IRELAND'S SOCIAL PARTNERSHIP DEAL'S GOOD ENOUGH --

C O N F I D E N T I A L SECTION 01 OF 02 DUBLIN 000545

SIPDIS

E.O. 12958: DECL: 10/01/2018
TAGS: ECON EFIN ETRD PREL PGOV EI
SUBJECT: IRELAND'S SOCIAL PARTNERSHIP DEAL'S GOOD ENOUGH --
FOR NOW

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Classified By: PEO Chief Ted Pierce. Reasons 1.4 (b/d).


1. (C) Summary: On September 18 the parties to the Social
Partnership talks (principally business groups and trade
unions) agreed on a provisional deal that, among other
things, would freeze public sector wages for the next 11
months. A leading business representative told us this is
the best deal his membership could have hoped for given the
tight economic situation. A representative from one of the
leading unions agreed but added that trade union members will
be expecting "a better deal" at the next round of talks in

2010. Both said that the current agreement is meant to get
the nation through what looks to be a very sharp downturn for
the Irish economy. It is now up to the government to
"officially" present the draft to all concerned parties for
an up-or-down vote. The American business community is
watching the outcome of the talks closely because a breakdown
of the social partnership model threatens Irish economic
stability -- one of the key reasons for the huge inflow of
U.S.-sourced investment. End summary.

Social Partnership -- What is it?
--------------


2. (U) The Social Partnership process describes the (roughly)
triennial discussions to reach voluntary agreements on
workplace-related topics, most importantly wages. The
government, the business community (represented by the Irish
Business and Employers Confederation (IBEC)),and the trade
unions (represented, in part, by the Irish Congress of Trade
Unions (ICTU)) participate in the talks. The first social
partnership agreement was reached in 1987 and is often
credited with being one of the sparks that ignited the Irish
economic rebound. The government's role is to act as
facilitator of the process and to draft and present the
official agreement for final approval by the parties.

The Deal
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3. (SBU) Under the terms of a deal covering the next 21
months, the participants in the social partnership talks
agreed to halt public sector wage hikes for the 11 months,
freeze private-sector, unionized workers pay for three
months, and, according to the Irish Department of Enterprise,
Trade, and Employment website, "set up a process to develop a
national framework on the employment and rights of temporary
agency workers." Given that the Irish government is expected
to run a substantial budget deficit in 2008 and 2009, tax
cuts, a key component of previous deals, are not included in
this agreement.

The Business Community
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4. (C) Econoff spoke to Danny McCoy, head of policy at IBEC
and lead negotiator for the business community, who said that
this was about the best deal his constituency could have
hoped for in the uncertain economic environment. Initially,
union representatives wanted pay increases tied to
"unrealistically high" rates of inflation but ultimately had
to settle for a hike of just over four percent for the
21-month period. McCoy said this was slightly above what his
membership had indicated it had budgeted for 2009.


5. (C) McCoy said that IBEC would be able to get its
membership to back the agreement but was not sanguine that
the private-sector unions could convince their members. He
explained that there is much confusion about what was
actually agreed on the pay deal and demonstrated -- in great
detail -- that the public-sector pay pause would not actually
kick in until late 2009. For this reason, he reasoned that
the government would have little difficulty getting the
public sector unions to fall in line.


6. (C) McCoy agreed that, as union membership declines, the
social partnership model may become unnecessary in the near
future. For now, though, he said that "the best thing about
the current deal is that there was a deal" and that the
markets would have reacted poorly to a collapse in
negotiations. He warned that, as a sop to the unions, the
government in the next few years, "will likely put
restrictions on the use of agency (temporary) workers," to
the detriment of Irish business. However, he doesn't foresee
that the government will enact any kind of statutory union
recognition -- a move strongly opposed by the American
business community.

The Unions
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7. (C) Econoff met with Paul Sweeney, economic advisor to
ICTU, who played a key role in the negotiations and shared
with us a draft copy of the agreement. Like McCoy, Sweeney
believes that this is as good a deal as the unions could have
reached in the current economic environment. He worries,
though, whether IBEC can get its membership to approve the
document. While some union reps have complained about the
pay freezes, Sweeney estimates that inflation will fall below
the projections used during the negotiations and that real
wages will be significantly higher as a result. He also
noted that the document does not substantially address
non-wage issues, many of which are very important to his
membership.


8. (C) Sweeney said that the majority of the unions, with the
exception of the "Trotskyites," will approve this deal. He
said the worsening macroeconomic environment will make it
easier to get approval because everybody wants certainty
above all else. However, he noted that the union leadership
intends to sell this as a shorter-than-customary transitional
agreement designed to get the parties through a prolonged
economic downturn in Ireland. Given this pitch, he said the
unions will expect a better deal for labor in the next round
of negotiations in 2010. In particular, he highlighted the
issue of union recognition as being a key component of any
future agreement and pointed out that the main opposition to
this comes from the American Chamber of Commerce.


9. (C) Sweeney dodged the question of whether the social
partnership process was anachronistic, only admitting that it
would likely have to evolve into something different. He did
say that the recent negotiations were cordial (all the main
players know each other quite well) but tense. He had
nothing but praise for the way former Prime Minister Bertie
Ahern had handled previous negotiations and, in a mild swipe
at Prime Minister Brian Cowen said that, "the breakdown of
talks in August would not have happened if Bertie were still
Taoiseach (Prime Minister)."

Comment
--------------


10. (C) We expect the agreement to be approved by all sides
-- not because the sides are happy with everything included
(or not included) but because going back to the negotiating
table raises the risk that a deal will never get done. With
the Irish financial sector taking a beating and an historic
turnaround in the government's fiscal situation for the
worse, the government will not want to add labor unrest to
the mix. The U.S. business community is watching the process
with keen interest because economic stability is one of the
key attractions for locating in Ireland. A breakdown in the
social partnership model threatens this stability and could
increase the risk of investing here.
FOLEY