Irish Pay Accord Faces Defeat as Biggest Union Rejects More Cuts

Ireland’s most powerful labor union rejected the latest round of proposed public sector pay cuts, leaving the government’s plans to save over 1 billion euros ($1.3 billion) facing defeat.

SIPTU rejected the proposals, which provide for at least a 5.5 percent pay cut for those earning more than 65,000 euros a year, by 54 percent, the Dublin-based union said in an e-mailed statement today. SIPTU accounts for a 25 percent share of public-sector votes on the accord, Goodbody Stockbrokers said.

“It’s dead in the water now, the deal can’t pass,” said Dermot O’Leary, chief economist at Dublin-based Goodbody. “This may cause uncertainty in Irish bond markets as it’s the first real setback we’ve seen in quite a while.”

Prime Minister Enda Kenny’s government has said it may legislate for across-the-board public sector pay reductions if the proposals are rejected. Ireland has avoided the large-scale strikes that have beset Greece and Portugal even after successive governments cut state workers’ pay by an average 14 percent since 2008.

“We urge the government not to proceed with legislation to cut the pay of public service workers as it would inevitably precipitate a major confrontation,” said Jack O’Connor, general president of the union.

Today’s result mean the proposals will be rejected in a wider union vote tomorrow, O’Connor told reporters in Dublin today. The union “will fight if needs be,” he said.

Pay Cuts

The pay cuts are part of the government strategy to narrow its budget deficit, as it races toward exiting the bailout entered in 2010. They would produce 300 million euros of savings this year, rising to 1 billion euros by 2015, according to the government. A spokeswoman for the Public Expenditure Ministry said a statement will be issued “shortly.”

Yields on Ireland’s 2017 bond were little changed at 2.58 percent after the union released the result of the ballot.

“It might take a little time to see what the government’s next step is,” said O’Leary at Goodbody. “They have said that they’d legislate for pay cuts but they don’t want to go down that route. We’ll see whether the unions have called government’s bluff or not.”

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