There has been a major breakthrough in talks on the Programme for Prosperity and Fairness (PPF). Irish Congress of Trade Unions negotiators will decide this afternoon if they will give assurances the employers have sought on industrial peace in return for negotiations on a pay review. The breakthrough coincides with a warning from the Economic and Social Research Institute (ESRI) that the economy is increasingly exposed and a recession is now an outside possibility.
Employers also want to strengthen the "inability to pay clause" of the PPF so that weaker companies will not be forced out of business by concessions agreed at national level. The amendments to the industrial peace clause of the PPF are aimed primarily at curbing strikes in the public sector.
The Irish Business and Employers' Confederation (IBEC) is calling for a joint union-employer monitoring committee, under an independent chairman, to ensure unions are abiding by the peace clause.
ICTU general secretary Mr Peter Cassells stressed last night the changes sought by IBEC were not significant. They were meant to "underpin existing procedures in the agreement and provide mechanisms to make it work more effectively". He repeated his warning that "unless there is an adequate pay adjustment from the employers to compensate workers for inflation, there won't be an agreement".
He said the ICTU deadline for Budget day, December 6th, still held for concluding talks.
IBEC director general Mr Turlough O'Sullivan said even if the ICTU accepts the basis for talks on pay, he still had to take soundings from members. "I'm an optimist by nature," he said, "but we still have a fair old mountain to climb."
Because of the imminence of the Budget, he thought substantive negotiations on pay might start as early as this evening if IBEC and ICTU approved the changes in the PPF.
SIPTU president Mr Des Geraghty warned that any package that might emerge from talks would still have to be assessed against the Budget.
The ESRI in its latest quarterly economic commentary, published today, warns that average wages will rise by 10.2 per cent next year, with private sector pay rising even faster.
According to the report's author, Mr Danny McCoy, the current partnership agreement is no longer viable. "The rigidities in the current agreement do not suit, will not hold and will not work."
The tight jobs market means tax cuts no longer cause wage stability and they now simply feed into the housing market and to the erosion of competitiveness, he said. "The most obvious solution is to let the free market prevail but we also need flexibility and wages must be able to rise and fall depending on the level of growth."
The ESRI is predicting that inflation will average 5.6 per cent this year before falling back to 4.4 per cent in 2001. Mr McCoy warned that it risked being higher and that domestic polices were having a larger and larger impact as the jobs market tightened.
"There is no soft option. The contribution to inflation from domestic sources is on the rise and we are very exposed over the euro, over which we have no control. Competitiveness can really suffer and in the worst case we could see a very rapid slowdown and possibly recession."
According to Mr McCoy, there is some comfort this time, with large Budget surpluses. But the economy is much more exposed to the effects of the euro rising in value or to higher interest rates. "There might be a little more slack but we could erode it very quickly."
Nevertheless, the ESRI's best estimate is that growth will be some 9.9 per cent this year, before slowing somewhat to 7.3 per cent in 2001. Gross National Product, which excludes repatriated profits from multinationals, will be 8.6 per cent this year, falling to 6.6 per cent in 2001.
ESRI says inflation risks `on upside': Business This Week