The New York University economics professor who predicted the financial crisis has said the Government's rescue package aimed at saving its banks risks deepening the country's debt crisis.

"Taking all of the losses of the banking system and putting them on the balance sheet of the Government doesn't make sense," Nouriel Roubini said today. "Eventually, the back of the Government will be broken."

The Central Bank instructed four lenders yesterday to raise €24 billion and announced plans to merge two of them, taking the bill to clean up Europe's worst banking crisis to as much as €100 billion. That equates to about two-thirds the size of the Irish economy.

Mr Roubini said that a better solution would be to take the senior secured and unsecured debt of the banks "reduce it, convert it into equity so you recapitalise the banks that way and you're not adding further losses to the balance sheet of the Government. Otherwise, you're going to have not only a banking crisis, but also a sovereign debt crisis."

"At some point, we need to recognise that these are not liquidity problems of government or banks, but solvency issues, and where there are solvency issues, all the market-orientated but coercive restructurings of public and private financial debt is necessary to avoid this insolvency," he said.

Bloomberg