Greek stock market bloodbath as exchange reopens

AP News
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Posted: Aug 03, 2015 3:37 PM
Greek stock market bloodbath as exchange reopens

ATHENS, Greece (AP) — Greece suffered its worst stock market bloodbath in decades on Monday, when it opened after a forced five-week closure, and new data showed a dismal outlook for the bailout-dependent country's shrinking economy.

The main stock index shed over 22 percent just minutes into the opening, as investors got their first opportunity since late June to react to the latest twists in the country's nearly six-year economic drama.

The index closed 16.2 percent lower, with bank shares hitting or nearing the daily trading limit of a 30 percent loss. Collectively, Greek-listed companies lost about a sixth of their market value — almost 8 billion euros ($8.7 billion).

"There's a sense of panic," said Evangelos Sioutis, financial analyst and head of equities at Guardian Trust. He noted some traders are selling stock merely to raise cash because there is so little liquidity in the Greek economy.

"There are no buyers," he said. "The outlook is not clear."

The last comparable plunge was in 1987, when the main index lost 15 percent.

Markets in the rest of the world, however, were largely unaffected, a sign that investors outside Greece have now largely cut off ties with the country. European shares closed higher.

The Athens stock market and Greek banks were closed on June 29, when the government put limits on money withdrawals and transfers to keep a run on the banks from bringing down the financial system. People were panicking over the prospect that the country could fall out of the euro after its talks with international creditors broke down.

The country's radical left-led government has since then capitulated to creditors' demands for new austerity, and resumed talks on a new bailout — the third since June 2010 — worth 85 billion euros over the next three years. Banks have reopened, however strict limits on cash withdrawals remain.

Three surveys published Monday illustrate the extent of the damage wreaked on the Greek economy in July by the bank closures, money controls and general uncertainty over the country's future.

Financial information company Markit said its gauge of manufacturing activity in Greece plummeted during the month to 30.2 points, its lowest ever reading, despite improvements across the rest of the 19-country eurozone.

"Manufacturing output collapsed in July as the debt crisis came to a head," Markit economist Phil Smith said.

"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."

Despite a brief spell of weak growth last year, the economy is now shrinking again after a punishing recession that wiped off more than a quarter of output, cost over a million jobs and prompted mass emigration of skilled professionals.

Meanwhile, a monthly survey of business and consumer confidence, the Economic Sentiment Indicator, fell for a fifth consecutive month in July to its worst level since October 2012.

And a federation representing small businesses said their average turnover dropped 48 percent in July, as consumption fell by about 3.8 billion euros. The Gsevee federation said the next six months could see small businesses hit even harder as a result of the capital controls.

Greece is currently in intense negotiations with bailout lenders to negotiate the terms of the new rescue package in the next two weeks.

The country needs to complete the talks and get more loans before Aug. 20, when it has to repay more than 3 billion euros to the European Central Bank.

Deputy Finance Minister Dimitris Mardas did not comment on reports that Athens could seek a short-term loan to tide it over in case the talks have to be extended.

"The (negotiation) timetable is truly pressing ... We are preparing for what has been agreed upon, correcting any gaps that may appear," Mardas told private Skai television.

Negotiators from the European Union and International Monetary Fund are seeking faster cuts in early retirement plans set out by the government, and stricter conditions for a tax arrears payment program.

On Tuesday, they are due to meet the ministers of finance and economy to discuss new taxpayer-funded cash injections for Greece's banks, as well as plans for large-scale privatizations of state-owned assets.

Prime Minister Alexis Tsipras is facing strong opposition to the new bailout from within his left-wing Syriza party that could force him to call an early election in the fall.

Nearly a quarter of his lawmakers rejected or refused to back creditor-demanded tax hikes and reforms in key votes last month. Although Tsipras nominally retains a parliamentary majority — as the rebels remain within his party — he depends on opposition support to pass new legislation.

Syriza dissenters are openly calling for a return to the country's old drachma currency, but failed last week to force an emergency party conference before the bailout negotiations are completed.

"The government has to choose between a humiliating agreement to sign a third bailout, or abandon the agreements reached in Brussels and seek alternatives for a positive course out of this crisis," former welfare minister and prominent dissenter Dimitris Stratoulis said.

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Paris Ayiomamitis in Athens contributed to this report.

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