All eyes will be on Greece’s embattled banks on Monday when the Athens stock exchange reopens after a five-week shutdown over the country’s debt crisis, with traders bracing for a volatile session.
Bank shares are expected to be particularly affected as the country’s lenders are in a vulnerable position because of outflows of billions of euros from deposits over the past six months. About €40bn has been withdrawn from Greek banks since December, according to the country’s banks association, amid fear over the fate of the Greek economy. The reopening of the stock market comes after senior European Union (EU) and International Monetary Fund (IMF) auditors held their first meetings with Greek ministers to finalise a new three-year bail-out for the country that could be worth up to €86bn.
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 bail-out conditions demanded by Greece’s international creditors. In response, worried 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 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 in August. 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 recapitalization costs a process known as bail-in instead of European taxpayers.
Greek banks were already recapitalized 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 (ECB) credit facility known as emergency liquidity assistance (ELA). The Frankfurt-based lender last week left the ELA unchanged at €90.4bn. Founded in 1876, the Athens stock exchange has closed down more than a dozen times in its history, the weekly To Vima reported on Sunday, most recently in 2008 owing to a strike by Bank of Greece staff.
Other instances include the Balkan Wars of the 1990s, the First and Second World Wars, the Turkish invasion of Cyprus in 1974, 1987’s Black Monday in the US and the outbreak of a stocks manipulation scandal in 1996. The Greek economy is already forecast to contract by 3% this year by the Standard & Poor’s rating agency, but extended capital controls and a big bail-in could constrict activity even further.