Shares plunge in St Patrick's Day massacre
FEARS of more financial shocks deepened last night after stock markets plunged following the emergency sale of US investment bank Bear Stearns.
The global crisis now poses increasingly severe problems for the Irish economy which faces slowing growth rates and higher unemployment amid fears the US downturn could last much longer than expected.
However, the worsening outlook raised the prospect of the ECB cutting interest levels sooner rather than later as the US Federal Reserve is poised to again slash rates today.
Already this year, key US rates have been cut from 4.25pc to 3pc as Fed chiefs attempt to arrest the rapid decline in the US economy.
However, the prospect of an ECB rate cut appears to be one of the few silver linings around a darkening cloud of economic woe.
The value of stocks plunged again yesterday as confidence in the ability of individual economies to withstand the onslaught diminished by the hour.
The Irish stock market closed at its lowest level in three years when more than €3.5bn was wiped off the value of stocks. While the banks bore the brunt of the slump -- Anglo Irish Bank fell more than 15pc -- construction stocks were also hit. The Irish market's plunge -- dubbed the St Patrick's Day massacre by some observers -- was in tandem with falls across Europe, Asia and the US.
The slump followed the fire sale of US investment bank Bear Stearns for $2 a share -- a fraction of the $75 a share it was valued at last week.
It was sold to JP Morgan Chase in a bid to save it from bankruptcy. The move stunned Wall Street and spread panic that few US banks are safe as a result of the subprime crisis.
US president George Bush, who met Taoiseach Bertie Ahern in Washington as part of the St Patrick's Day celebrations, sought to reassure Americans as stocks and the dollar tumbled after the Federal Reserve struggled to prevent a meltdown in financial markets.
He said he was prepared to act "decisively" if needed. He said: "One thing for certain is we're in challenging times."
Mr Bush then added: "The US is on top of the situation."
Economists here warned that the uncertainty bodes ill for our growth prospects -- just days after the Economic and Social Research Institute (ESRI) revised down its growth forecasts for the economy to 1.6pc in 2008, with unemployment peaking at 6.2pc next year.
Dan McLaughlin, chief economist at Bank of Ireland, said: "This is negative for growth. Unless stock markets rebound it is not going to help confidence and sentiment. We've had US recessions before and the US Federal Reserve has cut interest rates. But this time around, the financial system is in the eye of the storm."
Mr McLaughlin said that while the ECB would not be bounced into any immediate cut in rates, it is likely to act in the coming months.
Business chiefs also warned of impending problems, with exporters hit particularly hard as the euro reaches record highs against the dollar. That makes it harder to sell into US markets.
Senior IBEC economist Fergal O'Brien said the immediate impact on Irish business would be challenging for exporters.
At one stage yesterday, the euro surged to $1.59 at a time when oil and commodity prices also hit all-time highs.
"The dollar has lost 20pc against the euro over the last 12 months and we're exporting, in one form or another, one-fifth of our total exports to the US or other dollar denominated regions." he said. "It doesn't have an immediate impact in terms of safeguarding jobs or economic prosperity but it is not good news for investors."
Last night a government spokesman said Finance Minister Brian Cowen, who is in Vietnam and Malaysia as part of the St Patrick's Day exodus, said: "This is an international development as opposed to a local development."
But opposition parties raised concerns about the impact of the crisis at home.