The worst day in Irish financial history

"It's the worst day in Irish financial history and the government doesn't seem to be saying anything."

Brian Lucey, associate professor of finance at Trinity College, Dublin.

Share prices for Irish banks are in freefall. Yesterday, Allied Irish Bank dropped 72 percent while the Bank of Ireland plunged 48 percent. Anglo Irish bank - the country's third largest - is in now public ownership. It is an overused word, but the Irish financial system is close to meltdown.

There is something very odd about this collapse in share prices. A few months ago, the Irish government offered a blanket guarantee on all deposits. At the time, a great roar of approval went up in Ireland. The banks were sorted, the Irish government had come to the rescue.

Now, that generousity is looking rather ill-advised. Although Ireland may have recently enjoyed an extended period of unprecented growth, it still remains a comparatively small economy. Furthermore, the days of the celtic tiger are over; the economy is in recession, the housing market is collapsing and tax revenues are evaporating.

It is questionable whether the Irish government can make good on that promise to cover all deposits. Unlike the UK, Ireland doesn't produce its own bank notes. It gave up that right when it joined the euro. So when Darling promises to cover bank losses, he has the confidence of knowing that he can rely on the Bank of England to produce limitless quantities of money. The Irish finance minister has no such luxury.

So, while understanding Mr. Lucey's frustration, the silence of the Irish government is understandable. Right now, there is nothing useful that the Irish government can say. When a government is this deep in trouble, silence is definitely the best policy.