Honohan repeats call for wage cuts to drive economy

The Governor of the Central Bank today repeated his call for wage cuts to drive economic recovery.

The Governor of the Central Bank today repeated his call for wage cuts to drive economic recovery.

Professor Patrick Honohan said it was the most important reform he could promote as the country battled 14% unemployment and a dramatically falling tax take.

Mr Honohan told the British-Irish meeting on the economy that driving down wages was essential to boost jobs.

“Achieving lower nominal wage rates is not easy,” the Governor said.

“But it is undoubtedly an essential component of a pro-employment recovery strategy for Ireland – and not simply a means of achieving budgetary savings.”

Prof Honohan warned just weeks after his appointment in the autumn that if wages were not cut then a reduction in unemployment would owe more to emigration than job growth.

The Governor, who was addressing the 40th British-Irish Parliamentary Assembly in Co Cavan, acknowledged that while wage cuts would be tough, the negative inflation experienced by the country would cushion the blow.

Trade union chiefs have attacked calls for curbs in salaries insisting they would fight such a move.

Meanwhile, Taoiseach Brian Cowen told the conference the Government had taken tough and unpopular budgetary decisions but had managed to stabilise the public finances and banking system.

“We are applying all our energy and ambition to ensure that recovery comes as quickly as possible – and that it leads to the new jobs and businesses that we need,” Mr Cowen said.

“The difficult decisions we have taken are beginning to pay dividends.”

Prof Honohan also said measures to stabilise Irish banks were almost complete but indicated the main institutions would receive further state aid.

“The Irish measures will soon be completed when the major asset purchases of (bad bank) Nama are finalised, and the main banks are recapitalised, at least in part with further investments by Government,” Mr Honohan said.

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