The Governor of the Central Bank has said financial markets still remain to be convinced about the determination and ability of some European government to cut their budget deficits.
Speaking in the Chinese capital Beijing, Professor Patrick Honohan also indicated the cost of rescuing Irish Nationwide is likely to rise to around €3.2 billion.
The Governor said the cost of borrowing for many countries was still exceptionally high, despite measures announced by EU governments and the European Central Bank.
'The sooner the markets are convinced, the sooner the interest spreads will shrink to the benefit of all,' Professor Honohan, who is also a member of the European Central Bank's governing council, said in a speech at Renmin University.
He also argued that the impact on borrowing costs and confidence from tackling the public finances 'more than offsets' any short-term impact on domestic demand from lower public spending.
€1.5 billion of bonds are sold
The Governor also indicated that, on top of the €22-25 billion for Anglo Irish Bank, another €4 billion would be needed, 'mainly to cover one small building society'. When the €875m for EBS is taken out, this means around €3.2 billion for Irish Nationwide.
Finance Minister Brian Lenihan had said earlier this year that Irish Nationwide would need around €2.7 billion of capital, though the society's chairman told members in May it may need more than this.
Professor Honohan also claimed that the issue of European banks' holding significant amount of government debt on their books was 'greatly overplayed' by financial markets.
He also warned that, although it was natural to see if some revenue could be clawed back from banks, many types of bank tax could end up being paid for by smaller customers rather than bank shareholders or managers.
