The Republic could break the terms that govern Economic and Monetary Union (EMU) next year if the findings of the benchmarking review body are implemented, according to the Economic and Social Research Institute (ESRI).
The ESRI has said the Minister for Finance, Mr McCreevy, could be forced into an Exchequer borrowing of €4.5 billion next year if the average recommended public-sector pay award of 8.9 per cent is approved.
This would, according to Mr Danny McCoy of the ESRI, push the general Government deficit close to 3 per cent of GDP, the limit outlined by the Stability and Growth Pact.
The ESRI said the economy will grow by 4 per cent this year, but criticised the Special Savings Incentive Scheme, which, it says, should have been linked to wage bargaining upon establishment.
Given the current state of the Republic's public finances, "serious consideration should be given to capping the potential cost to the Exchequer," the ESRI says in its latest economic commentary.
Mr McCoy yesterday suggested placing a cap on the amount savers can allocate to the scheme, so that contributions could not be raised from their current level.
If this does not occur, annual Government contributions could rise from their current level of €500 million to over €900 million, according to ESRI calculations.
Meanwhile, mortgage-holders in the Republic must dismiss expectations of an imminent decline in monthly mortgage repayments after the ECB held interest rates steady at 3.25 per cent yesterday.
The euro rose to a 3½-month high against the dollar upon the news, before closing at $1.0013.
