Excess demand for labour and rising wage expectations will make a successor to Partnership 2000 ["]very difficult to achieve", according to the Economic and Social Research Institute review.

The report states that the "partnership process" has played an important role in "ensuring a rational approach to wage formation and to other aspects of public policy." It also created the peaceful industrial environment essential to the economic turnaround.

The report identifies the public service as the area where the biggest problems are looming. "The rising expectations, as the news of economic success permeates society, are compounded by the surplus accruing in public finances."

It warns that "the security of the current economic success story depends on the maintenance of a tight fiscal policy in the immediate future."

While the report concedes that "it is possible to pay well above the `going rate' to powerful interest groups, in the long run the economy cannot sustain the payment of rates . . . well above the EU norm to crucial groups such as teachers."

If the price of a new national agreement was over-generous pay rises in the public sector, it could prove "impossible for the Government" to meet.

In contrast, it sees the problems of the private sector as more containable. "The excess demand for labour is already putting upward pressure on wage rates and to some extent the market will deliver a solution.

"While some rise in the rate of wage inflation compared to the last agreement is warranted, the danger remains that the increases conceded in the next round . . . could eventually make the economy uncompetitive."

In the context of monetary union the report suggests that "it might be better if some of the increase were taken as part of a profit sharing or gain sharing arrangement.

"This would allow for flexibility downwards", argues the report, "if the initial agreement proved to be unduly ambitious."

The report's prime concern on the industrial relations front remains however "the perceived disorder which is creeping into . . . the public sector."

The perception that agreements are not being honoured "is very damaging and a rise in industrial strife will have a serious knock-on effect on the other sectors of the economy."