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By Padraic Halpin
DUBLIN (Reuters) - A majority of Irish public sector workers rejected a new pay deal on Tuesday and warned the government against unilaterally cutting wages, giving it a headache as it seeks to exit an EU-IMF bailout later this year.
The government and the country's main unions agreed in February to extend a three-year-old pay deal that has been credited with avoiding the kind of industrial unrest seen in other euro zone countries hit by debt woes.
But the deal had to be approved by hundreds of thousands of union members and after only a handful of unions backed the new proposals, it needed the backing of SIPTU, the country's largest union, whose members account for some 25 percent of all workers.
It rejected the deal by a margin of 54 percent to 46 percent and its president warned the government that it would face a "major confrontation" if it went through with a threat to cut pay in order to make budgetary savings.
"The result reflects the deep and well justified sense of grievance among working people throughout the country and public service workers in particular," Jack O'Connor, one of the union leaders who negotiated the agreement, said in a statement.
"We urge the government not to proceed with legislation to cut the pay of public service workers as it would inevitably precipitate a major confrontation."
The update to the Croke Park agreement - named for the sports stadium in which the original deal was struck - proposed pay reductions for higher earners, longer working hours and cuts in premium Sunday payments.
This would save 1 billion euros (845.8 million pounds) over three years, a key part of efforts to reduce a large budget deficit under the country's 85-billion-euro European Union-International Monetary Fund bailout, and Prime Minister Enda Kenny said the savings still needed to be found.
Kenny said the government would reflect on the implications of the votes but analysts said his Labour Party junior partners in government, closely tied to the unions and suffering in the polls, would find it hard to stomach pushing through pay cuts.
"I think backbenchers are likely to balk at the prospect of legislating for pay cuts, not least given the recent electoral performance of the Labour Party," said Bill Roche, Professor of Industrial Relations at University College Dublin.
"If legislation did pass through, there's every prospect of confrontation on a very significant scale so I wouldn't rule out the Labour Relations Commission stepping back into the breach to try to get parties to sit down. That's frankly more palatable."
"DEFINITELY A SETBACK"
Public servants took wage cuts averaging 15 percent before the Labour Relations Commission helped negotiate the first Croke Park deal in March 2010, where a leaner public service was promised in return for no more pay cuts or forced redundancies.
The Irish National Teachers Organisation (INTO), which rejected the deal by a margin of more than two-to-one, suggested that the government use budgetary savings from a bank debt deal struck with the European Central Bank (ECB) to avoid pay cuts.
While investors have been impressed by Ireland's ability to avoid street protests and strikes, helping it return to capital markets last year, bond dealers said yields on Irish debt were unlikely to increase until things ratcheted up further.
"Investors have long questioned how Ireland has maintained the level of industrial peace it has, so this will be noted but clearly pictures of people taking to the streets would be much more significant," said Ryan McGrath of Cantor Fitzgerald.
"It's definitely a setback though."
(Reporting by Padraic Halpin; editing by Michael Roddy)