The Minister for Finance has said there is much more tough talking to be done before the Government signs off on its plan to recapitalise AIB and Bank of Ireland.

Mr Lenihan told RTÉ The Week in Politics that the Government is seeking guarantees from the banks that credit for small businesses will be available soon.

The Government is also seeking assurances around the repossessions of homes and a dramatic reduction in pay and bonuses in the banking sector will also be required, Mr Lenihan said.

He said the Government will call the shots and will have a substantial influence.

Minister Lenihan said the Government has a detailed assessment of the banks' debts but it would observe due diligence before investing in the banks, as any investor would.

Labour Party leader Eamon Gilmore said this plan has to work because if it does not the tax payer will have to pay the price.

Difficult to make case for welfare payment increase

Mr Lenihan also said it would be very difficult to make a case for increasing social welfare payments next year if the cost of living continues to fall.

Asked if a cut in the payments was on the cards, he said any welfare payment reductions would be a retrograde step and would be difficult to implement.

He said the Government had to make the decisions it did this week to stabilise the public finances.

This means that public servants will have to pay a pension levy and reliefs for the wealthy must be set aside also.

Mr Gilmore asked why the country still has tax exiles. He added that people do not know where they stand.

He said the pension levy will be followed by a tax increase and social welfare payments would be next.