“It has been a very awkward week” says Nikolaos Porfiris, reflecting on the effects on global share markets following last weekend’s downgrading of the US credit rating. The main barometer of the Athens stock exchange is the FTSE/Athex 20 index, which lists the top 20 Greek blue chip companies.
“The index opened at 480 points on Monday and closed on Thursday at 424, four days of continuous decline meant some 9 per cent had been wiped from these companies’ share values,” says Porfiris, who adds that the European Central Bank’s announcement to support Italian and Spanish bonds did little to help the European markets, and as a consequence, the Greek stock market rally.
“The only positive news came midweek from the US with the Federal Reserve Bank’s decision to keep interest rates unchanged for two years”. “It’s been like a roller coaster,” says Porfiris, who tracks the current continuously downward trend to July 27, when the FTSE/Athex 20 stood at 575 points. Ironically, the latest trend started just days after the positive news of the EU’s 109 billion euro ($150bn) bailout plan to tackle Greek debt was agreed by eurozone leaders. “There’s been a series of downward movements since then, induced by uncertainty in the eurozone markets,” says Porfiris, “when there is a general move in the markets, peripheral exchanges like Greece are affected more.”
The past week has seen ‘short-selling’ on the Athens stock exchange banned, in an effort to protect Greek stocks. Short-selling is when traders profit from bets on the fall in a share price. Short-sellers usually borrow shares or bonds, sell them, then buy them back when the stock falls – pocketing the difference. The practice has been blamed for increasing recent market instability. Porfiris says the two-month ban imposed by the Hellenic Capital Market Commission, is intended to stabilise “a highly volatile environment. Greek stocks have been under pressure for many days and the market had moved lower and lower. What they are trying to do is keep the market in order.” France, Italy, Spain and Belgium also banned short-selling last week. “What I see every day is that the markets try to test the credibility of the EU’s strategy”, says Porfiris.
“Member States decide and announce a common strategy, and then the markets test to what degree the EU can implement it, how fast they can act. It’s like a boxing match. The problem is there are too many member states, too many central banks, too many officials with different agendas, all the decisions agreed are on a very thin line, and the markets try to test that line.” When asked about parallels between current worldwide economic trends and the causes of the 2008 Global Financial Crisis, Porfiris is careful to avoid a direct comparison, but “there is something looming” he says ominously, noting that in his view, the underlying forces which conspired to create the 2008 crisis, though very different, can in part be related to the current situation.
“Sometimes in the private sector, sometimes in the public sector, there has been borrowing that was intended to boost growth, but the problem is, that this growth is well above a level that is sustainable in the long-term”.
On the political situation in Greece, and its relationship to the bail-out plan that underpins Greece’s economic future, Porfiris believes that at the heart of Greek politics lies consensus, though it may not always be visible. “If Greece does what it has promised to do, in terms of the bail-out plan, I don’t believe Greece will default in the short or mid term. There’s no logic for that to happen, especially after the new arrangements.”
“There’s no way there can be dramatic changes in what Greece has to do. It has to reduce its deficit, nobody disagrees on that. Perhaps the political parties might disagree about how it’s done, but there’s no disagreement in terms of the end result. Any Greek government in negotiation with the EU, faced with the possibility of taking the money with its conditions, or being left to default, will choose the first option, because the second option takes you nowhere”. A ringside seat at the Athens stock exchange gives the 45 year-old Porfiris a unique overview of the sparring between markets and EU Member States, as Greece battles for financial viability.
From that perspective, Helex’s deputy director is refreshingly optimistic about the future of the Greek economy. He says increased exports, capital increases in the Greek banking sector and effective implementation of the Greek Government’s privatisation programme are all positive signs for the future. “There are concerns, but you can also see light at the end the tunnel.”