The trade union movement appears to have been taken aback at the Taoiseach's remarks on pay at the conference. In Killarney, Mr Ahern said he favoured a new national agreement to replace Partnership 2000 but warned against people making "ridiculous demands".

The Taoiseach clearly indicated that the Government would only consider concluding an agreement on appropriate terms.

"It must not just be an agreement for agreement's sake, it must be what is right for the economy. It is only on that basis that I will negotiate."

Public sector pay reform must also be central to any new deal. The system where increases in one area of the public service meant automatic rises for others was "nonsensical".

A new system incorporating the need for productivity increases was essential.

While warning about excessive demands for wage increases, Mr Ahern also told business leaders they must be prepared to work with their employees to find new ways of sharing corporate gains. Tax legislation now favoured save-as-you-earn and employee share option schemes and far-sighted employers recognised the value of such approaches.

This inclusive approach was the way forward, "replacing the traditional adversarial model of yesteryear".

He cited the training module being developed by IBEC, ICTU and the National Centre for Partnership, to be introduced shortly and to encourage new industrial relations practices in this area.

However, there was a feeling in the trade union movement that he might be doing no more than sounding an early warning, particularly to the public service unions, not to indulge in over-optimistic speculation on the size of pay increases under a successor to Partnership 2000.

In a formal response on behalf of the trade unions, the general secretary of the Irish Congress of Trade Unions, Mr Peter Cassells, expressed surprise "at the untypically extreme language used by the Taoiseach" in Killarney. He said Mr Ahern had failed to acknowledge the moderation brought about by social partnership in the Republic.

"Working people have made an enormous contribution to our economic success and to company profits through increasing productivity, improving their skills and embracing change," Mr Cassells said.

"They are entitled to their fair share of the fruits of that success."

He welcomed the Taoiseach's continued commitment to social partnership.

But he warned that current arrangements "need to be reinvigorated and need to address the growing concerns of people regarding the cost of housing, lack of child-care facilities and the absence of profit-sharing schemes in many employments".