Government warned not to backslide on bailout reforms

CONCERNS THAT the Government is in danger of backsliding on key reforms linked to the EU-IMF bailout have been expressed by the…

CONCERNS THAT the Government is in danger of backsliding on key reforms linked to the EU-IMF bailout have been expressed by the State’s international lenders.

Amid backbench resistance in the Labour Party to a mooted overhaul of the State's wage-setting system, parties involved in the rescue told The Irish Timesit was crucial for the Government to proceed with the plan if it was to protect employment and create new jobs.

The officials involved in the rescue said the Government had a strong mandate to implement the bailout programme and added that it would not be lightly forgiven by the public if the recovery effort was found not to work due to any failure to quickly tackle difficult reforms.

Saying the political crisis in Greece over its bailout should spur Dublin to redouble its effort to regain market confidence, they also expressed anxiety over loose talk by senior Cabinet figures on the possibility of a second bailout or longer loan terms.

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Without naming either the Minister for Transport, Leo Varadkar, or the Minister for Public Expenditure, Brendan Howlin, they said anything which raised any doubt about the Government’s determination to proceed with the rescue plan was very unhelpful.

The concerns emerge as inspectors from the EU-IMF “troika” prepare to return to Ireland early next month for their next quarterly review of the Irish bailout.

Their last assessment in April was positive, but the period since has been dominated by volatility over the ailing Greek bailout. In Dublin and other capitals, senior figures are concerned that this turmoil could compromise Ireland’s planned return to markets next year.

Ireland’s lenders believe it will be very important for the Government to back plans by Minister for Enterprise Richard Bruton to change the law on premium payments for Sunday work and reform the joint labour committee system.

In Frankfurt yesterday, as the European Central Bank signalled a rise in interest rates next month, the bank’s chief Jean-Claude Trichet said in prepared remarks that fiscally weak countries should give priority to “enhance wage flexibility and incentives to work, and to remove labour market rigidities”.

Asked whether Mr Bruton should proceed with his initiative or yield to pressure against it, Mr Trichet said he had no wish to enter this debate but added that anything which encouraged flexibility and structural reforms was good. “Ireland has the benefit of an economy which it seems to me is perhaps more flexible than others,” he said.

“Of course in the present circumstances in particular, all what could go in this direction would certainly seem to be appropriate, without entering into details of measures.”

Asked if Irish Ministers were wise to speculate publicly about a second bailout or longer loan maturities, Mr Trichet called for “verbal discipline” throughout the euro zone.

“On delicate matters, it’s good to be cautious and prudent and I will not comment in particular on Ireland,” he said.

The ECB held interest rates steady but a 0.25 percentage point rise is in prospect next month after Mr Trichet said the bank was exercising “strong vigilance” against inflation, an expression he often uses to signal that a rate rise is one month away.

Tens of thousands of homeowners now face higher mortgage repayments within weeks. Asked if he remained confident that Ireland’s bailout plan could still work even as interest rates rose, Mr Trichet said that rested “very, very much” on the country itself.

“I have to say that what I see from Ireland gives confidence in the capacity of the country to go in the right direction; and of course it depends also on the overall environment. This is a consideration which is also extremely important.”