GERMANY’S central bank says the deal to cut the cost of bailing out Anglo Irish Bank by scrapping the notorious promissory notes is "problematic."
In its monthly report Germany's Bundesbank said the involvement of the Irish central bank in an agreement that eases cost for the Government is problematic.
The German view is a blow to the Government efforts to calm mounting criticisms of a deal some commentators see as tantamount to "monetary financing" by the European Central Bank (ECB).
It remains to be seen whether Germany will push for the deal to be revisited.
Monetary financing is the term used to describe direct financial support for Governments by the ECB, which banned under European law.
"The procedure proves the increasingly stronger and more problematic inter-linkage between monetary and fiscal policy in the European monetary union," the Bundesbank said.
"The European Stability Mechanism, which should be responsible in this regard, has been established to provide any help to individual member states in servicing debt."
The head of Austria's Central Bank Ewald Nowotny said today that he thinks the Ireland has found a "reasonable solution" to the Anglo Irish Bank issue.
He noted that the ECB did not decide on Ireland's ability to relieve its debt burden by spreading out payments to its central bank over more years, but added: "As an outsider I see this as a reasonable solution that was made here", not least because the ECB had advised against involving investors in Ireland's debt resolution efforts."
In addition, the President of the ECB Mario Draghi will be questioned on his views on the Irish deal later today at the European Parliament in Brussels.
Meanwhile, Social Protection Minister Joan Burton has repeated her claims that money freed from the promissory note deal should be used to soften the next budget.
Despite reports that debt masters in the Troika would oppose such a move, the Labour TD said Ireland should benefit from the gains of the deal.
"The critical thing is that the promissory note deal gives Ireland a small bit of extra leeway in relation to helping people to get back to work," Ms Burton said.
"And I would like to see the budget framed in the context of helping people get back to work and we have that little bit of extra leeway through the promissory note deal."
The debt deal to cut the cost of Ireland's toxic Anglo Irish Bank rescue is expected to save the state one billion euro a year.
Project Red, as it was secretly known in Dublin before it was announced earlier this month, will see €28bn euro worth of costly IOUs from the nationalisation of Anglo swapped for long-term sovereign bonds.
Ms Burton had suggested money freed up from the deal should be used to slash tax hikes and spending cuts planned for Budget 2014.
She said the Troika - made up of the European Commission, European Central Bank (ECB) and International Monetary Fund - was aware of the financial difficulties normal people have been forced to endure in eurozone countries through austerity and unemployment.
"The people in the Troika, all of them, whether it's from the ECB, or the commission, or from the IMF, are very concerned about that," she said.
(Additional reporting Reuters)