The Fine Gael concept as I see it leaves all the toxic loans with the existing banks, establishes a state bank and challenges the banks to magically resolve themselves of their toxic bad-debt burdens by this time next year. Otherwise, they get split apart.

The significant risk here is this extends the pain. The toxic debt problem will likely be no better in a year's time, and meanwhile the banks will continue to struggle. The risk is the state bank becomes the 'good bank' and the existing banks become the collective 'bad bank', and we get nationalisation through the back door.

Even on the more optimistic notion of a eventual (inevitable) split of existing banks into good and bad banks, there would be significant confusion as to how that would translate to bank debt-holders.

Of course, all the senior debt could be allocated to the good bank parts, and the subordinated and quasi equity paper to the bad banks. But there is a potential legal nightmare here, not to mention good banks with their capital base effectively wiped out. It's very messy.

On top of that, international investors are just about getting their heads around the Nama concept. Trying to now sell them an 'inverse-Nama' could see them lose faith in there being a believable end game at all.

While cosying up to investors may appear unpalatable, in the long run it is very important. Ireland PLC is a perpetual that requires the faith of the international investing community. Investors take risks and don't have to be done any favours, but they must also be treated fairly, or else they may not be back.

At this point, the smart thing to do is stick with the Nama concept as is. If it fails, there is always nationalisation as a worst-case last resort.

Attempting to create a solution on the cheap is wishful thinking. Ultimately, the taxpayer will have a bill to pay, and even with this proposed more complex solution, there is still a bill to be paid in the end. The good news is things are improving generally. Ireland's bond spreads have improved dramatically. This Fine Gael proposal may have deserved more attention at the height of the crisis, but right now is not the right time to be tinkering with yet another 'solution'.

It also smacks of trying to find an exit on the cheap. That's just not going to happen, unfortunately.

With regard to an Irish government trying to re-negotiate the terms of existing debt agreements, emerging market sovereigns, for example, have imposed terms on investors in a take-it-or-leave-it style approach in the past. This is not smart though, and that's why those countries trade where they trade. Investors then need a bigger spread next time they invest to compensate for the 'default' risk.

Anything that deviates from the original terms of bond would be deemed a technical default. This especially applies to senior debt. It gets a bit more shady the closer you get to proxy-equity, and for example skipping coupons (interest payments) on perpetual capital would not constitute default.

CDS [credit default swap] contracts may have different clauses, and may deem a coupon missed on debt capital as a credit event, but this is not necessarily a default. Restructuring of senior debt would be an effective default. Even one missed coupon on a senior bond would be a default in the eyes of the credit rating agencies.

The senior layer should only be comprised when all equity or near equity capital is wiped out. But then the bank should go down. Adding equity protects senior debt-holders, and in any case this stuff is supposed to be guaranteed by the government.

Padhraic Garvey is head of investment grade-debt strategy at ING Bank