Greek stock market reopens, promptly plummets

  • By Henry Chu
  • Monday, August 3, 2015 3:03pm
  • Business

Los Angeles Times

LONDON — A massive sell-off of stocks in Greece on Monday underscored the uncertainty that still surrounds the Mediterranean nation as its government tries to secure a new international bailout to avoid a disastrous default.

The Athens stock exchange plummeted by more than 22 percent upon opening Monday before recovering somewhat to end the day down by 16 percent. It was the first day of trading after a five-week hiatus imposed by the government to stop the flow of money out of the country amid increased anxiety over a potential Greek exit from the euro currency union.

The sharp drop in the market showed that those fears haven’t really abated, despite the resumption of talks between Athens and its eurozone partners over a new three-year rescue package worth nearly $100 billion.

Greece’s banks, which account for almost half the value of the Athens exchange, took the severest beating as investors quickly dumped shares out of concern over the banks’ solvency. The sell-off was so fast and furious that the limit of a 30 percent loss in value was either reached or flirted with by some of Greece’s largest banks shortly after trading opened.

The Greek financial system has been on life support from the European Central Bank for months, having hemorrhaged tens of billions in cash. On June 29, the same day it shut down the stock exchange, the government began restricting residents to $66 a day in ATM withdrawals and banning the transfer of funds outside the country.

Some of those capital controls remain in place, and their devastating effect on the already-weak Greek economy became more apparent Monday. The widely watched Markit company’s index of manufacturing activity showed a steep decline for Greece in July to its lowest level on record.

“Manufacturing output collapsed in July as the debt crisis came to a head. Factories faced a record drop in new orders and were often unable to acquire the inputs they needed, particularly from abroad,” Markit economist Phil Smith said in a note accompanying the new figures.

“Although manufacturing represents only a small proportion of Greece’s total productive output, the sheer magnitude of the downturn sends a worrying signal for the health of the economy as a whole,” Smith added.

The bleak numbers for Greece contrasted to gains in manufacturing and in the stocks of other countries in the eurozone, the group of 19 nations that share the euro. Those gains suggest some confidence by investors that Greece’s problems are isolated and that, even should they worsen, their impact on the rest of the eurozone will not be as heavy as feared at earlier points in the long-running euro debt crisis.

Nursing Greece’s financial system back to health is one of the key aims of the new bailout under negotiation. The rescue package will probably set aside up to $27 billion for a cash infusion to the banks to allow normal business and trade to resume.

Negotiators are hoping to conclude a bailout deal by Aug. 20 so that Athens will have enough money to make an important debt payment to the European Central Bank due that day. But many analysts doubt whether the deadline can be met.

Greece’s creditors are demanding more austerity cuts and tax hikes by Athens in exchange for emergency loans, but the left-wing government of Prime Minister Alexis Tsipras is trying to temper those demands.

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