Social partnership will be essential to meet the economic and social challenges ahead and to sustain the success that previous national partnership deals had delivered, the Tánaiste said yesterday.

Ms Harney said few other countries had achieved the full employment the Republic had and it would be foolish not to learn from recent success. "Social partnership has been a major factor in underpinning Ireland's economic and social progress since the late 1980s. It has played a vital role in increasing employment from 1.1 million then to almost 1.8 million today.

"It has delivered a sustained and sustainable increase in our standard of living. Above all, it has contributed to our dynamism and our confidence that we can successfully tackle common problems," she said at a Manpower Ireland Group European Leaders' breakfast meeting in Dublin.

While business and trade union leaders are casting doubts on the future of national pay deals, Ms Harney believes the Republic must continue to follow fundamental policies and approaches that have been shown to work. "In short, this means two things: first, a low-tax, pro-enterprise environment and, second, an effective process to resolve differences, that is, a partnership approach."

But she said meeting this challenge would require a more flexible and decentralised form of agreement. "Employers will have to make a greater commitment to partnership at the level of the individual firm, particularly in areas such as training, child care, gain-sharing and a flexible working environment.

"Trade unions will have to work more closely with employers in both the private and public sectors on a change agenda which delivers higher productivity and an enhanced quality of service," she said.