A European Commission spokesman has said that the passing of the 7 December Budget is ‘necessary’ for the Irish rescue package to go ahead.

The spokesman for Olli Rehn, the EU Economic Affairs Commissioner said the Commission took note of the Taoiseach's statement.

Amadeu Altafaj told RTÉ: ‘When it comes to calling elections that is an issue for the Taoiseach and for domestic political debate, and we won't intrude on that debate.

'However, we welcome the firm commitment of the Taoiseach and the Government to complete all the necessary legislative agreements, including the primary focus of the four year plan, which is the December budget.’

He added: ‘While we will not interfere in the political affairs of a member state, it is important that the parliament supports these efforts.’

When asked if the Irish rescue package from the EU and the IMF was conditional on the 7 December Budget being passed, Mr Altafaj said: ‘It is necessary and appropriate.’

The terms of Ireland's financial rescue plan are to be negotiated over the coming days.

The Government has agreed to make a formal request for a multi-billion-euro loan package to the European Union and the International Monetary Fund.

The decision followed an emergency Cabinet meeting yesterday evening.

Eurozone finance ministers also held a teleconference to discuss the terms of the Irish request.

In Brussels, sources indicated the likely Irish request would be in the region of €80bn to €90bn over a three-year period.

The Government's four-year budget strategy is due to be published on Wednesday.

The €15bn adjustment will consist of €10bn of spending cuts and €5bn increases.

Taoiseach Brian Cowen said the Government made a request for funding to ensure the stability of the national finances, the Irish banking sector and the European single currency.

But Mr Cowen gave little detail on the terms of the arrangement, which will be subject to more detailed discussions in the next few weeks.

The Minster for Finance said the EU and IMF teams in Dublin will continue their work, focussing particularly on the state of the banks. This will form the basis for the final request.

Minister for Finance Brian Lenihan said most of the money allocated to the banks would not be drawn down, but would form an emergency reserve designed to bring confidence to the markets.

Speaking earlier on RTÉ's Morning Ireland, Mr Lenihan said that the outline of the four-year plan has 'broadly satisfied' officials from the IMF and the EU.

Mr Lenihan also said the Croke Park deal may come under review in a year's time.

Restructuring of banks

The Irish Bank Officials' Association has warned that thousands of jobs could go if the banking system is restructured under the terms of the IMF/EU deal.

IBOA general secretary Larry Broderick has called on the Government and the IMF to save as many jobs as possible.

Mr Cowen said last night that the rescue package would result in smaller banks.

Anglo Irish Bank chairman Alan Dukes has told a conference on ethics in corporate governance that its time we had an open discussion on the structure of the banking system we are going to aim for.

He said there is a danger in the notion that not all the EU/IMF package will be drawn down as there is a strong case for taking massive and decisive action quickly to produce at least two viable banks for the Irish system.

He said the sooner this is done the sooner we can return to some sort of normality in relation to the markets.

Central Bank Governor Patrick Honohan said that the Government's announcement to apply for support set economic and financial policy on a secure path.

He added that the banking system retained the support of not only the Central Bank but of European institutions too.

Governments in the Eurogroup formally welcomed the Irish request, as did the European Central Bank, which said financial assistance would come with strict policy conditionality attached.

IMF Managing Director Dominique Strauss-Kahn said that it stood ready to help Ireland.

Short-term relief to markets

Meanwhile, analysts say the Irish bailout may give short-term relief to markets, but may not prevent markets from pushing Portugal to get EU assistance too, unless a more general solution is found soon.

'In the short term this should be positive for risk appetite,' said Peter Chatwell, rate strategist at Credit Agricole CIB in London.

'It should be something Bunds see as a negative. I don't think this does anything to take Portugal and possibly Spain out of the firing line,' he said.

German Finance Minister Wolfgang Schaeuble told ZDF television yesterday his hopes were exactly the opposite.

'If we now find the right answer to the Irish problem, then the chances are great that there will be no contagion effects,' he said.

'Will it prevent contagion? In the short-term, but not in the medium term. It only calms down markets and gives the other countries some room to breathe. Particularly, Portugal is not off the hook yet,' said Carsten Brzeski, economist at ING.

If markets turn on Portugal, Spain may be next after that.

'If Portugal is forced to take a bailout then they'll turn their attention to Spain and I don't know what the government will do,' said Edro Schwartz, economist at San Pablo University in Madrid.

The underlying problem for market mistrust of debt of some eurozone countries may only be solved with a quick and detailed solution for all eurozone countries, rather than a piecemeal approach, economists said.

The IMF has today published a document on how to encourage economic growth in the Eurozone.

One of the contributors to the paper is Ajai Chopra, who is in Dublin as part of the IMF negotiating team.

Among the proposals are suggestions for increasing the employment level. The authors say that unemployment payments should be lowered and also decreased as people spend more time out of work.

This move is designed, according to the paper, to encourage the unemployed to go back to work. The minimum wage should be lowered too in line with falling wage prices generally, the IMF staff position note says.

There is also a general recommendation to encourage women back into the work force after starting a family by introducing a five percentage point tax cut just for women.

The document also backs reform of the planning and licensing systems for network industries like transport and energy in order to get more competition in the sectors.