The Government must be careful not to antagonise its EU partners on issues such as taxation or it could risk damaging the long-term prospects for growth here.

Addressing the Finance Dublin conference yesterday, Mr Paul McGowan, tax partner at KPMG, warned the Government was "swimming in hostile waters" in a Europe dominated by left-of-centre governments with little tolerance for low tax states and little belief in high spending. He suggested the Republic needed to continue to argue its case, to cultivate friends and not to antagonise the majority unnecessarily.

"Such governments have demonstrated in the case of Austria that they are prepared to act collectively against other member-sates when they disapprove of its political approach. Is it too far-fetched to suggest that in the future such ostracism could be focused on Ireland if it did not follow the majority line on taxation matters?"

IDA Ireland's financial services division manager, Mr Brendan Logue, said the Government urged caution in terms of cost containment to ensure multinationals did not see their cost base in Ireland outpacing that in other regions or risk losing them to other locations. "The Government needs to show the EU and the OECD that inflation is under control," he told the conference.

The financial services industry wanted to see the development of the sector remain a Government priority.

The sector was relatively mature and job creation was no longer a matter of vital concern to the Government, said Mr McGowan. But this did not suggest the industry did not need the continued Government attention, Mr McGowan said.

"The Government needs to remain vigilant to counter threats from our competitors either unilateral or multilateral. It must remain flexible to react to changing demands in the marketplace," he added. "It must be prepared to prioritise new legislation when necessary to deal with these issues," he said.