By Carl Delfeld of Chartwell ETF and ETFfolio
Ireland took an important step in imposing some financial discipline by reaching a pay freeze deal for 600,000 public workers. Investors welcomed the deal the Ireland ETFs (IQE) (IRL) responding favorably though the fate of Irish Allied Bank (AIB) is of the utmost concern.
The Irish government has secured an 11-month pay freeze for public sector workers under the terms of a 21-month deal signed on Wednesday with trade unions and employer groups. The agreement is a feather in the cap for the Fianna Fáil-led ruling coalition, which is struggling to restrain the growth in public spending at a time when revenues have been hit hard by slumping housing and construction sectors.
It comes as Ireland’s budget deficit will this year be dangerously close to the European Union fiscal limits which requires that member states to keep their deficits below 3% of gross domestic product.
To put things into perspective, public sector wages account for about 37% of current spending by the government. Unionised workers in the private sector are also covered by the 21-month deal and will take a three-month pay pause. The deal affects a total of 600,000 workers.
Brian Cowen, the newly selected prime minister and former finance minister, said the deal “will give a sense of confidence and stability in the challenging period ahead”.
Ireland’s social partnership model has been a key to the country’s economic success and good industrial relations, providing investors with certainty. Under previous deals, unions agreed to modest pay rises in exchange for tax cuts but given the state of public finances, this will have to wait until the Celtic Tiger roars once more.
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