Ireland Imposes Some Discipline, Reaches Pay Freeze Deal

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 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. Unionized 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.

Comments

[Dame Daxx:]

Your description of Brian Cowen as the newly "selected" prime minister is very apt.

Unfortunately, Ireland in the past 21 years has degenerated into a One Party State. Elections are irrelevant, and the same faces are in power year in and year out. Inevitably that leads to Sloth and Corruption.

It looks like the Celtic Tiger was a peculiar aberration, and now we're seeing Ireland revert to the mean.

2008 Sep 18 08:04 PM

[Moydubire:]

Good, fair & brief report. I like to think positively-realistical... and can easily disregard the disgruntled Dame Daxx comment as irrelevant to the content and background of this article. Know that the Celtic tiger is alive & about to get his second wind. A small (2.6 million) backward-looking post-colonial insular nation of low-risk-taking public servants, shopkeepers & farmers has, in 1.5 generations morphed into a bigger (4.4 million) forward-looking multicultural nation of low-risk-taking public servants, greedy home-builders, medium-risk-taking tech-savvy small & medium enterprises & high-risk-taking entrepreneurs - & there ain't no turning back - long live the tiger & bury the begrudgers! We're in this for the long haul, my dear Dame, so drop your chips & ask not what they (ANY politician) can do for you, but what you can do for you, your family, community & country. It's fun, you'll enjoy it, I promise.

2008 Sep 18 09:13 PM

[LittleGuy:]

"though the fate of Irish Allied Bank (AIB) is of the utmost concern."

Not sure how this relates to the article? Are you certain that AIB (ALBK up 31% overnight on LON) is the symbol you are referring to?

2008 Sep 19 09:17 AM

[User 85084:]

Hi Carl,
Thanks for your comments on Irish markets and banks. One thing that struck me was your comments on the fate of Allied Irish Bank. You expressed your concerns on the bank. But as I understand it, AIB is a better managed bank than Bank of Ireland. In their first half earnings announcements, AIB increased their interim dividend by 10% while Bank of Ireland cut their dividend by 50% this week. AIB is also much more diversified than other Irish banks. It has 25% stake in M&T Bank in the US, own 70% of a polish bank, and recently bought stake in a bank in Bulgaria. Can you please elaborate on your concerns about AIB? I know irish property market is busted and their economy is not doing good. But still, won't a better managed bank like AIB come out stronger once the storm settles?

2008 Sep 19 12:16 PM

[LittleGuy:]

Allied Irish Banks chairman opens wallet
Fri 19 Sep 2008

LONDON (SHARECAST) - Dermot Gleeson, chairman of Allied Irish Banks, continued lifting his stake in the bank today, splashing out more than €300,000 on shares in the company.

He bought 50,000 at €6.25 a time and now has 350,000 shares. He bought identical stakes yesterday and the day before, but paid €5.73 a share Thursday and €6.47 midweek.

Allied Irish Bank has been deeply embroiled in the turmoil that shook up the global banking sector this week following the collapse of the US investment bank Lehman Brothers.

Its share price is down by more than 20% on the week, having slumped by about 65% in the past year.

Back in May, the bank said first half earnings would fall as it felt the pinch of bad debts and global market dislocation.

2008 Sep 19 01:27 PM

[LittleGuy:]

I guess Carl is too busy making money on AIB to clarify.

2008 Sep 22 09:40 AM