Getting people back to work must take priority over increasing the wages of those already in jobs, the head of the International Monetary Fund’s Irish mission said today.
Craig Beaumont told a conference that wages had been flat in Ireland for some years but it would be unfortunate if they were to pick up when unemployment was still high. He said he was not talking about profitable sectors of the economy but rather about the economy generally.
He suggested it might be time to restart dialogue between the social partners to ensure the long-term unemployed get a chance to return to work.
Mr Beaumont was speaking at a conference on the future direction of the Irish economy, organised by Trinity College, Dublin, with support from the European Commission.
He said reform of the health service was a key factor in public sector reform. He also said more needed to be done in relation to moving public service staff towards frontline engagement with job seekers.
Central Bank governor Patrick Honohan earlier said the EU-IMF programme of financial support for Ireland "delivered what it said on the tin" . The programme "provided a safe harbour into which Ireland was able to retreat, in order to clarify its ability and determination to deal with the severe financial problems that had so destructively erupted" in September 2008. However, he warned that the financial crisis will have a "lasting unfavourable legacy" on the State.
Growth prospects
"The accumulation of debt, public and private, will continue to weigh on growth prospects in a variety of ways. And many households are being affected by long term unemployment," he said.
Barclays chief economist for the euro zone Antonio Garcia Pascual said the markets had been impressed by the way Ireland had reached its targets for reducing its deficit. The "super-important" issue was that the targets were met, not the pace at which the deficit was being closed.
Ireland's approach to dealing with its deficit had been transparent and economic growth was given priority and this had been recognised by the markets. "Meeting targets, even if they are not ambitious, was as important as the consolidation itself," he said. The National Asset Management Agency had done "a very good job in communicating with us in the markets," he added.
Economic sovereignty
However, with the State's debt toGDP ratio set to peak at 124 per cent, he said the restoration of economic sovereignty should remain the priority for Irish policymakers. It was still unclear whether the banks would need further recapitalisation, he said. Zsolt Darvas, of the Bruegel think tank in Brussels, said social issues had received very little attention in the Troika programme. Ireland's capacity to absorb external shocks was much less than it had been before the crisis.
