Irish bank shares soar but European stocks still jittery

IRISH bank shares soared yesterday but stocks across Europe slid as fears mounted about the spread of a crisis.

Irish Life and Permanent was the biggest mover on the Irish Stock Exchange, jumping almost 60% to 82 cent. AIB shares rose close to 4% to 36c, while Bank of Ireland was up just over 16% to 31c.

Overall Irish stocks finished in positive territory last night and as they did the US markets were opening down around 1%.

Major US stock market indexes fell yesterday, amid ongoing worries about Europe’s ability to contain a credit crisis.

The performance was also not as positive around Europe with London’s FTSE falling 2% to the lowest close since September. In Germany, stocks fell as optimism that the aid package for Ireland will stem Europe’s sovereign-debt crisis withered and investors demanded higher returns at Italian and Belgian bond auctions.

“The real issue for the euro is that the tension around Ireland has seen broad-based contagion effects, including to Portugal and Spain,” said Jens Nordvig, managing director of currency research at Nomura Holdings.

Market speculation intensified last week that Portugal and perhaps even Spain will require external support after Ireland.

While Greece let its budget get out of hand and Ireland fell prey to a housing bust, Portugal suffers from a lack of competitiveness that kept average economic growth below 1% in the past decade.

A bailout of Portugal would cost about €50 billion, “well within the capacity” of funds made available by the EU and IMF, Mr Nordvig said.

“The additional resources needed to fund Spain in a scenario where Spain lost market access would test the limits of the capacity available from the EU/IMF,” or about €385bn, he said.

“This is the reason Spain is pivotal to the outlook for the euro.”