Stark euro debt crisis smothers Obama cheer

THIS summer’s volatility across global stock markets continued yesterday, with Thursday’s gains wiped out amid widespread investor nervousness over the European banking sector and whether US President Barack Obama’s $447 billion (€327bn) job creation plan stands up.

Investors have become jittery once again on the back of the European Central Bank (ECB) cutting its growth forecasts for the eurozone this week (region-wide GDP will grow by 1.6% this year and by 1.3% the next; as opposed to the 1.7% and 1.9% that it stated on Thursday); concern over the US’s ambitious job creation plan being passed and the sudden resignation of the ECB’s chief economist, Jurgen Stark.

This latter development has raised serious fears that there is a strong divide, amongst Europe’s policymakers on how to properly deal with the euro debt crisis and the deepening crisis in Greece, in particular.

An OECD report — coming on the eve of this weekend’s meeting of G7 finance ministers in Marseilles — also said that there is potential for new recessions in a number of richer countries, with the debt crisis in the eurozone possibly worsening.

Regarding this weekend’s G7 summit, Timothy Geithner, the US Treasury Secretary, said yesterday, that the relevant ministers are unlikely to announce any dramatic moves to intervene in the markets.

A 4% fall in Frankfurt on the DAX was the biggest downward movement among the larger bourses, yesterday. Paris’ CAC-40 index fell by 3.6% and the FTSE in London was down by 2.35%. Elsewhere, Italy’s main exchange in Milan fell by just under 5%, as did the IBEX in Madrid.

In Dublin, Tullow Oil jumped 19.2% to €16.50 on the back of the news that it has opened up a key new market with the discovery of oil in French Guiana in South America.

However, Bank of Ireland’s share price slipped by 1c to 7c, even though its shareholders unanimously voted in favour of the well-flagged €1.12bn capital injection from a number of private investors, which officially reduces the state’s shareholding in the bank and makes it the only Irish institution not to be nationalised.

Overall, the ISEQ fell by just under 3.2% yesterday as traditional big players such as DCC, Elan, CRH (which was down by 83c), Paddy Power, Ryanair and Kerry Group all suffered heavy dents. Conversely, there were steady increases for the likes of food-related groups such as Aryzta and Glanbia.

Wall Street also reacted nervously to the euro debt crisis and Obama’s plan.