The State is seeking a significant reduction in the €17 billion of interest it would have to pay on a promissory note issued to bail out the banks, Minister for Finance Michael Noonan has said.

Speaking in Paris after meeting his French counterpart Francois Baroin, Mr Noonan said his officials were negotiating with the troika to replace the promissory note with another instrument, extend the maturity date and "keep the interest rate quite low".

"We are negotiating with the ECB to make a different arrangement for repayment of the loan over a longer duration and at lower interest rates. We might pay more over 30 years but...it would change our debt profile," he said.

Mr Noonan insisted it was not a Greek-style debt restructuring because the State would repay the entire amount with no write-offs.

"We would like if it (negotiations on rescheduling) was finished in calendar 2012. With the kind of arrangements we have in mind, there are advantages to having it at the back end of the year," he said.

Such a development would help Ireland return to capital markets in the second half of 2013, he said, adding that the Government planned to test appetite for its debt again in the summer with medium-term paper.

He also said he expected to cut the Government's 1.3 per cent economic growth forecast for 2012 when the figures are reviewed next month.

Mr Noonan said he still believed the target of reducing the State's budget deficit to 8.6 per cent of gross domestic product would be achieved.

He noted that an average of forecasts put the estimated growth figure at 0.7 per cent.

"We will be revising downward as well, it's quite obvious now, when the next revision comes up. But the budgetary target will be met," he said.

Regarding the promissory notes, Mr Noonan said the European Central Bank was "not enamoured" by the structure of the €30 billion used to bail out the former Anglo Irish Bank.

"You could take it that the ECB were never particularly happy with the level of collateral provided by the promissory notes and would like stronger collateral," he said.

The ECB will be "crucial" in any decision to restructure the notes to lower the cost of the Anglo bailout, Mr Noonan continued but he warned that any changes requested by the ECB would have to align with Ireland’s interests and position the country so markets could see that Ireland can repay its debts and return to the market at a low price.

The promissory notes are expensive IOUs to which the State has agreed to repay the cost of recapitalising the former Anglo Irish Bank and the former Irish Nationwide Building Society.

Ireland is due to repay €3.1 billion in bank debt on March 31st after the European Commission ruled out delaying the payment in anticipation of a deal to ease the country’s debt.

There was more upset for the Government today when former ECB executive board member Lorenzo Bini Smaghi said European officials must accept that Ireland and Portugal may need further assistance if they want to limit debt restructuring to Greece.

But a spokeswoman for the Department of Finance insisted that Ireland was on track to emerge from its international bailout programme.

In an article published on the Financial Times website today, Mr Bini Smaghi said it should be recognised that Portugal may not be able to return to the markets next year and could need an additional bailout package.

"If it is unable to finance itself until 2016, it will need approximately €100 billion. The same could be done for Ireland, which requires an additional €80 billion," he said.

That would help build a firewall that would ensure Greece was an exception, he said. Failure to do this would risk repeating the mistakes made with Greece, which Mr Bini Smaghi said involved "helplessly" looking on as market conditions worsened until it becomes obvious the country would need a rescue.

Then the risk is of "publicly denying that restructuring is even an option, but privately considering involving private creditors and even discussing the details with some market participants," Mr Bini Smaghi wrote. "Finally, hastily putting in place an additional package and asking the various countries' parliaments for approval, which they might be willing to consider...but only in exchange for debt restructuring."

The Department of Finance said Ireland was on track to return to the markets for funding in 2013. "Ireland is one year into a three-year programme," and "has met all of the targets to date," the spokeswoman said.

Additional reporting: Bloomberg/Reuters