A FRESH round of misery spread through Europe yesterday as Ireland’s continued insistence that it does not need a bailout sent stocks plunging on both sides of the Atlantic.
The FTSE 100 recorded its biggest drop since August, falling 1.5 per cent yesterday to close at 5,690. The Dax dropped 1.2 per cent to close at 6,672 and the Eurostoxx 50 slipped 0.4 per cent to close at 2,810. In the US, the Dow Jones fell 1.6 per cent, to 11,023.50 – its lowest level in a month.
Eurozone finance ministers will today meet for a second day of talks, with the likelihood of an Irish bailout at the top of the agenda.
EU President Herman Van Rompuy yesterday spooked investors by saying that the crisis was a matter of “survival” for the EU’s institutions. He said: “If we don’t survive with the Eurozone, we will not survive with the European Union.”
Funding for a bailout is most likely to come both from the EU and the International Monetary Fund, but there is also the possibility of bilateral loans from the UK, due to Britain’s heavy reliance on trade with Ireland. Chancellor George Osborne yesterday said he did not want to add to speculation by commenting.
The latest shocks came as the Irish government yesterday disappointed markets by clearing its parliamentary schedule for a special statement and then failing to announce any measures to deal with its spiralling debt crisis.
“What we are doing is discussing with our European partners as to what stabilisation (measures are)... necessary,” Prime Minister Brian Cowen said. He also tried to deflect pressure by saying that the insolvency crisis was in Ireland’s banking sector, not its public finances.
However, the government has promised to guarantee all Irish bank debt. In response to Cowen, the yield on Irish ten-year bonds jumped back over 8.2 per cent and opposition leader Eamon Gilmore said: “I’m not quite sure why you made this statement today.”
As fears grew that the Irish situation is becoming a European contagion, ten-year Portuguese and Spanish gilt yields also rose yesterday, to 6.8 per cent and 4.6 per cent respectively.
Investors have now begun to question whether Portugal could be next. Its government was yesterday forced to deny that, like Germany, it has been pressuring Ireland to accept a bailout in order to calm the markets and save itself from a similar fate. The cost of Greek debt also rose as Austrian finance minister Josef Proell said that Austria would withhold its €190m contribution to the country’s rescue package until Greece fulfilled its promise to get its deficit down to 8.1 per cent of GDP for this year.