ECB executive board member Joerg Asmussen has said the ECB is ready to work with the Government on any proposals to reorganise and strengthen the Irish banking system.
This includes the replacement of the promissory notes for Anglo Irish bank with funding from the EFSF bailout fund.
Speaking at the Institute of International and European Affairs in Dublin, Mr Asmussen said any such changes must improve the chances of both the State and the banks returning to market-based funding.
The changes must also allow the banks to reduce their reliance on the euro system for liquidity.
He said a necessary step for Ireland to emerge from the crisis will be to ensure the long term viability of the banking system as a pillar of the Irish economy.
"Doing so will further enhance confidence in the system and limit the burden the banking system places on the taxpayer,'' he said,.
Mr Asmussen said "I understand the strong desire of the authorities to minimise the costs associated with the banking sector rescue, including costs incurred to date, and those still to come".
However he said the costs of the bank bail-out - including the promissory note - were fully factored into the EU/IMF financial programme for Ireland.
"The annual repayment of promissory notes is thus financed by programme resources. That programme is on track.
"Any deviation from that programme should be considered very carefully indeed.
"The perceptions that have built up around Ireland's successes in the programme should not be jeopardised," he warned.
Irish political & economic institutions failed to do their job
Mr Asmussen flatly rejected the idea that Irish taxpayers should not have to bear the cost of the bank bailout, saying Irish domestic political and economic institutions failed to do their job properly.
"I frequently hear in the Irish debate the sense that the debt resulting from the bank rescue is not Ireland's debt. I can understand this sentiment and how many people feel about this situation.
"But what must be understood is that in the runup to the crisis, insufficient domestic policies - notably on banking supervision - played a major role in excessive credit growth and risk management failures in the Irish banking sector, the bubble in the housing sector and the loss of competitiveness."
He said the ECB does not have any role in supervising national economies - despite claims to the contrary - though he said the ECB had pointed out years before the crisis that imbalances were building up in a number of euro area countries.
He added "from a market perspective, those debts associated with the banking crisis are not differentiated from other sovereign debt.
"With the guarantee of 2008, large parts of the debts of Irish banks became debt of the state, and any desire to offload this debt could have dire consequences."
Ireland's programme is on track
He also argued against the state being relieved of the bank debt.
He said that "to suggest that debt relief should be considered risks undermining the programme by inferring that it is needed, when as I mentioned the programme is on track and Ireland has a very good chance to return to the markets before the end of the programme, secure debt sustainability and along with it a bright future."
He also defended the repayment of bondholders in the former Anglo Irish Bank, though recognising that it has been a source of controversy in Ireland.
"Decisions taken by the Irish authorities such as these are not taken lightly. And the consequences of subsequent actions are weighted carefully.
"It is true that the ECB viewed it as the least damaging course to fully honour the outstanding senior debts of Anglo,'' he said.
''However unpopular that may now seem, this assessment was made at a time of extraordinary stresses in financial markets and great uncertainty.
"Protecting the hard won gains and credibility from the early successes in 2011 was also a key consideration, to ensure no negative effects spilled over to the other Irish banks," he added.
He said determined action and willingness to take tough - even unpopular decisions - had put Ireland's financial system on a steadier footing.
Although the banking crisis has added to the Irish debt burden, Mr Asmussen said Irish people must not lose sight of the continuing high budget deficits being run in Ireland.
"Put simply, a country cannot for long periods spend substantially more than it receives in revenues. Too often I think the debate misses this simple but obvious point."
Role of ECB is sometimes misrepresented
He also strongly defended the role of the ECB in Ireland over the period of the crisis, saying that the role of the Eurosystem (national central banks and the ECB) was often misunderstood, and has sometimes been misrepresented.
He said that no country - relative to the size of the economy - has received more support from the ECB than Ireland, and at interest rates less than one third of those charged by the EU and the IMF for programme funding.
He added that even before the EU-IMF programme, total support from the Eurosystem for Ireland amounted to 100% of GDP. "Our total loan provision now stands above €125 billion."
He expressed support for the Government's economic policy saying "deep recession, high levels of public spending, a relatively narrow tax base and the burden of supporting the financial sector have all put stress on the fiscal position of the state."
As a result the deficit has surged and "the Government has therefore rightly embarked on a path of progressively cutting expenditures while taxes have had to be increased".
He said the adjustment has been very demanding for Irish households, who have seen incomes and disposable incomes decline, while house prices have continued to fall.
"It is thus important that the relatively rich and wealthy carry a fair share of the adjustment burden. Worst of all is the fact that a large portion of the population is currently out of work. This makes job creating structural reforms key to the programme", he said.
He described Ireland's well educated and flexible workforce as the country's key asset, and said this was reflected in the fact that the country continued to attract inward investment during the crisis.