There is 'considerable shock' among EU finance ministers at the tone of the debate in Ireland regarding the possibility of a bond default in the Irish banking sector, according to Minister for Finance Brian Lenihan.

Speaking at the end of an EU finance ministers meeting in Brussels, Mr Lenihan this was damaging credibility.

They see the debate in Ireland about bond default 'as something that's deeply damaging to confidence in the Irish system - that's the European perspective on this,' Mr Lenihan said.

Later, when asked about the meeting, EU Commissioner for Economic and Monetary Affairs Olli Rehn said: 'I'm not a man of strong adjectives, I don't want to qualify any discussion as 'shock'.

'But it is certain that there is no appetite for considering senior debt bondholders in this context, because we want to avoid any kind of potential contagion effect, so therefore this issue is not on the table.'

A Fine Gael spokesman says Mr Rehn's comments do not change the party's position.

'Our position in regard to senior debt is clear: we believe an agreed EU framework on reducing the cost of the bailout for Ireland can be achieved.

'Fine Gael remains determined to minimise the burden on Irish taxpayers.'

Earlier Mr Lenihan said: 'Olli Rehn has made it clear that the EU arrangements are not open for renegotiation, it's very important we appreciate that in Ireland.

'What the EU are (sic) saying is... that we need to be more competitive, we need to downsize our banks, we need to bring our public expenditure under control.

'They agree with that, we agree with that.'

Mr Lenihan said that the huge dependence by Irish banks on ECB collateral was a key feature of the debate at an EU level.

'€140 billion (has been) committed by European authorities directly or through our Central Bank in to the Irish banking system.

'That's what's been supporting the Irish system after the banking guarantee lapsed last December.'

Mr Lenihan also attacked the decision by Enda Kenny to travel to Berlin for a meeting with Chancellor Angela Merkel.

He described the visit as a 'stunt', 'very unhelpful', and 'rubberneck diplomacy'.

'In effect... he has inflamed the opinions of CDU backbenchers in relation to corporation tax,' Mr Lenihan said.

Banks could sell off loans to pay back central banks

Discussions between Ireland and officials from the EU and IMF are focussing on the possibility of banks selling loans of about €100bn.

The money would be used to help pay back €145bn that the banks have borrowed from the Central Bank and the ECB.

However, experts warn there is a danger that if Ireland sells the loans quickly it would have to compensate investors who buy those portfolios of loans for potential losses. This cost could run to tens of billions of euro.

It is likely that the new Government will be presented with a menu of options in late March.

If the sell-off of assets is agreed in the coming weeks, it would mean one third of the loans in the Irish banking system would be purchased by investors.