If the Government agreed to the pay concessions sought by the Garda Siochana it would lead to a raft of claims which would threaten the health of the economy, the Minister for Finance, Mr McCreevy, said.
He told the Dail it was not possible for the Government "to concede anything like the demands that are being put forward" by the Garda Representative Association (GRA).
"I do not intend to engage a policy of appeasement which is going to set off a raft of public sector pay claims which will set us back to the situation which existed in the mid-1980s when we were effectively financially bankrupt."
He said the Government's approach to negotiations with the Garda associations was dictated by local bargaining guidelines under the Programme for Competitiveness in Work (PCW).
Going beyond these guidelines "would risk a reopening of PCW deals already done and that could have enormous consequences not only for public expenditure but also for the pay climate generally in the economy".
Mr McCreevy said an offer of a 5.5 per cent pay increase was made to the Garda representative bodies. They were also invited earlier this month by the chairman of an independent committee on public sector pay, Mr Declan Brennan, to explore further possibilities by discussion.
The Association of Garda Sergeants and Inspectors has agreed to pursue this avenue.
However, Mr McCreevy said the Government was "extremely disappointed" that the GRA had opted for industrial action instead.
"I would strongly urge the association to desist from the present action, which cannot be for the good of the force in the long run, and to resume discussions.
"The Government cannot if it is to have a coherent economic policy and a public sector pay policy concede anything like what the GRA is seeking. The only method of resolving this is on the basis put forward by Mr Brennan when he issued his formula last Saturday week."
The Fine Gael spokesman on finance, Mr Michael Noonan, said the Government was "reaping the whirlwind which they sowed themselves prior to the last election" when it "encouraged" the Garda to make extravagant claims.
He claimed the then Fianna Fail spokesman on justice, Mr O'Donoghue, gave "verbal commitments effectively suggesting that the door was wide open and that the gardai would get whatever they wanted".
Mr McCreevy said the party "gave no such nods and winks to any of the Garda associations".