McCarthy says Croke Park may be revisited

THE GOVERNMENT may have to revisit the Croke Park public service pay deal and other commitments if it is to continue to meet future budget targets, economist Colm McCarthy warned yesterday.

Speaking at the Irish Small and Medium-sized Enterprise (Isme) association’s annual lunch, Mr McCarthy argued that the coalition partners, Fine Gael and Labour, had effectively tied their hands by agreeing to abide by the Croke Park deal’s terms and making other commitments on tax and welfare.

Mr McCarthy said these commitments threaten to make the next few budgets very difficult. “Unless public service cuts can be met within the terms of the Croke Park agreement it needs to be revisited,” he told the audience.

The deal guarantees civil and public service pay and pensions and rules out compulsory redundancies in return for the unions’ co-operation on reform.

Mr McCarthy is a well known economist who has advised a number of governments on issues such as spending and public service reform.

He chaired the special group on public service numbers and spending, dubbed An Bord Snip Nua, which the Fianna Fáil-Green coalition established, and a group that reviewed State assets and recommended which should be sold.

He welcomed the Yes vote in the fiscal treaty referendum and pointed out that it it would not force any extra austerity measures on the Republic other than those to which the Government was already committed.

He said the vote would strengthen the Government’s bargaining position in Europe, while a rejection “would have invited more unwelcome behaviour from our European partners”.

Mr McCarthy pointed out that the measures adopted to restore the Republic’s banking systems had not produced a financial system that was functioning normally.

“It seems to me that we are going to have to reconsider the demands that have been made of the banks to restructure their capital.”

He added that these were so stringent that the banks were sitting on capital and refusing credit to viable borrowers.

The economist said the EU had failed to deal adequately with the debt crisis, and argued that the euro zone needed an integrated banking union, with centralised supervision of the banking system and a proper resolution structure to deal with crises.

He said it was not viable for states to take on liabilities due to banks’ creditors.

Mr McCarthy pointed out that a number of small Danish banks had failed recently, but the government refused to step in. Denmark’s bond yields were now almost as low as Germany’s because investors recognised that there was no contingent risk that the Danish state would take on the liabilities of failed banks.