His comments came in a week when official figures showed there is little let-up in the country’s soaring inflation rate of 5%, and a further 0.25% interest rate rise was announced by the European Central Bank – the eighth in a year-and-a-half, hitting many homeowners hard with hefty rises in large mortgage repayments in Ireland’s inflated property market.
While leading banks AIB and Bank of Ireland the previous week acted as cheerleaders for the economy claiming that it was in sound shape and that negative media coverage could talk Ireland into a recession, Bertie Ahern did not appear to be listening.
“It is clear we are entering a period of more challenging economic conditions. It is important therefore that we focus on efforts in the development of policy and programmes, and in social partnership, to restore and renew competitiveness across all dimensions,” said Ahern.
“While the combination of pay increases and Budget tax cuts is protecting employees’ living standards, it is essential that we curb inflationary pressures,” he added.
The high inflation rate is worrying across all sectors of the economy. Business leaders say it is making Ireland uncompetitive against other competing economies, particularly Eastern Europe where labor and operating costs are much lower, while trade union leaders say that a pay agreement covering most public sector workers and many private sector employees has been eroded by spiralling costs and inflation.
Rising costs could mean the unravelling of the national pay agreement negotiated only last year at the end of lengthy and tortuous “partnership” talks between the government, employers and unions.
This “partnership” approach has been a fundamental principle underpinning the economic success of the Celtic Tiger, providing economic certainty through nationally agreed pay rises and almost eliminating large-scale industrial disputes and strikes for members of the country’s largest trade unions which have bought into the partnership arrangements.
But while both business and union leaders are singing from the same hymn sheet in worrying about inflation, they are seriously out of tune in terms of remedies. .
Union leaders are demanding new pay negotiations to replace the current partnership deal which was intended to last until 2012, because the higher cost of living has eroded pay increases hammered out in the talks. Business leaders however are demanding that the government and employers hold firm on pay rises, which they say only further fuel inflation.
The leader of the umbrella union organization the Irish Congress of Trade Unions (ICTU), general secretary David Begg said that inflation was likely to remain high, which is in contrast to government reassurances at the start of the year that it would ease during 2007.
“Therefore the cost of living is likely to exceed the pay terms of the social partnership agreement and that is a very serious situation indeed,” said Begg.
Ireland’s largest trade union, SIPTU, said the current national pay deal – which is due to provide 10% pay rises over 27 months from last year – was negotiated estimating inflation at 3%.
Ironically, European Central Bank interest rate rises, intended to curb rising inflation in the Euro currency zone, are actually contributing to higher inflation in the Republic because high property prices in Ireland mean higher repayments for holders of large mortgages.
“The cost of an average mortgage has risen by