News & Events

The Market for State Territory: Pass the Hemlock

Just imagine that countries still traded land for money.

HELLENIC opinion was outraged last year when Frank Schäffler, a German politician, advised “bankrupt Greeks” to “sell your islands…and sell the Acropolis too!” That is hardly practical politics: as long as Greece remains a democracy, the political, and perhaps biological, lifespan of a leader who proposed hauling down the flag over even the tiniest Aegean outcrop would be measured in hours.

The furore obscured what Mr Schäffler was proposing: lease, commercial sale or a transfer of sovereignty. The government is already selling some land. The Institute for Strategic and Development Studies, a think-tank in Athens, says the Greek state has €35 billion ($47 billion) of property immediately available, which could cover 10% of its debt. KAPPA, a business lobby, suggests €75 billion. Stefanos Manos, an ex-finance minister, says a new state investment company could manage and dispose of property worth €200 billion. But just imagine that the exasperated northerners were dreaming of something more radical: fully ceding sovereign authority.

Territorial swaps for cash seem unthinkable today. But they were once common, especially when European powers were jostling for land in the New World. The United States’ 1803 purchase of the Louisiana territory from Napoleon for $15m (now $312m) is the most famous case. Germany bought the Caroline Islands, in the Pacific, from Spain in 1899 for 25m pesetas ($107m today). And during the first world war America paid Denmark $25m ($530m) for what are now the United States Virgin Islands, mainly to stop Germany buying them.

In an era of self-determination sales of territory have come to seem anachronistic. But leases, involving a de facto transfer of control, are common. In 2010 Russia extended a deal granting Finland a canal for 50 years, and gave Ukraine concessions worth €30 billion to park its fleet at Sevastopol for 25 more years. Michael Strauss of the Centre for Diplomatic and Strategic Studies in Paris sees “no obvious reason” why countries have stopped buying and selling land. “It’s a totally legitimate way for sovereignty to change under international law.”

Arturas Zuokas, the mayor of Vilnius, has made a teasing offer to Greece; he suggested his country acquire an island as “an exclusive place for rest in the Mediterranean” and “a great global advert for Lithuania”, featuring a spa, museums and a theatre. But he did not say whether he wanted title or sovereignty. Lithuania is forecast to be the European Union’s fastest-growing economy in 2012, but the €7m on offer would only nibble at Greece’s debts.

The thinness of the market gives little indication of what sovereignty is worth. One guide might be the net present value of future tax payments, minus the net costs of public services disbursed there. Greece’s unusual habits with tax and spending could distort that indicator; but it could tempt an outsider to try to run the territory better. Auctions are the best way of setting prices—but would risk jangling nerves. Iran might find an Aegean island a handy way of foiling NATO’s planned missile-defence shield. Perhaps Greece could scare Germany into softer terms just by threatening such a sale.

Many a private-equity firm has overestimated the profits to be wrung from buy-outs, and the sovereignty market may be no exception. When America bought Alaska from Russia for $7.2m (now $113m), in 1867, some called it folly—and how wrong they were, American schoolbooks declare. But the sceptics might be right. David Barker, a professor at the University of Iowa, says that despite its oil wealth, Alaska was so costly to develop that the Treasury has lost money on the deal.

Correction: this article wrongly stated that Lithuania will be the euro zone's fastest growing economy in 2012. That would be true if Lithuania were in the euro zone. It is forecast to be the fastest-growing economy in the European Union.


Return to top of page