The Greek stock market was shut down five weeks ago, as the nation spiraled into an economic and political crisis, facing its final debt showdown with European creditors. The market just concluded its first day of trading since the shutdown, and the outlook is grim: the market lost 16.2 percent of its value on the first day back in business.
“Greek banking stocks were the worst hit with Alpha Bank, Attica Bank, and Eurobank Ergasius, Bank of Piraeus and the National Bank of Greece all closed around 30 percent lower – the daily volatility limit,” CNBC reports.
“There was further bad news for the Greek economy earlier, with flash manufacturing PMI figures for July down to 30.2 the lowest reading since Markit began compiling data in 1999,” the report continues. “To make matters worse, an economic sentiment index for Greece hit its lowest level since October 2012 in July with capital controls and political uncertainty weighing on sentiment, according to the IOBE think tank that conducted the survey.”
The stock market tumble caught no one by surprise. In fact, one securities trader figured the odds of a single Greek stock rising in value on Day One as “almost zero.”
Greek and European regulators seem generally determined to let the market run on its own for a few days, outside of the already-established volatility controls, which include special restrictions on local investors. They can only tap into a few sources of hard money for stock purchases, including the income from current security sales and dividends, because access to bank money is still tightly controlled for everyone from high rollers to the average Greek man on the street. It is hardly a shock to see bank stocks tumbling in such an environment.
And if the current bailout deal collapses, all bets will be off. The odds of the deal falling apart are surprisingly high, given the general “Disaster averted!” tone of coverage when the arrangement between European creditors and the Greek government was announced.
Not only is there continuing political turmoil in Greece, but there is sharp disagreement on the European side—specifically, the International Monetary Fund is threatening to withdraw from the bailout package unless Greece is given far more debt relief than other parties are willing to grant. If such debt relief is granted, it is feared other Eurozone debtor nations will clamor for similar arrangements. Some analysts are hinting that the differences between IMF and the European Union might be far more serious than media coverage suggests—irreconcilable, in fact.
A Greek stock market collapse and/or bailout implosion would combine with ongoing unease over China’s market crisis to rock American markets as well. Athens is a lot closer to New York City than many analysts would prefer at this precarious moment. “The more foreign markets tumble, the more fuel for bears awaiting our turn,” warns Shawn Langlois at MarketWatch, noting that it may soon be time for markets across the Western world to demonstrate just how immune to the Greek “contagion” they really are.