiralled into crisis. It has lost 7pc of its population, storing up an even bigger demographic crisis for the near future. That is success?

Mr Barroso goes on to say that Spain is out of the woods and that Portugal is enjoying its ninth month of falling unemployment. In reality the numbers employed in Portugal have merely stabilised after crashing from 5.228m to 4.554m. The young are still migrating, flattering the jobless rate.

Portugal may well succeed in tapping the debt markets in the current mood of near euphoria, but what does that tell us? Portugal's public debt has jumped from 108pc to 128pc of GDP in the last two years (IMF), a pattern replicated in Italy and Spain.

This has happened in part because contractionary policies have themselves played havoc with debt dynamics. A rising debt burden has to be supported on a shrinking nominal GDP base. The EMU slide towards deflation is tightening the screw further through the denominator effect.

Portugal's budget deficit is coming down at a glacial pace and is still 5.5pc of GDP (with no QE offset to erode the debt effects). Portugal's net international investment position (NIIP) – what really mattershas risen from minus 105pc to minus 114pc of GDP since 2011. Spain's is not much better at minus 92pc.

Let us remember the mood of optimism in 2010 and then again in 2011, those false dawns that were preceded by spasms of the EMU economic crisis. If you were looking at bond yields or sentiment indicators you might have thought that the crisis was over. Mr Barroso himself proclaimed as much.

So what was the key failure in macroeconomic analysis? What scientific error induced the ECB to raise rates twice in 2011 and abort recovery? What caused regulators to force banks to quicken the pace of deleveraging with pro-cyclical effect? How badly did the Eurocrats miscalculate the fiscal multiplier in a world of deep and pervasive slump, with a broken financial system? Have any of these lessons really been learned?

ECB's Mario Draghi removed the risk of an Italian and Spanish debt collapse in July 2012 by securing Berlin's support (through Asmussen) for an emergency backstop. People talk of this as if it were magic. All that happened is that the ECB stepped up to its responsibilities as a lender-of-last resort, as it should have done from the beginning.

But monetary policy remains passive and contractionary, arguably incubating another nasty surprise. Broad M3 money has been flat for six months. Business lending has fallen by 3.9pc over the last year. There will less fiscal drag in 2014 as austerity eases, but the eurozone is doing almost nothing to generate its own internal growth. Europe is once again relying on the rest of the world to pull it along, and the world may not oblige.

Countless risks remain. Bond tapering by the US Federal Reserve will lead to imported monetary tightening. The eurozone faces its own "endogenous tapering" as banks deleverage, paying off €700bn of ECB loans (LTRO). ECB’s balance sheet has fallen from €3 trillion to under €2.3 trillion in a year, dropping from 31.8pc to 23.7pc of GDP.

Emerging markets have barely begun to adjust as the Fed start to cut off $1 trillion of global dollar liquidity (annualised). China is trying deflate its $24 trillion credit boom, arguably the greatest such bubble in history.

Far from building a base for recovery, the eurozone has wasted the last five years of global expansion holding together a dysfunctional currency union, lurching from crisis to crisis. The result has a been double-dip recession and a worse macro-outcome for the same European states than in the comparable years from 1930 to 1935.

Mr Barroso may have to face the awful possibility that this golden phase right nowrelatively golden given that GDP contracted by 0.4pc in 2013 – is as good as it gets, that the "boom" phase of the liquidity cycle is nearing maturity and may start to roll over in 2014 or early 2015.

What happens if the eurozone goes into the next global downturn with unemployment already at or near 12.1pc – and youth jobless already at 57.7pc in Spain, 54.8pc in Greece, and 41.6pc in Italy – and with core inflation running at or near a record low of 0.7pc?

Europe is one external shock away from a full-blown deflation trap, and one recession away from an underlying public and private debt crisis. Nothing has been resolved

Aggregate debt ratios are higher than they were before the austerity experiment. In the end there will still have to be a "Brady Plan" like the Latin American debt write-offs at the end of the 1980s, but on a far larger scale and with far more traumatic effects on the European body politic.

So celebrate today while the sun is still out, and dream on.


The $9 trillion sale

Governments should launch a new wave of privatisations, this time centred on property

Jan 11th 2014

IMAGINE you were heavily in debt, owned a large portfolio of equities and under-used property and were having trouble cutting your spendingmuch like most Western governments. Wouldn’t you think of offloading some of your assets?

Politicians push privatisation at different times for different reasons. In Britain in the 1980s, Margaret Thatcher used it to curb the power of the unions. Eastern European countries employed it later to dismantle command economies. Today, with public indebtedness at its highest peacetime level in advanced economies, the main rationale is to raise cash.

Taxpayers might think that the best family silver has already been sold, but plenty is still in the cupboard (see article). State-owned enterprises in OECD countries are worth around $2 trillion. Then there are minority stakes in companies, plus $2 trillion or so in utilities and other assets held by local governments. But the real treasures are “non-financialassets—buildings, land, subsoil resources—which the IMF believes are worth three-quarters of GDP on average in rich economies: $35 trillion across the OECD.

Some of these assets could not or should not be sold. What price the Louvre, the Parthenon or Yellowstone National Park? Murky government accounting makes it impossible to know what portion of the total such treasures make up. But it is clear that the overall list includes thousands of marketable holdings with little or no heritage value.

America’s federal government owns nearly 1m buildings (of which 45,000 were found to be unneeded or under-used in a 2011 audit) and about a fifth of the country’s land area, beneath which lie vast reserves of oil, gas and other minerals; America’s frackingrevolution has so far been almost entirely on private land. The Greek state’s largest stock of unrealised value lies in its more tan 80,000 non-heritage buildings and plots of land. With only one holiday home for every 100 in Spain, Greece should be able to tempt developers and other investors at the right price.

Analysts at PwC reckon Sweden has marketable state-owned property worth $100 billion-120 billion. If that is typical of the OECD, its governments are sitting on saleable land and buildings worth up to $9 trillionequivalent to almost a fifth of their combined gross debt.

Get on with it
Governments seem strangely reluctant to exploit these revenue-raising opportunities. That is partly because privatisation always faces opposition. Particular sensitivities surround land, as Ronald Reagan discovered when his plan to sell swathes of America’s West were shot down by a coalition of greens and ranchers who enjoyed grazing rights, and as the British government found in 2010 when environmentalists scuppered its attempt to sell Forestry Commission land.
In recent years the big transactions, apart from reprivatisations of rescued banks, have mostly taken place in emerging markets. Activity is starting to pick up in Europe: the British government sold Royal Mail last year, and is setting a good example both in transparency over its land and property holdings and in its readiness to sell them.

But, overall, caution rules. Italy, for example, carries a public-debt burden of 132% of GDP, yet its privatisation plans are timid—even though the state has proportionately more to sell tan most other rich countries, with corporate stakes worth perhaps $225 billion and non-financial assets worth as much as $1.6 trillion. Now that markets have regained their composure, it is time to be bolder.
There are ways of encouraging sales. Data collection on public property is shockingly poor. It is patchy even in Scandinavia, where governments pride themselves on their openness.

Governments need to get a better idea of what they hold. Effective land registries, giving certainty to title, are essential: Greece’s registry remains a mess. Too many governments use a flaky form of “cash basisaccounting that obscures the costs of holding property. Too few produce proper balance-sheets.
Better beancounting would make it easier to ascertain what might be better off in private hands.
Governments also need to sweat whatever remains in state hands.

There is no single model for managing public assets, but any successful strategy would include setting private-sector-style financial benchmarks, replacing cronies with experienced managers and shielding them from political interference. Not only is this good in itself, but it can also lead naturally to privatisation. That was the case in Sweden a decade ago, when creating a professionally managed holding company for state assets revealed many to be non-core, leading to a selling splurge by a left-leaning government.

Where are the successors to Thatcher and Reagan?
Privatisation is no panacea for profligate governments. Selling assets is a one-off that provides only brief respite for those addicted to overspending (though, once sold, assets—from ports to companiestend to generate far more business). It also has to be weighed against lost revenue if the assets provide an income stream: oil-rich Norway gets a quarter of its government revenue from well-managed state companies. Selling when markets are depressed is generally a bad idea.
Governments also need to learn from mistakes made in past waves of privatisation. Without robust regulation, sell-offs enrich insiders and lead to backlashes. That happened in Britain (over rail and utilities) and emerging markets (telecoms, banking and more). The Royal Mail sale was a reminder of the political risks: price an asset too high and the deal might flop; price it too low and the taxpayer feels cheated.

Nevertheless, for governments that are serious about bringing their spending in line with revenues, privatisation is a useful tool. It allows governments to cut their debts and improve their credit ratings, thus reducing their outgoings, and it improves the economy’s efficiency by boosting competition and by applying private-sector capital and skills to newly privatised assets.
Thatcher and Reagan used privatisation as a tool to transform utilities, telecoms and transport. Their 21st-century successors need to do the same for buildings, land and resources. Huge value is waiting to be unlocked.

State-owned assets

Setting out the store

Advanced countries have been slow to sell or make better use of their assets. They are missing a big opportunity

Jan 11th 2014

THE past quarter of a century has seen several bursts of selling by the world’s governments, mostly but not always in benign market conditions. Those in the OECD, a rich-country club, divested plenty of stuff in the 20 years before the global financial crisis. The first privatisation wave, which built up from the mid-1980s and peaked in 2000, was largely European. The drive to cut state intervention under Margaret Thatcher in Britain soon spread to the continent. The movement gathered pace after 1991, when eastern Europe put thousands of rusting state-owned enterprises (SOEs) on the block. A second wave came in the mid-2000s, as European economies sought to cash in on buoyant markets.

But activity in OECD countries slowed sharply as the financial crisis began. In fact, it reversed. Bail-outs of failing banks and companies have contributed to a dramatic increase in government purchases of corporate equity during the past five years. A more lasting feature is the expansion of the state capitalism practised by China and other emerging economic powers. Governments have actually bought more equity than they have sold in most years since 2007, though sales far exceeded purchases in 2013.

Today privatisation is once againalive and well”, says William Megginson of the Michael Price College of Business at the University of Oklahoma. According to a global tally he recently completed, 2012 was the third-best year ever, and preliminary evidence suggests that 2013 may have been better (see chart 1).

However, the geography of sell-offs has changed, with emerging markets now to the fore. China, for instance, has been selling minority stakes in banking, energy, engineering and broadcasting; Brazil is selling airports to help finance a $20 billion investment programme.

Eleven of the 20 largest IPOs between 2005 and 2013 were sales of minority stakes by SOEs, mostly in developing countries. By contrast, state-owned assets are now “the forgotten side of the balance-sheet” in many advanced economies, says Dag Detter, managing partner of Whetstone Solutions, an adviser to governments on asset restructuring.

They shouldn’t be. Governments of OECD countries still oversee vast piles of assets, from banks and utilities to buildings, land and the riches beneath (see table).

Selling some of these holdings could work wonders: reduce debt, finance infrastructure, boost economic efficiency. But governments often barely grasp the value locked up in them.

The picture is clearest for companies or company-like entities held by central governments. According to data compiled by the OECD and published on its website, its 34 member countries had 2,111 fully or majority-owned SOEs, with 5.9m employees, at the end of 2012. Their combined value (allowing for some but not all pension-fund liabilities) is estimated at $2.2 trillion, roughly the same size as the global hedge-fund industry. Most are in network industries such as telecoms, electricity and transport. In addition, many countries have large minority stakes in listed firms. Those in which they hold a stake of between 10% and 50% have a combined market value of $890 billion and employ 2.9m people.

The data are far from perfect. The quality of reporting varies widely, as do definitions of what counts as a state-owned company: most include only central-government holdings. If all assets held at sub-national level, such as local water companies, were included, the total value could be more tan $4 trillion, reckons Hans Christiansen, an OECD economist.

Moreover, his team has had to extrapolate because some OECD members, including America and Japan, provide patchy data. America is apparently so queasy about discussions of public ownership of commercial assets that the Treasury takes no part in the OECD’s working group on the issue, even though it has vast holdings, from Amtrak and the 520,000-employee Postal Service to power generators and airports. The club’s efforts to calculate the value that SOEs add to, or subtract from, economies were abandoned after several countries, including America, refused to co-operate.

Privatisation has begun picking up again recently in the OECD for a variety of reasons. Britain’s Conservative-led coalition is focused on (some would say obsessed with) reducing the public debt-to-GDP ratio. Having recently sold the Royal Mail through a public offering, it is hoping to offload other assets, including its stake in URENCO, a uranium enricher, and its student-loan portfolio. From January 8th, under a new Treasury scheme, members of the public and businesses will be allowed to buy government land and buildings on the open market. A website will shortly be set up to help potential buyers see which bits of the government’s £337 billion-worth of holdings ($527 billion at today’s rate, accounting for 40% of developable sites round Britain) might be surplus. The government, said the chief treasury secretary, Danny Alexander, “should not act as some kind of compulsive hoarder”.

Japan has different reasons to revive sell-offs, such as to finance reconstruction after its devastating earthquake and tsunami in 2011. Eyes are once again turning to Japan Post, a giant postal-to-financial-services conglomerate whose oft-postponed partial sale could at last happen in 2015 and raise {Yen}4 trillion ($40 billion) or more. Australia wants to sell financial, postal and aviation assets to offset the fall in revenues caused by the commodities slowdown.

In almost all the countries of Europe, privatisation is likely “to surprise on the upside as long as markets continue to mend, reckons Mr Megginson. Mr Christiansen expects to see three main areas of activity in coming years. First will be the resumption of partial sell-offs in industries such as telecoms, transport and utilities. Many residual stakes in partly privatised firms could be sold down further. France, for instance, still has hefty stakes in GDF SUEZ, Renault, Thales and Orange. The government of François Hollande may be ideologically opposed to privatisation, but it is hoping to reduce industrial stakes to raise funds for livelier sectors, such as broadband and health.

The second area of growth should be in eastern Europe, where hundreds of large firms, including manufacturers, remain in state hands. Poland will sell down its stakes in listed firms to make up for an expected reduction in EU structural funds. And the third area is the reprivatisation of financial institutions rescued during the crisis. This process is under way: the largest privatisation in 2012 was the $18 billion offering of America’s residual stake in AIG, an insurance company.

Parking meters, anyone?

State-owned entities regularly invest in other countries’ privatisations: sovereign-wealth funds were among the investors in Royal Mail, for instance. In many cases, governments will want to hold on to blocking stakestypically 25%—in companies they consider strategic”. Sometimes the law obliges them to do so. That will not necessarily deter potential investors, who can enjoy good returns even from companies with small public floats. From 2001 to 2012 the overall stock returns of listed SOEs in Europe, the Middle East, Africa and Latin America outperformed their benchmark indices, according to Morgan Stanley. This reflects the sharing of rents in sectors where, for a time at least, competition is limited, says Aldo Musacchio of Harvard Business School, co-author of “Leviathan Evolving”, a forthcoming book on state capitalism.

In America, even partial sales of federal assets can be a political minefield. When President Barack Obama suggested selling the Tennessee Valley Authority, an electricity provider, even prominent Republicans squealed in protest, claiming that it would make power more expensive—but also seeming to want to cling on to this Rooseveltian relic for its own sake.

There is more activity at the state and local level, particularly in infrastructure projects, though much of this involves privatisation of management, not ownership, through the offering of long-term concessions to build and operate toll roads, bridges and the like. A decade ago such public-private partnerships (PPPs) were rare, but more than 30 states have now passed laws allowing them. Private operators have been taking over management of other assets, too, from parking to lotteries.

However, these transactions are not always well structured. Although it brought in $1.2 billion up-front, Chicago’s sale of a 75-year concession to manage its parking meters in 2008 is widely viewed to have been a lousy deal for the city. PPPs have a mixed record in Britain, too, though the Conservative-led government wants to do more and has even triedso far without success—to privatise management of its defence-procurement arm.

What lies beneath
The greatest untapped opportunities may lie in land, buildings, subsoil resources and othernon-financialassets. However, their scale is hard to gauge because of poor data-collection and accounting. Of the 35 countries that provide data on such assets to the International Monetary Fund, the OECD and Eurostat, only 16 report all categories, according to an IMF report. Some countries do not even record properties, let alone value them. Greece is a particular offender.

The picture is generally murkier still at regional level. Portugal’s experience is not untypical: a decade ago it passed a law requiring its local authorities to value their property, but some have still not done so and methodologies differ among those that have. Local politicians often drag their feet, fearing that greater transparency will usher in painful rationalisation. This matters, because local and regional administrations hold most of the non-financial sovereign assets in some of the largest economies.

In America, by contrast, the situation may be worse in Washington, DC, than in the states. The federal government lacks a detailed inventory of its buildings, points out Leonard Gilroy of the Reason Foundation, a think-tank. Management of these assets has improved a bit since the creation in 2004, by executive order, of a council to push reform in this area. But there is still far to go, as shown in a series of reports from the Government Accountability Office. One, in 2011, estimated that in 2009 at least 45,000 government buildings were under-used or unneeded.

America also has, for historical reasons, vast swathes of federally owned land concentrated in the West (see map). The Department of the Interior oversees more than 500m acres, around a fifth of the land area of the country. In fiscal 2011 its agencies spent $13 billion more than they collected for use of land and resources—a deficit that critics want to see closed through better management or land sales.

One possibility, other than selling to individuals or developers, would be to sell to non-profit conservation trusts. These have mushroomed over the past decade: there are now 1,700, some handsomely funded, supported by hundreds of thousands of volunteers. Another approach would be to transfer ownership to state administrations, which have generally been more creative than the feds in their management of parks, grazing land and buildings, says Chris Edwards of the Cato Institute, a libertarian think-tank. A study conducted for a land-management task-force in Nevada (which is 84.5% government-owned) concluded that state-managed land generates net revenue of $6.29 an acre on average, compared with a net loss of $1.86 for federally managed land. However, both ranchers and greens support the status quo.

The greatest value could lie beneath. The Green River Formation, a field of sedimentary rock beneath Colorado, Utah and Wyoming, contains the world’s largest deposits of oil shale. Three-quarters of this is under federally controlled land. Leases from oil- and gas-fields under federal land could potentially generate royalty, rent and bonus payments of $150 billion (excluding operators’ tax payments) over ten years, according to the Congressional Budget Office. Up to now, almost all of the shale-oil and gas revolution in America has taken place on private land.

Putting a value on public-sector bricks, mortar and soil is tricky. The IMF paper sheds some light, though its authors load their findings with caveats because of national differences in coverage and valuation techniques. They estimate that non-financial assets average 75% of GDP in advanced economies, though levels range widely, from 40-50% in Canada and Germany to 120% in Japan (see chart 2). In most countries, these are worth more tan financial assets (stakes in listed firms, sovereign-wealth and securities holdings and the like). The value of the two combined is typically more than half gross public debt.

In 2011 economists at UBS estimated that some euro-zone countries’ public fixed assets (land, buildings, plant) were worth two to three times more than their financial assets. The bank reckoned that fixed assets held by euro-zone central governments alone could be worth €4 trillion, net of depreciationfar above the value of their state-owned companies, and even exceeding that of state-owned corporate assets across the entire OECD.

Cathedral for sale: €1
France, with its wealth of public buildings on prime sites, has the highest concentration of state-owned property in Europe. According to government financial statements for 2012, property directly owned by the French state is worth €190 billion. Of this, €54 billion is valued at fair market value because it is deemed either to have a use that is not specific to the state or to be easily convertible (eg, into offices, shops or housing). The remainder is valued either at cost, at discounted replacement cost (for prisons) or at a symbolic value for monuments and other historic buildings (for instance, €1 for each of the 96 cathedrals transferred from the Catholic church to the state a century ago). “Land represents only 4% of value of the total portfolio held by the state, which suggests it is underestimated,” says Arnaud Burillon, a property expert with PwC.

Moreover, the €190 billion does not include property owned by hundreds of state-controlled operators, including museums, palaces and the National Forest Office, which controls 4.5 billion acres. Their portfolios were appraised at a modest €42 billion in 2009. Nor does it include properties held by local authorities: 37,000 municipalities, 101 departments and 22 regions. In addition to their administrative offices, these authorities own schools, hospitals, retirement homes and more, and none of these institutions has to produce a balance-sheet.

Even in countries with reputations for public-sector openness, estimates can only be rough. To calculate the overall market value of sovereign assets in Sweden, Jorgen Sigvardsson, also of PwC, used a methodology that extrapolates from property-tax values (and thus excludes untaxed property, such as historic buildings). His estimate: a total of $230 billion in 2009, of which property accounted for $100 billion-120 billion and corporate assets (including the state’s stakes in Telia Sonera and SAS) for $90 billion. If his number-crunching is accurate, and if state-owned property accounts for a similar share of the economy elsewhere, OECD governments own land and buildings worth some $9 trillion, equivalent to 18% of their general government gross debt.

Britain, too, has done more than most to catalogue and appraise its holdings. Every few years it publishes a National Asset Register. The latest, in 2007, contained 1,110 pages of tables, including breakdowns of the estimated value of each government department’s tangible fixed assets (including heritage sites), intangibles (such as software licences) and shareholdings. It assigns value to holdings as minor as the dormitory at Woodbridge Airfield—worth £2.8m, since you ask. That is a mere speck on the Ministry of Defence’s balance-sheet: its tangible assets are £70.4 billion, a quarter of the total for all government departments. Local-authority assets are totted up separately. As of March 2012, authorities in England alone had fixed assets of £234 billion, 75% of which were land and buildings, including public housing.

Few countries display such attention to detail. Ian Ball, former head of the International Federation of Accountants (IFAC), points out that many countries do not even know the book value of their assets, let alone the market value, because they lack information to calculate depreciation. Most make do with “cash basis” accounting rather than the “accrual” accounting used in the private sector. This helps obscure weak finances, because costs are counted only when the bill comes due, not when the obligation is incurred. And if there is no cost of capital associated with, say, ministry offices, there is less pressure to use them efficiently or dispose of them.

IFAC has led a crusade to get countries to adopt a public-sector version of the IFRS accounting rules used by many large companies. This standard, known as IPSAS, has been adopted in full or in part by Britain, France, Canada and New Zealand, among others. Germany is holding out.

New Zealand probably comes closest to managing assets as a company would, in some respects going even further: it not only uses the accrual method but updates its financial statements each month. It even imposes a capital charge on government departments for properties and their contents, payable to the treasury. This has encouraged some selling of art and of under-used buildings. “It’s not popular with the civil servants, but it has focused minds,” says Mr Ball.

Now leasing, Place de la Concorde
Some public buildings will always be off-limits: no crisis is big enough to warrant the sale of the Parthenon. But government offices and diplomatic buildings are ripe for rationalisation. Activity is picking up, mostly in markets where dizzying price rises have made staying on prime sites hard to justify. More than a dozen foreign missions in London, including the Dutch and American ones, are cashing out and moving to less fancy (sometimes safer) districts, or considering doing so. Canada’s High Commission building on Grosvenor Square was sold last November for £306m. The buyer, an Indian developer, plans to turn the grand building into luxury flats.

Leasing can generate efficiencies, too. France, for instance, has leased out a defence-ministry building on the Place de la Concorde, moving its occupants to less plush offices on the outskirts of Paris. Leasing provides a steady stream of revenue that can help trim annual deficits, as opposed to the one-off debt-reducing pop that comes from a sale. It can also be an attractive option for financially troubled countries that would struggle to obtain fair value in a disposal, because investors would know it was a fire sale.

Though governments are increasingly considering reforms to streamline public administrations, receipts and savings have been modest so far. Governments often fear stirring up controversy over assets that have a place in the public’s heart. The brouhaha can reach a level that forces deals to be undone. Sweden reversed the sale of its forests after an outcry over public right of access; Britain pulled back, also after a public outcry, from trying to sell off Forestry Commission land in 2010.

Privatisation is not always possible, or desirable. Keeping land in state hands is sometimes the only way to protect vulnerable landscapes, plants and wildlife. Proceeds from sales have to be balanced against the loss of future revenue (if the assets are a source of income) and even, in some cases, social cohesion. Sometimes it pays to wait: in industries such as transport and utilities, prices for consumers may rise sharply because of insufficient competition if regulations are not overhauled before assets are sold.

The Shareholder Executive, an arm of the Department for Business, Innovation & Skills, controls some of Britain’s largest state holdings (though not the stakes in bailed-out banks, which are held at arm’s length by the Treasury). Mark Russell, its chief executive, favours privatisation, but says there should be no rush to sell holdings that are “deemed to be a good” and in which “greater efficiency can be achieved at marginal cost to the taxpayer”, he says. He cites Companies House, the national corporate registry, as an example.

Assets that remain state-owned in Britain will be in better hands than they were in the past, Mr Russell argues. Before his unit was set up a decade ago, holdings were typically scattered among different government departments, with civil servants providing much of the advice. Now they are under one roof, overseen by teams with corporate-finance and private-equity backgrounds. The Shareholder Executive is partly modelled on the highly regarded sovereign-asset managers in Nordic countries. Their approach is characterised by a clear separation of ownership and management (to avoid the government acting as both market participant and regulator), private-sector-style openness (along with the short-termism) and a firm but not intrusive role in governance.

Such shake-ups will, in any case, often lead naturally to sell-offs over time. In the late 1990s Sweden’s Social Democrats launched a plan to rationalise, but not sell, state assets. The overhaul, led by Mr Detter, exposed the superfluity of many SOE subsidiaries and other holdings, spurring the government to put three times more under the hammer than the nominally more privatisation-friendly previous administration had done.

All of which points to a huge opportunity for governments to sell or sweat more assets, and by doing so reduce fiscal stress. With political courage and some imaginative structuring of transactions, they should be able to lay to rest the widely accepted idea that their boldest moves are already behind them.