The Government is on the right course to restoring economic sustainability, but tough decisions must still be made, the EU Economic and Financial Affairs Commissioner Olli Rehn has told a banking conference in Dublin.
Mr Rehn said Europe was in "a very dangerous situation" and that the EU had not been able to put out "stubborn financial market bush fires" in the sovereign debt market and this was creating fresh concerns about the European banking system.
Speaking in a prerecorded speech to the Irish Banking Federation conference, Mr Rehn warned if the EU didn't get "an upper hand" on the market turmoil, then it would lead to a new recession across Europe.
“No part of Europe could be saved from its consequences, including of course Ireland. So much depends on the growth of its exports markets for its recovery and on the European economy," he said.
Mr Rehn called for "strong and co-ordinated action" but said a consensus on how to address the crisis was coming. EU talks were at "a key juncture", he said. There needed to be greater certainty about Greece and an increase in the capital reserves at the European banks.
"We have a very good chance of not only averting a financial calamity but to put Europe back to the path of sustained recovery," he said.
Ireland's determination to "conquer its economic crisis" should be an example for policymakers in Europe, he said.
Head of banking supervision at the Department of Finance John Moran told the conference the "catastrophic fall-off" in deposits at the Irish banks had been reversed and retail deposits had increased since the middle of the year.
As a consequence, the banks will have less borrowings from the European and Irish central banks at the end of the year than they did at the start, he said.
Mr Moran said that it was "incredibly worrying" that the deleveraging of €2 trillion in bank assets across Europe will damage economic growth that is essential for Ireland "to climb out of its financial problems".
"We really need to avoid a situation where we are dumping assets at any cost," he said.
He warned against European banks being recapitalised along national lines as this would increase the number of assets flooding the markets and put further pressure on euro zone states.
Mr Moran called for a centralised mechanism to bolster the capital levels of European banks.The key to addressing the growing number of distressed mortgage borrowers was to reform the bankruptcy laws, he added. The banks had "a heavy responsibility" to work with customers by developing different solutions for particular customers, he said.
Mr Moran told reporters he expected AIB to present a proposed pay package for the new chief executive to him later this week. He is pushing for the banks to raise more funding using overseas assets as collateral after Bank of Ireland raised €1.1 billion yesterday.
Brian Hartzer, chief executive of UK retail, wealth and Ulster Bank at Royal Bank of Scotland, warned the conference that higher capital and liquidity demands on banks would inevitably reduce lending and increase the cost of credit.
He warned against a move towards "parochialism" in banking as regulators force banks to strengthen themselves, saying that this was "a very dangerous development".
