Cabinet fears US turmoil may halt recovery

FINANCE Minister Michael Noonan has admitted the Cabinet is “very concerned” the ongoing economic turmoil in the US could prevent an Irish and worldwide recovery, after a 24-hour market bloodbath that saw billions of euro wiped off shares.

Speaking as market indexes across the globe failed to react positively to moves to halt the dual crises in the US and the eurozone, Mr Noonan said it was “too soon” to know how Ireland will be affected.

However, he conceded the Government is worried about the possibility of a double-dip recession in the US, and its resulting impact abroad, including a possible decrease in Irish exports.

“We’d be very concerned about a further dip in the US, because the US, I believe, will still lead a world recovery supported by emerging nations like China and India. That’s worrying,” he said.

Under the Irish bailout deal, the Government is obliged to make savings of at least €3.6 billion in the budget in order to reach deficit-reduction targets.

Asked if a US slump would require an even harsher budget to meet those targets, Mr Noonan replied: “It’s too soon to say what the consequences of what’s happening in America will be, because there are some positive signs in the American economy as well, and a lot of commentators would disagree that there’s a double dip recession in prospect.”

The Government is obliged to reduce the deficit to 8.6% of GDP in the budget, he said. “Now, whether we can get there on €3.6bn or slightly more is not clear yet.”

He said the Government was monitoring events in Europe and the US “very closely,” but added: “There’s nothing directly that we can do at the moment.

“From our point of view, we’re reasonably well-positioned since the renegotiation downward of the interest rate and the other [bailout changes]. But we’re always a small player in these events and we can be dragged back into difficulty by external forces.”

His comments came as markets in Europe, the US and Asia saw share prices tumble on the back of recent turmoil in the US and despite the European Central Bank’s decision to purchase bonds in Italy and Spain as investors sought to find a safe-haven for their money in gold.

The Dow Jones closed down 5.5% — its biggest one-day point fall since December 2008 — with the Nasdaq also dropping 6.9%.

In Europe, the FTSE in London fell by 3.4%, losing more than 100 points for the fourth market day in a row. Dublin’s ISEQ dropped by 4.4% compared to one day earlier, and markets in Frankfurt and Paris fell 5% and 4.7% respectively.

US President Barack Obama blamed the US crisis on the recent stand-off between Democrats and Republicans, adding people could not control “earthquakes” or “oil prices” but could control how they react to them. In a thinly veiled attack on Standard and Poor’s & decision to downgrade the US rating to AA+, he added: “No matter what some agency may say, we have always been and always will be a AAA country.”

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