This is not exactly what we might call a vote of confidence in the Greek economy. The Athens stock exchange opened again this morning and immediately crashed 23%. We have to assume that investors are not greatly enamoured of the various plans to sort out the Greek debt problems therefore. For, given the uncertainty that prevailed before the capital controls and stock exchange closure, we would rather expect the index to have risen this morning. That it hasn't, well, prices in markets really do tell us something about what those in those markets are thinking. And a collapse in prices just isn't an indication that investors think that everything's going to be ticketty boo somehow.
As one report has it:
The Athens stock exchange fell 22.8% Monday morning after resuming trading following a five-week closure.
The country’s four main banks, including the
National Bank of Greece , were down by around 30%, the daily limit.Trading was suspended in late June as the country faced financial ruin. Greece struck a bailout deal with its international creditors last month.
That's the bit, that last bit. If everyone though that the problems were over as a result of he deal being struck then there wouldn't have been this crash:
The main Athens stock index was down more than 18 per cent in midday trading after an initial plunge that was larger than any one-day loss experienced on the bourse. By contrast, the broad European FTSEurofirst 300 index gained slightly.
Banking shares, which make up about 20 per cent of the Greece index, were particularly hard hit. National
Bank of Greece , the country's largest commercial bank, was down 30 per cent, the daily volatility limit. The overall banking index was also down to its 30 per cent limit.
And the biggest danger to the banks was that no deal would lead to Grexit. And Grexit would, of course, lead to the instant bankruptcy of the banks and their likely nationalisation at no payment to shareholders.
So, we would rather expect that the bank shares would rise, or at least stay static this morning, given that the deal has supposedly meant that Grexit won't happen. And the Emergency Lending Assistance (ELA) to the banks has been increased a little, capital controls are still in place so they can't suffer a deposits run. So, why the doom and gloom in the stock market?
It's always very dangerous to try to reason purely from a price change. But prices really are information so sometimes it has to be done. And my opinion here would be that everyone is looking at that deal that has been lashed together to "rescue" Greece and they're noting how badly it is lashed together. The
Thus the dumping of stock and the slump in the Athens market.
