A director of the European Central Bank has said that Ireland's state guarantee for banks complies with the EU's approach for dealing with market turmoil.

The comments follow remarks from French Prime Minister Nicholas Sarkozy who said the Irish guarantee created a spiral where money would have gone from country to country depending on who offered the best return.

In an interview with RTÉ Jose Manuel Gonzalez Paramo backed the Irish scheme.

He also believed Irish authorities were monitoring whether banks in Ireland needed a capital injection.

He said where there should be funding, authorities would provide it.

Mr Gonzalez Paramo said the turmoil showed banks also needed to diversify their sources of funding and not solely rely on the money markets for finance.