After a 5-Week Break, Greek Stocks Open to a Bloodbath

The Greek stock market had been closed for five weeks. When it finally opened Monday, the worst bloodbath in its recorded history ensued. It’s a sign of mounting challenges to Greece, saddled by billions of dollars in debt it can’t pay back, in returning to economic growth.

At one point Monday, the Athens Exchange was down more than 20 percent. It rallied from its bottom to close down about 16 percent. It was the worst day since 1985, when the Greek market started being tracked. The chart below, taken from Bloomberg, shows just how dramatic the drop was.

It’s hardly a sign of confidence in Greek Prime Minister Alexis Tsipras’s ability to deliver the tax increases, pension reforms, and budget cuts he has promised in order to obtain the 86 billion euro, or $94 billion, bailout package that Greece needs to stay solvent. In theory, the bailout would give Greece an economic lifeline it could potentially use to return to growth.

Stocks of Greek banks, which had been closed and are now operating thanks to emergency loans from the European Central Bank, fared particularly poorly Monday. The country’s four biggest lenders — Alpha Bank, Piraeus, the National Bank of Greece, and Eurobank — were all down 30 percent. It could have been worse; loss limits kept them from losing more value.

“The market tanked, as expected,” Takis Zamanis, chief trader at Athens-based Beta Securities, told Reuters.

The letting in the equities market hints at larger problems for the Greek economy. A key measure of the health of its manufacturing sector, Markit Economics’ Purchasing Managers’ Index, dropped to 30.2 points in July from 46.9 in June. Any rating below 50 signals economic contraction, so Greek manufacturers are clearly a long way from expansion. It marks the single biggest plunge since the index began tracked 16 years ago. Greek manufacturers make up about 10 percent of Greece’s GDP.

Also looming is the IMF’s threat not to contribute to any new bailout package, because the lender doesn’t believe Tsipras would follow through with austerity promises. If the IMF pulls out, Germany, the largest national lender to Athens’s rescue fund, could as well, putting the entire rescue scheme at risk.

Now, as bailout negotiations continue between Tsipras and Greece’s Quadriga lenders — made up of the IMF, the European Commission, the European Central Bank, and the European Stability Mechanism — European officials are warning that the economic carnage is likely to continue unabated. In an interview with a Greek newspaper, European Economic Affairs Commissioner Pierre Moscovici said the Greek economy “deteriorated markedly compared to the beginning of the year.”

And while Tsipras was able to beat back a revolt against his austerity plan within his own far-left Syriza party last week, his renegade former finance minister, Yanis Varoufakis, continued to scorch the earth between Athens and its creditors. In an interview with the Spanish newspaper El País, published Sunday, Varoufakis savagely criticized the deal that could save his country from bankruptcy.

“This agreement doesn’t have a future. It is continuing the extending and pretending charade: extending the crisis with new unsustainable loans, and pretending that this solves the problem,” he said. “It can’t go on forever. You can fool the people and the markets for a short period of time, but in the end you can’t fool them for 50 years.”

“Either Europe changes and this process is replaced by something more democratic and durable, manageable, humanistic. Or Europe will no longer exist as a monetary union,” Varoufakis added.

Photo credit: Aris Messinis/Getty Images