Global share prices tumbled yesterday, as worries about a faltering economic recovery spread across markets.
Yield on Irish government bonds hit a fresh high last night as bonds and the euro were all battered by negative political and economic headlines all over Europe.
Markets plunged after ratings agencies threatened to downgrade Italy and Belgium and as Greece struggled to come up with new cuts to satisfy lenders.
Share indexes in all 18 western European markets fell. In Paris the CAC was down 2.1pc, the FTSE in London dropped 1.9pc and the DAX dropped 2pc. At home the ISEQ closed down 2pc.
The yield, or borrowing cost, on Irish 10-year government bonds hit 10.82pc -- a new high and up more than a quarter of 1pc in a single day. Greek 10-year bonds threatened to hit 17pc for the first time last night.
The euro fell as much as 1.4pc to US$1.3970 the lowest since March 18 and hit a record low of 1.23235 Swiss francs to the euro.
Standard & Poor's (S&P) changed its outlook on Italian government debt to negative. Italy's rating was not changed but the country is too big to be bailed out by the European rescue mechanisms so the news hit already jittery markets unusually hard. Italy is one of the biggest eurozone econ- omies, a cornerstone of the entire euro economy.
"Any concern that Italy's large debt burden is not on a downward trajectory would be of concern not only for Italy, but for the euro area as a whole. In a worst-case scenario Italy could probably be characterised as too big to bail," said Gary Jenkins, head of fixed income at Evolution Securities in London.
Rival agency Fitch changed Belgium's rating outlook to negative, on concerns its political instability will hurt efforts at fiscal consolidation.
The sense of crisis grew as local elections in Spain looked like undermining that country's commitment to austerity budgets after the ruling Socialist party suffered its worst-ever defeat at the polls. It all comes as the European Union pushes Greece to make greater efforts to reign in its debt.
Officials endorsed another package of spending cuts and State asset sales after the worsening bond-action sell-off across the euro area. Reports yesterday said Greece could be pushed to sell €15bn of assets by the end of 2012, a year ahead of schedule.
EU Economic and Monetary Affairs Commissioner Olli Rehn said creating a vehicle to manage Greece's privatisation programme was being considered.
Greece has been completely unable to convince analysts it can turn around its crisis but the Italian news was most concerning for the markets.
(Additional reporting Bloomberg)