Unless there is a deal on Ireland's bank debt, the country could struggle to exit the bailout, the deputy head of the Central Bank has warned an audience of German policy makers and finance experts.
Foreign lenders helped fuel the Irish bubble, Stefan Gerlach (right) said. The blunt warning was contained in a speech delivered in Berlin last night.
It's the clearest sign yet that Irish officials are upping the ante as they press for relief from Europe on the €64bn cost of rescuing the banks.
Ireland has made a "good start" re-entering the debt market but "conditions remain fragile", Mr Gerlach told his audience.
"Even a small adverse shock could complicate the exit from the (bailout) programme," he said.
"Actions that would help reduce the sovereign-bank link and would improve debt sustainability could greatly enhance Irish prospects" of exiting its bailout programme this year, Mr Gerlach said.
"A successful exit . . . would be positive,not just for Ireland but also for Europe more broadly," he said.
A deal to re-engineer the Anglo Irish Bank promissory notes would "greatly enhance" the country's ability to regain full access to the markets, Mr Gerlach said.
Swedish economist Stefan Gerlach took over as a deputy governor of the Central Bank in 2011, following an international career in banking and academia.
In his speech he drew attention to the role played by foreign banks that lent to Ireland in the boom.
"The property bubble was aggravated by the apparent willingness of foreign financial institutions to fund reckless lending in Ireland," he said.
He issued the latest stark warning as the invited speaker for this year's Berlin Lecture in Finance organised by Deutsche Bank and Humbolt University.
The "Berlin lecture" series is a platform for politicians, regulators, industry representatives and academics to discuss developments in financial policy.