The European Commission is warning Ireland to act ruthlessly with a "rigorous" approach to tightening its public finances.
In its latest economic outlook the commission also said there are growing fears of a fresh crisis in the Irish banking sector.
The EU Economic Affairs Commissioner Olli Rehn said: "Ireland is making a convincing attempt at addressing the crisis."
But he said the fallout from the efforts will be "costly".
Mr Rehn said the Irish Government must continue to work towards reducing its budget deficit.