German Chancellor Angela Merkel has said that European policy toward Ireland will not change after her conservative party secured an emphatic victory in her country's federal election.

Ms Merkel's Christian Democratic Union bloc scored its best result in 23 years to put her on course for a third term.

The party won 41.5% of the vote and finished only five seats short of an absolute majority in the lower house of parliament.

However, she will need to reach out to centre-left rivals to form a new government after her coalition partner crashed out of parliament.

Asked about Ireland, Ms Merkel said: "Our course of European policy will not change. Ireland has made good progress, this progress was not made in Germany it was made in Ireland on the basis of the Irish understanding that things had gone wrong in the past few years''.

"I'm grateful to my colleague Enda Kenny for implementing the reforms so passionately. Ireland is one of those examples where it can be shown that things are improving,'' she said.

"Ireland has remarkably lower yields [on its bonds]. I want to express my sincere respect for what Ireland has achieved over the past couple of years. Those developments are good and important for Ireland,'' Mrs Merkel added.

The Minister of State at the Department of Finance, Brian Hayes, has described Ms Merkel’s remarks as "very warm".

Speaking on RTÉ’s News At One, Mr Hayes said that retrospective recapitalisation of Irish banks had not been taken off the table, but it was a medium-term project.

He said the more Ireland did to tackle its problems and continue to grow the economy, the easier it would be to win support at key moments.

Mr Hayes said there was an appreciation in Germany of the sacrifices made by the people of Ireland to become the first of four euro zone countries to emerge from a bailout programme.

Merkel's re-election demonstrates continuity in policy - Rehn

The European Union's chief economic policymaker today said German Chancellor Angela Merkel's strong showing in her re-election on Sunday demonstrates continuity of German policy toward Europe.

“It is now essential that we maintain the momentum on building a banking union and in the member states that we not allow any room for complacency but stay the reform course” with regard to labour markets and pension systems, Ollie Rehn, the European Commissioner for Economic and Monetary Affairs and the euro said in New York.

Meanwhile European stocks are lower today as investors digested the German election result.

Shares in Frankfurt, Paris and London were down 0.5% this afternoon, while the market in Dublin had slipped 0.2%.

Most European indexes hit multi-year highs last week after the Fed surprised investors by sticking fully with its current stimulus programme, but with more Fed members expected to speak today traders said performance could be choppy.