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Why Greece’s stock market just dropped more than 20%

Greek Nation Failed To Make Tangible Headway In Its Efforts To Secure Funding And Avoid A DefaultGreek Nation Failed To Make Tangible Headway In Its Efforts To Secure Funding And Avoid A Default
Who'll take charge of the ruins after Sunday?Photograph by Bloomberg via Getty Images

Athens’ benchmark stock index fell nearly 23% as Greece’s financial markets reopened for the first time in over a month after the country’s brush with exit from the Eurozone.

Trading had been suspended at the end of June after the central bank imposed capital controls and restricted bank deposit withdrawals in an effort to stop the financial system imploding while Greece’s government scrambled to stave off bankruptcy with a new bailout deal.

By lunchtime, the Athens General Composite index had recovered marginally to 660.52, down a mere 17.2%. but still close to a three-year low.

Not surprisingly, it was the banks that fell furthest at the re-opening, with Piraeus Bank SA (BPIRY) and National Bank of Greece SA (NBG) both falling by the maximum allowed 30%. The damage done to the economy means that Greece’s banks now need up to €25 billion to cover losses on loans to bankrupt businesses and delinquent home-owners. That will mean another massive dilution for holders of the banks’ stocks.

Elsewhere, a new survey showed the scale of the devastation of last month’s crisis. Research firm Markit said its Greek purchasing managers’ index fell by the most on record in July.

The collapse in activity in Greece was far worse than anything seen before in its five-year struggle against bankruptcy… Source: Markit
Source: Markit

 

“Factories faced a record drop in new orders and were often unable to acquire the inputs they needed, particularly from abroad, as bank closures and capital restrictions badly hampered normal business activity,” Markit’s Phil Smith said.

Markit’s manufacturing PMI fell from 46.9 in June (already deep in contraction territory) to 30.2 in July, over 5 points below the previous all-time low that was posted in 2012, just before Greece’s second bailout deal.

Factories shed jobs at the fastest rate ever recorded by Markit in over 16 years of data collecting.

…but the rest of the Eurozone has hardly batted an eyelid. Source: Markit
Source: Markit

 

There’s no sign of economic life returning to anywhere near normal in the near future. Although the banks reopened a week ago, withdrawal limits are still capped and most capital controls are still in place.

Meanwhile, the endless row rolls on over implementing the reforms that Greece promised to get its latest emergency funding. Rail services are being badly disrupted Monday as workers strike against plans for privatization.

Sales of such assets are supposed to be one of the key sources of income to keep the cost of the planned third bailout down to a minimum. However, the CEO of Austria’s ÖBB, the only company to express interest in the state railroad operator so far, told the magazine ‘Trend’ last week that “if we were to look at Greek railroads seriously, I’d completely rule out paying a positive price.”