Former EU commissioner Peter Sutherland has called on the European Union to review the terms of Ireland's bailout package because they could exacerbate the country's economic troubles.

"Loans required by states following breaches of the agreed limits on budget deficits must attract some penalty... but should not amount to an unduly punitive sanction like it does now," Mr Sutherland wrote in a guest column for the Financial Times today.

The EU and the International Monetary Fund agreed the €85 billion package last year.

Ireland is paying roughly 5.8 per cent interest on over €40 billion in loans from Europe, above the EU funding cost of 2.9 per cent.

"This differential is exorbitant. It is also probably unsustainable having regard to likely growth rates," wrote the chairman of Goldman Sachs International. "Far from helping to solve the problem it is therefore likely to exacerbate it."

Meanwhile, at the European Parliament in Strasbourg yesterday, EU economics commissioner Olli Rehn reiterated to Irish MEPs that the EU executive supports a reduction of the interest rates Ireland is paying on bailout loans.

However, Mr Rehn stressed in written responses to questions from Fine Gael MEPs Gay Mitchell and Jim Higgins and Fianna Fáil MEP Pat the Cope Gallagher that the decision ultimately rested with EU finance ministers.

Mr Rehn also defended Europe's oversight role in the build-up to Ireland's financial crisis. Both the commission and the council of finance ministers "repeatedly signalled downside fiscal and macroeconomic risk related to the property boom in Ireland", he said.