TRADE unions will have to agree to flexibility in real wages if Ireland enters monetary union, Mr Noel O'Gorman, second secretary at the Department of Finance, told a conference on Economic and Monetary Union yesterday.
Speaking at a sometimes heated debate on the issues surrounding EMU, Mr O'Gorman told the Irish Capital Markets and Investments conference in Dublin that wage flexibility negotiated between the unions and government was a necessary way forward.
Mr Pat McArdle, chief economist at NCB Stockbrokers, one of those who proposed the wage flexibility model, said up to 8.5 per cent of salaries ought to be linked to the performance of the pound against sterling. This could come by way of a bonus, payable at the end of the year, if sterling does not devalue.
The only way to save jobs in the event of a sterling devaluation post monetary union would be a wage cut, said Mr Jim Power, chief economist at Bank of Ireland treasury.
But Mr O'Gorman said the particular combination of circumstances which hit Ireland at the last sterling devaluation in 1992 were unlikely to happen again.
Then (late 1992) Britain had, only recently joined the mechanism and at too high an exchange rate, the mechanism itself was to rigid and there were pent up competitive problems across the EU, he said.
Nevertheless, the implications of EMU for unemployment were very serious, Mr Power said.
"EMU will impose an economic straitjacket fiscal and monetary policy options will be gone. We will only be able to adjust through real wage flexibility," he said. "Trade unions have to recognise that they have to face the reality of real wage cuts."
The likely direction of interest rates post EMU was also hotly contested. Speaking from the floor, Mr Jim O'Leary, chief economist at Davy Stockbrokers, insisted that German interest rates would move much higher towards the turn of the century.
According to Mr O'Leary, the new EU currency, the euro, would be much weaker than the deutschmark and the new European central bank will not immediately be as effective as the Bundesbank.
Provoking strong disagreement from Mr McArdle, Mr O'Leary said the "problem is that all central banks are creatures of the politicians who created them. Not all European politicians come from the same anti inflationary stance as most Germans," he said.
Dr Tom Hardiman, chairman of IBM International Treasury Services, said the business view was the Germans would succeed in making the euro at least as strong, if not stronger, than the deutschmark.
The Irish Stock Exchange chief executive, Mr Tom Healy, reacting to criticism that too many Irish companies were choosing to list abroad and the market was failing to attract new listings, said far too much" had been read into a number of individual cases. "We are not complacent," he said.
He expected to see Irish companies which have listed on the US Nasdaq exchange coming to the Irish market at "a later stage".
"The simple fact is that Nasdaq is the leading niche market in the Western world for high tech companies," he said.
He admitted companies bypassing the Irish market to list on London would be a "strategic concern" However, he insisted that the bone company (ILP) which has gone down this route does not make a trend.
