THE IRISH GOVERNMENT is reportedly seeking to issue its largest ever bond – worth as much as €40 billion, with a 40-year maturity – in an attempt to replace the promissory note system which is currently being used to fund the wind-down of Anglo Irish Bank.

A report from Bloomberg, citing two government sources, says the government could issue a 40-year bond to the current Irish Bank Resolution Corporation, which could then be used to access everyday funding from the European Central Bank.

This would replace the promissory note which is currently used for similar purposes – and would mean that the government would not have to foot an annual bill for €3.06 billion to make its annual repayment.

Bloomberg notes that it would also avoid the thorny issue of whether the permanent Eurozone bailout fund, the European Stability Mechanism, would have to take a direct stake in the bank and avert any European stand-off over the affairs.

The reported arrangement would not make the rescue of Anglo Irish Bank any cheaper, however – and would instead defer the cost of the promissory note until the middle part of the century, giving the government decades to build up the cash to repay it.

Replacing Irish money with European

The current promissory note works in a similar method to the proposed bond, but instead of presenting the bond to the ECB, Anglo instead presents the bond to the Central Bank of Ireland so that it can get everyday funding from there instead.

However, any move to replace the promissory note – a form of temporary IOU – with a full-blown government bond would cement the status of Anglo’s liabilities as government debts which the State could not shed later.

It would also mean that any hopes of sharing the burden for the Anglo rescue among other euro member nations would be effectively killed off.

The interest rate paid to the Central Bank for the promissory notes is relatively penal, and adds around €17 billion to the cost of paying the note until the latter part of the next decade.

This interest will eventually mean a profit for the bank, however, and would returned to the Irish government as all central bank profits are.

Read: EU leaders may discuss improved Irish bailout – but only after bank deal is finalised