`Lump sum' concept for national agreement

The Government ought to consider paying a lump sum to every individual in the State as part of a new national agreement, former ESRI professor Mr Patrick Honohan said yesterday.

The proposal was cautiously welcomed by the Irish Congress of Trade Unions. Assistant general secretary Ms Patricia O'Donovan said the idea could not be lightly dismissed and might be welcomed.

Delivering a paper at the Institute of European Affairs, Mr Honohan, who is now attached to the World Bank where he specialises in banking, warned that rising wages are the most serious risk to the Irish economy.

He added that it is crucial to avoid a return to the confrontational approach to industrial relations which marked previous decades. A new national agreement should look at the possibility of introducing profit-sharing or risk-sharing formulae for firms vulnerable to shocks, such as sterling movements.

But the big risk, he said, is that high annual increases create a demand for further high increases. A one-off lump sum payment could be a significant component of a new agreement but he said he could not recommend a size.

Mr Honohan also warned that there is a risk of property prices overshooting, with buyers bidding up prices that will subsequently prove not to be justified. In the event of this happening, however, Mr Honohan said a serious meltdown did not appear to be in prospect as the banks are well capitalised.

Mr Honohan also dismissed the perceived problem of having Irish interest rates set in Frankfurt by the European Central Bank which would be catering for conditions in countries such as France and Germany. "Irish interest rate policy during the EMS period has generally been inappropriate to the economy's stabilisation needs and often pro-cyclical. I don't think we will do any worse on average in the next 20 years than we did in the past."

He also called for the implementation of a national reserve fund rather than simply paying off the national debt.

IBEC chief economist Mr Brian Geoghegan called for an economic infrastructure fund to get over the problem of excessive borrowing.

He added that the ESRI's latest midterm review ought to be required reading for all ECB and Commission policy-makers, to point out that it is not just EU transfers and low corporate taxes which are behind our boom.