The first shots have been fired in the hostilities that will pass for negotiations on a successor to the Partnership for Prosperity and Fairness. It is tempting to dismiss IBEC's threat not to participate in another national wage agreement as part of the well choreographed lover's tiff that preceded all previous partnership agreements.

But this time there are good reasons to believe that Turlough O'Sullivan - the IBEC director general who writes opposite today - is not bluffing. Not least is the mugging he received in December 2000 when he cajoled his members into renegotiating the pay terms terms of the PPF in the expectation that the Government would reward employer's with a PRSI break in the budget.

When the reductions did not come Mr O'Sullivan received a good deal of criticism from his members and, as revealed in The Irish Times earlier this year, warned the Government privately that he had been sold a pup and IBEC's credibility damaged.

The bind that Mr O'Sullivan found himself in reflects the fundamental flaw in the partnership approach. The agreements are intended to bring discipline and certainty to wage increases to allow the Government get on with policy-making and employers get on with managing their business. Almost by definition, they were not meant to be re-opened or renegotiated if one of the parties decided they were unhappy with the way things were working out.

The issue did not really arise in the first agreements which were forged in the 1980s when the economy was on its knees and a sense of national crisis prevailed. The pay-off for the unions was that the stability and competitiveness conferred on the economy by moderate pay rises would bring growth, lower taxes and ultimately more jobs.

This - more or less - is what happened, although the unions and employee representative bodies make a strong case that they have not done as well as they could have. By tying themselves into these moderate agreements they limited the extent to which their members have shared in the growing national cake, according to Mr Danny McCoy of the Economic and Social Research Institute (ESRI).

It is interesting to note that both the ESRI and the International Monetary Fund are starting to question the value of such "one size fits all" agreements. In its annual review of the Irish economy last year, the IMF questioned whether or not national wage agreements in their present form had outlived their usefulness.

The answer is an unequivocal yes, according to Mr McCoy. The lack of any built-in mechanism to allow for adjustments reflecting changing economic circumstances make it inevitable that the terms of the agreements will be broken.

Their only real value is to form a basis around which the subsequent disputes are resolved, he argues.

If this really is the case, there probably is not much point bothering to negotiate a successor to the PPF and the real question that we should be concerning ourselves with is what happens if we do not. Obviously we will see a return to local bargaining, with the not insignificant risk of a free-for-all and rampant wage inflation.

IBEC has already said that it will offer training courses for senior managers and make 40 negotiators available to facilitate such negotiations. A similar response can be expected from the trade union movement which will no doubt start training up its own members and staff.

The most likely scenario is that the large employers will negotiate local deals with their workers and these will form the unofficial benchmark for smaller businesses. There will be a cost to business in terms of management time and it is inevitable that there will also be strikes as businesses and employees flex their muscles.

Would such a scenario be so very different from the current situation as characterised by IBEC? The employers' body would argue that the current agreement is seen by the unions as little more than a floor around which negotiations can take place and that strikes and other industrial dispute are already commonplace.

There would presumably be other unforeseen consequences of abandoning the partnership approach.

One hard to quantify cost of the breakdown would be the impact on inward investment. The successive national wage agreements have gone a long way to convincing multinational firms that organised labour in Ireland is responsible and progressive.

But given that many of the larger multinational employers do not engage in collective bargaining the issue is perhaps not as relevant as some might suggest.

The case for abandoning the partnership process is finely balanced. But given that just about every commentator has singled out wage inflation as a significant threat - if not the most significant threat - to continued economic progress it seems only sensible to try.

The key to making it work, according to Mr McCoy, is to find a way to link the wage increases to the underlying performance of the economy. The ESRI has put a considerable amount of thought into the subject and favours the idea of a top-up payment, possibly paid via some sort of Government scheme.

But the ESRI also acknowledges the obvious difficulties to such an approach, not least the lack of timely economic data on which to base top-up payments. There is a minimum time lag of four months before reliable quarterly GDP is available. Once this data is available, you would then need to go through a process that would determine whether a top-up increase was justified.

Businesses would quickly find themselves having to pay out of current cash flow top-up payments that related to previous years. This would not necessarily be a problem when the economy is growing, but could quickly become a major problem when it is slowing down.

Incorporating real flexibility into a national wage agreement is a tall order and worth trying to achieve, but we should not be too worried or surprised about failure.