Lenihan: Costs and wages must be cut

FINANCE Minister Brian Lenihan warned yesterday the strength of the euro against sterling requires wage cuts and cost reductions if the economy is to grow out of its malaise.

“Our real problem is that we’re in a strong currency area and with the depreciation of sterling we have to take adjustments and reduce our wages and our costs... so that we remain competitive,” he told Reuters.

His sentiments were endorsed yesterday by employer bodies, but they condemned him for doing very little to tackle those issues that are having such an impact on Irish firms selling into Britain.

ISME, which represents a large section of small to medium-sized firms, said the Government’s response to the crisis was “derisory”.

Head of research at ISME, Jim Curran, said over twice as many SMEs (47%) export to that market compared with 17% of firms nationally. By increasing VAT from 21% to 21.5% earlier “it sent out all the wrong signals,” Mr Curran said.

As a result the economy lost about e700 million last year as consumers headed north of the border.

Mr Curran said the deteriorating environment “will make it more difficulty for businesses to cut wages”.

In a recent survey, ISME said about 50% of their members had cut 10% off their wage bills in recent months.

ISME called for the reintroduction of an Irish trade board to help boost sales, which should be accompanied by an export market development fund along the lines of the one operated in the 1990s.

David Croghan, chief economist with employer body IBEC, said a “special grant” to help companies market themselves in Britain was needed urgently and should be kept in place for the next two years.

Mr Croghan said the message about greater wage restraint is getting across and businesses are succeeding in driving down salaries.

The costs imposed by the state for a variety of services are still a major concern and will not be resolved until greater efficiencies are introduced across the public sector. For that to happen “society needs to be conditioned” to the need for a lower operational cost base across all sectors of the economy, and not just business, he said.

Greater efficiencies are needed in the public service and savings can be achieved without damaging essential services to the community, he said. In the current difficult climate such issues have to be addressed.

Failure to so will undermine the ability of business to compete internationally, not just in Britain, he said.


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