The Governor of the Central Bank Professor Patrick Honohan has said he approves of the Government's plan to restructure Anglo Irish Bank into two separate institutions, but said the Government needed to look again at its long-term Budget plans.
He was speaking in Dublin at a European Money and Finance forum, as the price of borrowing for the country rose to 6.51%, a day ahead of a major bond issue by the National Treasury Management Agency.
Prof Honohan described the Government's decision on Anglo Irish Bank as a 'welcome relief'.
He said the Government had asked him to determine the appropriate levels of capital that would be required by each of the two new Anglo institutions.
Prof Honohan said the Central Bank was assessing the bank in a different manner to how it had for the other banks.
He said he would be publishing a stress assessment of the potential future losses at Anglo Irish Bank.
However, Prof Honohan said that the Government needed to re-examine its multi-year budget soon, if it is to meet its plan to reduce the country's deficit to 3% by 2014.
Mr Honohan said that the real economy, the level of prices and interest rates on Government borrowing, and cost of servicing the debt associated with bank restructuring would all have negative impacts on the economy.
He said that unless international lenders were convinced that the long-term plan for the budget was going to be adhered to, the cost of borrowing would continue to go up.
Prof Honohan said that 'some explicit reprogramming' of the budgetary profile for the coming years was 'clearly necessary soon'.
In his address, Prof Honohan also said that the Central Bank had carried out its own stress tests on Bank of Ireland and AIB and had determined new capital requirements for both.
Bank of Ireland has already met these and AIB will do so by the end of the year, which prompted Prof Honohan to describe both banks as 'sorted'.
Politics not bond market factor says Lenihan
Elsewhere, Minister for Finance Brian Lenihan said money lent to Ireland on international markets was borrowed over a number of years and that lenders took a long view.
He said they were 'not influenced by minor political disputes'.
The Minister, who joined the Taoiseach for a joint press briefing, said important decisions needed to be taken and these 'would be taken' in the coming weeks and months.
Taoiseach Brian Cowen underlined the important decisions ahead for the Government.
Mr Cowen said these were ensuring Budget 2011 was finalised, the transfers to NAMA completed, Ireland's banks were re-capitalised and initiatives for job creation put in place.
He said Ireland remained 'well along the path to recovery', was 'open for business' and economic recovery had to be 'secured'.
