The amount that the Irish government is going to pay the Irish banks for €80 billion in impaired property loans is to be revealed to the Dail this Wednesday by Minister for Finance Brian Lenihan. The government is taking on the loans to save the Irish banks, which are virtually bust because of their reckless lending on property during the boom.  

Just how bad the situation is can be gauged from the collapse of one of Ireland's biggest developers, the Zoe Group, which failed again in the courts last week to stop its liquidation. It still has one final appeal to go through, although the chances of that succeeding are almost nil.  

It owes the banks around €1.3 billion. The courts were told recently that the properties underlying these loans are now worth somewhere in the €250 to €350 million range.

Using that as a yardstick, the amount the Irish government should be paying for the €80 billion in property loans on the bank loan books is around €20 billion. But if it does that, the banks will require such heavy recapitalization by the government that it will amount to nationalization.  

The government wants to avoid that, so it's going to pay for the loans at a price which will reflect what it calls the "long term economic value" of the underlying property assets. There is widespread disagreement among the experts on how that can be measured. 

No one is sure how many years (or even decades) it will take the Irish property market to recover from the crash and how far that recovery will go. Can Irish property ever get back to the sky high values the loans were based on during the property bubble here? 

Probably not, or at least not for a very, very long time.  So the "long term economic value" of the €80 billion in loans is a concept full of uncertainty. 

Despite the uncertainty, however, the government this Wednesday is going to announce the average discount it intends applying to the loans it is buying from the banks.

That discount -- or haircut as it is known in the property business -- is likely to be somewhere between 25 percent. So the government will be paying somewhere between €40 and €60 billion for the loans with a face value of €80 billion now sitting on the banks' books. 

Where exactly the figure will fall is extremely sensitive politically. Too high a figure will result in public outrage because the public blames the banks and the developers for the mess we are now in, and resents any attempt to save them and their executives.  Too low a figure will mean the banks will be totally insolvent and will have to be nationalized.  

It's even more complicated than that for the government because if the public is angered by a high payment (80 percent or more), people may well decide to take their revenge by voting No in the Lisbon Treaty referendum here in a few weeks.  Which would land us in an even bigger mess.

So choosing the right figure will be almost as difficult for Lenihan and his experts as picking the winning lottery numbers.  In fact, winning the lottery might be easier. No matter what number Lenihan’s experts pick there is likely to be severe criticism. 

Yet it is clear that action has to be taken and fast, because the Irish banks have stopped lending and that is strangling our economy.  The only reason the Irish banks are still open for business is because all the property loans are still on their books at their original book value, even though the property market has crashed in the meantime. 

That situation cannot continue, which is why we need the NAMA, the National Asset Management Agency, the new state body set up to take the bad loans off the books of the banks.  

NAMA, with the help of money from the European Central Bank, will buy and manage the property loans, holding on to the property assets for years to give the market time to recover before disposing of them.  

And it will be years. In rejecting the appeal last week by the Zoe Group, the judge in the case was scornful of the company's projections of how it could trade out of its present difficulties within a few years.  The property market is dead, the judge implied, and it could be a long time before it comes back to life.  

The brighter sparks in this column’s reading class will have noticed that in recent columns we have been talking about NAMA taking on €90 billion in bank loans, not €80 billion.  The change has come about because the government has now decided to set a minimum threshold of €5 million euro on the loans to be taken over by NAMA. 

Property loans below this amount will not be transferred.  The reason is that these smaller property portfolios are too much trouble for NAMA and are better off being micro managed by the banks that know all about the small developers and builders involved. 

NAMA is confining itself to the loans with a book value over €5 million taken out by around €1,500 developers (and of these it is the top 30 developers who are the big problem accounting for most of the mess). 

The haircut figure to be announced on Wednesday will be an average figure for the discount being applied by NAMA.  The developers who are in trouble typically have portfolios of property loans that include the good, the bad and the downright ugly.  

Some of the good loans are performing well enough to pay their interest bills.  Some of the ugly loans were used to buy farmland at vastly inflated prices for development, and the land in question is now worth around one-tenth of the price paid. 

Under the legislation NAMA is taking over all of each developer's portfolio, including the good, the bad and the ugly.  But even though that will be a mixed bag, the property crash here has been so severe that almost all developers are in deep trouble.  

Lenihan has made it clear that every loan will be evaluated individually, so the discount to be applied is likely to vary significantly from one portfolio to another.  The figure he is announcing on Wednesday will be the average that the NAMA experts believe will emerge from the process across all the banks.  And the prediction from some experts at the weekend was that the haircut would be 30 percent.

The loans to be taken over by NAMA include around €33 billion from Allied Irish Banks, €20 billion from Bank of Ireland and a colossal €27 billion from Anglo Irish Bank, a much smaller operation which went out of control during the boom and has now been nationalized.  

Lenihan last week published the draft NAMA legislation which contained a number of new sections, including the use of subordinated bonds to spread some of the risk between the taxpayer and the banks.  

In general NAMA will buy the loans from the banks, paying them with government bonds. The banks will then exchange these bonds with the European Central Bank for cash that will boost their balance sheets and allow them to lend money to Irish business again. 

Around 10 percent of the total funds going to the banks will be subordinated bonds which will only be paid if NAMA eventually breaks even. 

Although there is still a lot of skepticism here about NAMA, there has been a definite shift in the public mood in the last week or two.  Both of the main opposition parties, Fine Gael and Labor, have failed to come up with convincing alternatives. 

If the discount imposed on the banks is severe and there are sufficient safeguards for the taxpayer, people may accept NAMA, however reluctantly.  

We also have the Commission on Taxation proposals to increase revenue and the Bord Snip proposals for cutting state spending.  Add NAMA in and the three together make it look like the government is at last getting a handle on the crisis in the state finances and the economy.  

It's going to be extremely difficult to swallow the medicine, but knowing that there is an overall plan taking shape and being implemented will help.  

With a yes vote in the Lisbon referendum next month, it is possible that a sense of confidence may return here and that will boost economic recovery as much as anything else.  But there's a long and hard road ahead.  

And we're talking about survival, not a return to any kind of boom.