The European Central Bank rejected a Government plan that aimed to fund the Anglo Irish Bank promissory note for at least 15 years, according to sources close to the talks.
Bloomberg is reporting that the idea was put forward by Irish Central Bank Governor Patrick Honohan, but retracted after it was met with opposition.
The Irish proposal would see a long-term bond issued to replace around €30bn worth of the promissory notes, with the Central Bank guaranteeing to hold that bond for at least 15 years.
However policy makers in the ECB are believed to prefer a situation where the Government takes another loan from the ESM, or raises the money on the financial markets.
The Central Bank currently holds the promissory notes in exchange for funding Anglo Irish Bank through emergency lending and the State pays €3.1bn annually to the bank, which is in turn used to pay down that loan.
Reuters reported over the weekend that the ECB had rejected Ireland’s plan to replace the promissory note with long-term bonds because it amounted to monetary financing, which the institution is prohibited from engaging in.