Greece’s bruising fight with its international creditors sent economic sentiment to its lowest level in nearly three years in July and knocked manufacturing activity down to record lows, reports Reuters. The data was released as Greece opened its stock market on Monday after a five-week shutdown prompted by the imposition of capital controls. The bourse’s main index fell around 23 percent at the open. Greek manufacturing activity plunged to the lowest level on record in July, going back at least 16 years. Significantly, Markit’s purchasing managers’ index (PMI) showed new orders plummeting. “Manufacturing output collapsed in July as the debt crisis came to a head,” said Markit economist Phil Smith. “Although manufacturing represents only a small portion of Greece’s total productive output, the sheer magnitude of the downturn sends a worrying signal for the health of the economy as a whole.” The Athens Stock Exchange and Greek banks were closed on June 29, when controls on money withdrawals and transfers were imposed to prevent a collapse in the banking system due to a run on deposits. Some 40 billion euros ($44 billion) has been withdrawn from Greek banks since December, according to the country’s banks association, amid fears over the fate of the Greek economy. The reopening of the stock market comes after senior EU and IMF auditors held their first meetings with Greek ministers to finalise a new three-year bailout for the country which could be worth up to 86 billion euros ($94 billion). The last trading session on the Athens stock exchange was on June 26, a few hours before Prime Minister Alexis Tsipras announced a referendum on the stringent bailout conditions demanded by Greece’s international creditors. In response, worries Greeks rushed to withdraw cash from ATMs, prompting the government to impose capital controls from June 29 and announce the closure of the country’s banks and the stock exchange. The banks reopened on July 20, but withdrawals and money transfers abroad remain restricted. Greeks can currently withdraw only up to 420 euros ($460) a week. From Monday, the stock exchange will operate as normal for foreign investors but local traders will still face limits on their transactions as part of the capital controls imposed by the government. The restrictions mean that Greek investors will not be able to finance the purchase of securities by taking money from their bank accounts in Greece. They will, however, be able to use foreign bank accounts or make cash transactions. According to news reports on Sunday, the top four lenders—National Bank, Piraeus Bank, Alpha Bank and Eurobank—will undergo an asset quality review later this month. Stress tests will follow in the autumn to determine the recapitalisation requirements of each bank with European rescue funds. Greek officials want to complete the operation before new European regulations come into effect from January 1. As of 2016, bank shareholders and depositors will foot the lion’s share of recapitalisation costs—a process known as “bail-in”—instead of European taxpayers. Greek banks were already recapitalised in 2013 with funds from the country’s last EU-IMF rescue package. Throughout the crisis, Greece’s cash-strapped banks have been kept afloat by a European Central Bank credit facility known as Emergency Liquidity Assistance (ELA). The Frankfurt-based lender last week left the ELA unchanged at 90.4 billion euros. Founded in 1876, the Athens stock exchange has closed down more than a dozen times in its history, the weekly To Vima reported Sunday, most recently in 2008 owing to a strike by Bank of Greece staff. Other instances include the Balkan Wars of the 1990s, the World Wars I and II, the Turkish invasion of Cyprus in 1974, 1987’s “Black Monday” in the United States and the outbreak of a stocks manipulation scandal in 1996. The Greek economy is already forecast to contract by 3 percent this year by the Standard and Poor’s rating agency, but extended capital controls and a big bail-in could constrict activity even further.
