The European Central Bank has stepped up pressure on the Government over its new budget plan, saying deadlines will have to be met.
ECB president Jean-Claude Trichet said it is crucial that Dublin follows through on its renewed commitment to tame the budget deficit by 2014 with "precise action and precise decisions".
Minister for Finance Brian Lenihan is currently trying to craft a four-year package of stringent budget cuts, to be announced next month.
Speaking in Frankfurt today after the ECB kept its main interest rate steady at a record low of 1 per cent, Mr Trichet declined to state whether a voluntary renegotiation of senior debt held by nationalised institutions such as Anglo Irish Bank would be a good thing, saying that was "a question which has to be asked of the Irish Government."
Without directly referring to public disquiet in Ireland over the size of the bank bailout and imminent new austerity measures, Mr Trichet said it was important to say the ECB was "responsible for price stability at the level of 16 countries" in a currency area the size of the US.
As senior officials in Brussels question whether Ireland can meet its targets without increasing its corporation tax rate from 12.5 per cent, Mr Trichet said he had no position to relay on behalf of the ECB's governing council "on any particular measures".
"There are deadlines that have been mentioned by the Irish Government. Let me say that we are certainly considering that it is absolutely important that this commitment which has been taken is put into appropriate action," he said. "It's extremely important that the Irish Government takes all the appropriate decisions that would permit I would say to have that very credible, highly credible path towards sustainability of public finances."
In an implicit reference to Ireland, the governing council said a credible multi-year budget plan "will strengthen public confidence in the capacity of governments to return to sustainable public finances, reduce risk premia in interest rates and thus support sustainable growth over the medium term."
Mr Trichet predicted that recovery in the euro zone would continue in the second half of the year and said lower bank demand for ECB liquidity suggested money markets were beginning to function more normally.
