World Economy

Greek Banks Hit as Stocks Sink to 25-Year Low

Greek Banks Hit as Stocks Sink to 25-Year LowGreek Banks Hit as Stocks Sink to 25-Year Low

Greece’s main equity index fell to its lowest level in more than 25 years, with bank shares touching record lows, driven by political uncertainty and concerns about Europe’s financial sector.

Athens’ benchmark ATG equity index was down 8% on Monday, at its lowest level since at least 1991, Reuters reported.

The Athens Stock Exchange FTSE Banks Index also fell 26% to touch record lows, with shares in major lender National Bank of Greece falling 28.6%.

Greece’s finance minister said on Monday that the country expected the review of its bailout performance to resume next week and conclude two weeks later.

However, Greek borrowing costs rose on the back of uncertainty that a bailout review by the country’s lenders could drag on due to resistance to planned pension and tax reforms, which also hit the Athens stock market.

“The market is pricing in financial and political instability and delays in the review,” said Manos Hatzidakis, an analyst at Beta Securities.

Banking shares across Europe were also hit as concerns over global growth and the health of Europe’s financial sector pushed investors into safe-haven assets.

The cost of insuring financials’ subordinated debt also hit its highest level since April 2013, according to Markit data.

Mission chiefs of Greece’s lenders, the European Commission, the International Monetary Fund, the European Central Bank and EU’s bailout fund wrapped up a first week of talks in Athens on Friday. They were expected to return to Greece around Feb. 15.

Greece has promised to cut pension spending by 1% of GDP, or €1.8 billion ($2 billion), this year. To protect pensioners whose benefits have been cut 11 times already since 2010, the government has proposed to increase social security contributions by employees and employers.

 Recovery Possible

Greece’s economy will continue to contract in the first half of this year but has the potential to rebound afterwards if there is a speedy conclusion of the country’s first bailout review, Bank of Greece chief Yannis Stournaras said recently.

Stournaras has urged the leftist-led government to implement reforms agreed with the country’s lenders, warning that backtracking would entail risks the economy could not withstand.

“It is estimated that, at least for the first half of 2016, GDP will remain in negative territory because of the carry over negative impact of 2015,” Stournaras said in a speech to the Hellenic American Chamber of Commerce.

“In the second half of 2015 and due to the impact of capital controls and the tax burden on households and businesses, it is estimated that economic activity declined, leading to a small 0.2% recession for 2015 as a whole,” he said.

Stournaras reiterated that a successful review would help restore confidence, improve the banking system’s liquidity and further loosen capital controls, paving the way for an economic recovery in the second half of this year.