The Governor of the Central Bank has told an Oireachtas committee that Ireland is now in a position where it has to jump to what the international markets expect of it.
Patrick Honohan said the proposed Budget adjustments of more than €6bn would do damage to the economy, but a less painful package would do more.
Mr Honohan told the Committee on Regulatory Affairs that he endorses the Government's plan to embark on a four-year plan.
He was responding to Independent TD Joe Behan, who claimed the package would stifle growth and damage the economy.
Mr Honohan said the markets remain to be convinced that Ireland can stop its debt spiralling out of control.
He said because Ireland is so dependent on the international markets, it has to get a handle on the situation quickly.
The governor insisted the steps taken now are more important than meeting the 3% deficit target in four years' time.
Earlier, Professor Honohan said International Monetary Fund assistance to Ireland would not be a panacea and would not entail a change of direction from the fiscal consolidation being undertaken by the Government.
Mr Honohan said the IMF was an 'indispensable tool' in stabilising country conditions when finances had 'gone off the rails'.
He was speaking at the Financial Regulation: Risk and Reward conference in Dublin.
Bank guarantee scheme extended
The European Commission has approved a continuation of the Eligible Liabilities Guarantee Scheme, which guarantees borrowings by banks.
The guarantee covers the vast majority of Irish retail and corporate deposits and senior bonds.
The scheme, which replaced the original blanket guarantee given to banks in September 2008, is now extended until June 2011.
It is likely to be further extended to the end of 2011, when it is reviewed again next June.
Subordinated bonds are not covered. Retail deposits of up to €100,000 continue to be guaranteed indefinitely.
Competition Commissioner Joaquin Almunia said the guarantee and similar guarantees in a number of EU states are necessary to protect financial stability and are compliant with EU law.
The State has earned more than €1bn by charging the banks for providing the guarantee.
Meanwhile, the yield or interest rate on Irish Government bonds has continued to rise.
The interest rate demanded by investors to lend money to Ireland for ten years stood at 8.95% late this afternoon.
