The Government's campaign to reduce its banking debt is running into strong resistance within the European Central Bank.
More than six months after Dublin first raised the matter with the ECB, the Frankfurt-based institution is pushing back heavily against persistent Irish demands for a concession to ease the cost of rescuing the former Anglo Irish Bank.
The ECB's stance is crucial because its support is a prerequisite for any deal to restructure the debt.
Within the ECB, the view remains that alternative avenues are open to the Government to improve its finances, among them reductions in public sector pay and welfare entitlements.
The argument is made that average public pay and welfare levels in Ireland are higher than the average in some of the other euro zone countries that are supporting Ireland's bailout, among them Spain, Slovenia and Slovakia.
The State is recapitalising Anglo and the former Irish Nationwide Building Society to the tune of €35 billion under the EU-IMF bailout.
The two failed institutions are now together known as Irish Bank Resolution Corporation (IBRC). When interest costs under the current rescue plan are taken into account, the final bill will be roughly €47 billion.
This money falls to be repaid under an expensive scheme to capitalise IBRC with a form of IOU known as promissory notes. Talks to reduce the burden are ongoing, but no breakthrough is imminent.
Irish officials have examined whether a €3.1 billion cash payment due on March 31st could be delayed while the discussions continue. The ECB is arguing against that, however, and is understood to be making the case that the Government would damage its own credibility if it does not pay on time.
Central Bank governor Patrick Honohan was expected to raise the possibility of postponement at a top-level ECB meeting yesterday, but ECB chief Mario Draghi said the Anglo debt question did not feature.
"We didn't discuss it yet. It's under [examination]. . . in Ireland has been really very, very serious," he said.
He said he did not want to think about the prospect of the referendum being rejected. "My confidence is grounded on, I think, a good economic and political analysis of the situation, and I just don't want to think the opposite," he said. "Ireland is probably one of the programme countries that made most progress under conditions that were certainly very harsh – and in spite of that it really delivered."
The ECB is understood to be arguing that the reduction seen in Ireland's notional borrowing costs in recent months is due in large part to the fact that the Government is implementing its EU-IMF programme.
Given that there is money available in the bailout plan to pay the €3.1 billion due on March 31st, the case is being made that any delay would seriously erode the Government's standing with markets at a time when Ireland's return to markets is still not assured.
Moreover, the view in Frankfurt is that any deal to restructure Ireland's bank debt would clash with the ECB's objective of reducing its overall exposure to the Irish financial system.
Irish banks are the beneficiaries of more than €100 billion in emergency central bank loans, a sum roughly equivalent to one year's national economic output. Such support is held to be out of all proportion to the relative scale of the Irish economy.
The ECB is also understood to be arguing that the benefit of the low interest rate on these loans – 1 per cent mostly, with some loans at 1.75 per cent – is not fully taken into account in Irish debate on the Anglo debt.
