Dan O'Brien, senior editor The Economist, believes there is a 25 percent chance Ireland will go bankrupt

A leading economist has warned that Ireland could easily end up in a fiscal crisis.

On Tuesday Allied Irish Banks shares dropped by almost 13 percent to 0.90 cents. Just three years ago their value was €22. Bank of Ireland shares plunged nine percent to 0.66 cents and Irish Life and Permanent were down four percent to €1.98.

This day in the markets has already been nicknamed “Black Tuesday”.

Dan O’Brien, senior editor at the Economist Intelligence Unit, said that there is a solid one-in-four chance that Ireland will go bankrupt while speaking to Irish parliament’s European Affairs Committee on Tuesday.

He said that crisis is “a clear and present danger” and also blamed Ireland’s entirely inadequate response to the crisis in 2007 and 2008 had “allowed a loss of credibility that hasn’t been regained.”

O’Brien suggested that the "welfare safety net" was the primary reason the nation has not returned to the dire circumstances that were seen in the 1930s. He blamed the risk of bankruptcy on a number of external factors.

On Tuesday overall the Irish Stock Exchanged closed down nearly four percent. Markets across Europe fell to an eight-month low with worries surrounding the Eurozone debt crisis and tensions rising in Korea as North Korean leader Kim Jong Il last week ordered his military to prepare for combat.