If the Athens Exchange is any reliable leading indicator of future economic trends, then its sharp drop so far this year means tougher economic times lie ahead. Fortunately, the woes of the Athens bourse should be traced primarily to adverse international developments and the best example to compare it with is that of the Austrian stock market. Unfortunately, the Athens bourse is still an imperfect leading gauge of the Greek economy and the global negative effects will show up even if they are less pronounced with some kind of time lag. Last week was a nightmare for the Athens bourse, which lost some 9 percent of its value. A profit warning issued on Friday by Coca-Cola Hellenic Bottling, one of the largest Coca-Cola bottlers in the world, came to cap a week marked by the continuous selling of heavyweight bank stocks, OTE telecom and a number of others. Following this bloodbath, the MSCI-Greece stock index, used as a benchmark by international institutional portfolios, is down about 24 percent year-to-date, which is double the losses incurred by the pan-European MSCI-Europe index. The Greek stock exchange and many of its key companies are victims of their own success. From 2003 through 2007, local stocks have outperformed most of their European peers in the so-called developed markets by championing their growth profiles. In addition to the strong economic growth rates at home, Greek companies were able to convince international investors of their growth by engineering aggressive expansion drives in Southeastern Europe and beyond. They were not the only ones advertising their growth stories. The major companies of another small European state, that is Austria, did the same. So it is no surprise that the Athens and the Vienna stock exchanges put on superb performances as the risk appetites of international investors grew stronger on hefty capital derived from the global multiyear stock market rally. Both markets also had another characteristic in common the last few years – corporate tax cuts. In the spring of 2003, the Austrian center-right government announced a 10 percentage point tax cut in corporate profits effective in 2005. In the spring of 2004, the newly elected Greek center-right government announced a similar corporate tax cut, which was implemented gradually over a three-year period from 2005 onward. However, rallies do not last forever. Following the outset of the global credit crunch in mid-July 2007, Austrian stocks took a beating last year but few people noticed in Greece. By the end of 2007, the MSCI-Austria stock index was down 9.13 percent, whereas the MSCI-Greece index was up 16.56 percent and the pan-European MSCI index remained almost flat at 0.07 percent. The main Austrian banks, namely Erste Bank, Raiffesen International and Bank of Austria Creditanstalt, saw their shares decline sharply last year, though they posted good earnings and had limited exposure to the US subprime market. Austria Telekom, the county’s telecoms incumbent, was also battered because it failed to meet consensus expectations. On the other hand, the shares of petroleum company OMV did much better. That should have alarmed market participants and policy-makers in Athens but few paid attention and even fewer tried to find out why the Austrians got hammered in 2007. When the first waves of selling orders hit the Athens bourse early this year, it became clear to many for the first time that international investment houses were concerned about the impact of the global credit crisis on the large fiscal deficits and economic growth of countries such as Romania and the increased political risk in Turkey. A few months later, the Athens bourse is down 24 percent on the year to date, while the Vienna stock exchange has fallen a mere 4.0 percent. Undoubtedly, a good deal of the steep losses incurred by the Athens stock exchange so far this year have more to do with the de-rating of the Greek banks on the heels of a similar de-rating of the European banking sector and concerns about the attainment of the targets of their business plans. In the case of OTE telecom, this beating reflects the disappointment of minority shareholders, who were left out in the cold following the shareholders agreement between the state and Deutsche Telekom. Even the downgrade of earnings estimates by Coca-Cola Hellenic Bottling reflects a tougher international environment. Still it would be a mistake not to notice that the concerns of international investors about the earnings prospects of major listed companies have nothing to do with the local economy. After all, most of them, with the exception of Coca-Cola Hellenic Bottling, derive the majority of their revenues and profits from the Greek market.