Economist: 25% chance Ireland will go bankrupt

AS bank shares tumbled on a Black Tuesday for the markets, a leading economist has warned Ireland could end up with a fiscal crisis like that seen in Greece.

As concerns heighten about Europe’s economic future, AIB shares plunged almost 13%, to 90c. Three years ago the bank’s share price was over €22.

Bank of Ireland shares also plunged 9%, to 66c, while Irish Life and Permanent shares were down 4%, to €1.98.

Overall Ireland’s ISEQ Index closed down almost 4% on a day markets across Europe fell to an eight-month low amid worries surrounding the eurozone debt crisis and rising tensions in Korea.

All 18 western European markets and all 19 industry groups in the Stoxx 600, which is a measure of European stock, fell sharply after a report that North Korean leader Kim Jong Il last week ordered his military to prepare for combat.

In London, the FTSE slumped 2.5% and the CAC in Paris fell 2.9%. In Frankfurt the DAX lost 2.3%. US shares were also down.

Reacting to the falls, economist Dan O’Brien suggested there was a one-in-four chance Ireland will go bankrupt.

Mr O’Brien, a senior editor at the Economist Intelligence Unit, also criticised the Government’s failure to act sooner in dealing with the economic downturn.

Mr O’Brien said the increased risk of bankruptcy was due to a number of external factors and suggested the “welfare safety net” was the primary reason the nation has not returned to the dire circumstances that were seen in the 1930s.

Meanwhile, experts have warned that the sharp fall in share prices pose a risk to AIB’s private capital raising plans and to Bank of Ireland’s rights issue. A poor take-up of shares as part of Bank of Ireland’s €1.7 billion rights issue could send a negative signal for the financial sector, they said.