'CAN one bank bring down a country?' The answer to the stark question posed by the New York Times last week following Anglo Irish Bank's latest results/horror show is almost certainly 'no', but the very fact that it is being asked at all shows the size of the mess the bank is creating for Ireland.

Central Bank governor Patrick Honohan has stressed that the bailout of Anglo is "costly but manageable", but the uncertainty about the final cost to the state is spooking the financial markets. The result has been a large hike in what the state has to pay to borrow money on the bond markets.

So what can the government do to address the situation? How do you solve a problem like Anglo?

The bad news is that there is no painless outcome for the taxpayer. As European Central Bank president Jean-Claude Trichet pointed out last week, the Irish state alone is responsible for dealing with the cost of the bank. And whatever happens, the cost is going to be enormous ? amounting to over two-and-a-half years of income tax revenue.

Simply closing down the bank down overnight is, by common consent, not an option. There are several reasons for this, not least of which is that it would involve a fire sale of assets, which would greatly increase the cost for the taxpayer.

That leaves two options: the division of Anglo Irish into a good bank and a bad bank, with the good bank not just holding the good operations from the current set-up, but also developing its business and making new loans to businesses and property developers. The management of Anglo favours this.

The second option is the wind-down of the bank over a long number of years ? possibly 10 or more ? with no new business being conducted and existing operations being slowly phased out as loans reach maturity.

Nothing will be finally decided until the government reaches agreement in the next week or two with the European Commission on how to proceed, but everything currently points to the second option.

The idea of a 'good' operating bank emerging from the ashes of Anglo appeals to those who argue the need for an enterprise bank to help business and ensure a competitive market. But it also raises a lot of questions. Can the new bank be profitable? Will it be able to raise fresh capital? Can it ever overcome the taint of association with Anglo? Given its history, will the bank be any good at lending to business?

There is also the not insignificant input of the European Commission. It will be acutely conscious about setting precedents in whatever it approves with Anglo. Will it be happy to send out the message that, if you fail spectacularly as a bank, you can still have a future?

So that leaves, in all probability, the option of slowly winding down Anglo Irish Bank. But that will also result in some tricky decision-making for the government.

Fine Gael has proposed that, once the state guarantee on subordinated and unsecured senior debt expires at the end of this month, Anglo should try to get bond-holders to agree to a writedown of what they are owed, lessening the exposure of the taxpayer.

If the bondholders don't play ball, the party wants "radical surgery" for the bank, with deposits and performing assets being transferred, under the control of the Financial Regulator, to another institution, leaving the rest of the non-performing loans and liabilities locked in an asset recovery vehicle controlled by the bond-holders. In both scenarios, the entity would be wound down over five to seven years.

"It would mean the taxpayer won't be on the hook for the whole amount. Bond-holders will have to share in the losses," a spokesman for Fine Gael explained.

It's a proposal that is likely to win public favour, as taxpayers have been the only ones footing the bill for Anglo so far. But there are some potential downsides.

The subordinated bond-holders' problem is pretty straightforward. Their guarantee won't be renewed after the end of this month and they will have to negotiate their debt with the bank.

Those senior bond-holders whose debt will mature before the end of September are untouchable as they are covered by the guarantee. But there are several billion euro of senior bonds that won't mature before the end of this month and, with them, the Fine Gael option could come into play.

The concern is that no bank in Europe has ever done this before and there is uncertainty as to what the European Commission, ever conscious of the danger of contagion, will make of it.

There is also the point that some of these bond-holders will be the same people to whom the state will want to sell government debt. Can we afford to bite the hand that will feed our massive budget deficit in the coming years? Then again, given the soaring cost of Anglo, can we afford not to?

There have been conflicting reports in recent weeks as to what the likely final cost of Anglo will be to the state. Patrick Honohan, the government and the bank itself put the cost in the region of €25bn. Standard & Poor's, however, said the bill could reach €35bn.

Although there is scepticism in government circles as to how S&P reached that figure, the worry is that the financial markets are clearly concerned that the final bill could be considerably higher than €25bn. In order to reduce the cost for the government to borrow, the markets need reassurance.

Putting a definitive final cost on Anglo is virtually impossible, particularly as Nama has yet to complete its work. But the government is clearly hoping that its restructuring plan for Anglo ? coming with the stamp of approval of the European Commission ? will give a credible picture of what is likely to happen to the bank and what the cost will be to Ireland Inc, and will do so quickly. It's in all our interests that this happens.

What you could do with the €25bn being spent on Anglo

Hire 12,500 extra teachers for 40 years

Build 25 state-of-the-art new hospitals

Create over 2000km of new motorway

Develop an entire metro system for Dublin covering the entire city with billions left over to spend on light rail for Cork, Galway and Limerick.

Create a fibre optic network of broadband coverage for an area the size of Australia.

Build 5,000 brand new schools

Build 20 Aviva Stadiums