The Greek Stock Market Tumbles

Investors have turned against Greek stocks. There’s real concern that the country may not be able to meet its debt obligations.

The benchmark Athens Stock Exchange General Index dropped as much as 6.1 percent, its biggest intraday decline since Nov. 26. The yield on the government two-year note rose the most since at least November 2008. Fitch Ratings cut Greece one step to BBB+ today, the third-lowest investment grade. Standard & Poor’s yesterday put Greece’s A- rating on watch for a possible downgrade, signaling it may be reduced within two months.

“Greek bonds were already tanking on the S&P negative outlook and Fitch gave their fall a boost,” said David Schnautz, a fixed-income strategist at Commerzbank AG in Frankfurt. “It’s a long-term sustainability problem. Now the government has to tell the Greek public that something needs to be fixed.”

Greece, the lowest-rated country in the euro region, is struggling to shore up its finances amid a year-long recession. Gross domestic product shrank 1.7 percent in the third quarter from a year earlier, the National Statistics Office said Dec. 4.

The socialist government of Prime Minister George Papandreou, elected in October, plans to cut the budget deficit to 9.1 percent of gross domestic product next year, from 12.7 percent this year. The measures, including a partial freeze on public-sector pay, “are unlikely by themselves to alter Greece’s medium-term fiscal dynamics,” given the prospects of high deficits, debt and sluggish economic growth, S&P said yesterday.

The economy in Greece is a mess. Fortunately, we’ve steered clear from that region in my Global Growth service. My favorite countries to invest in continue to be China, Brazil and Israel.

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