Before considering the nurses' dispute in particular it is worth highlighting the benefits of social partnership. Partnership 2000 is into its final stages. It is therefore timely to review the record of social partnership and consider where we go from here.

The facts of our recent performance are well known but it is worth reminding ourselves of a few highlights:* From 1988 to 1998 the Irish economy has grown by almost 6 per cent a year;

* From 1993 to 1998 employment has increased by 290,000 and will increase by a further 60,000 by the end of this year. * The unemployment rate now stands at 5.7 per cent - down from 16 per cent in 1993 - and we now have net immigration.

In the pre-partnership period, during the seven years to 1987, manufacturing earnings increased by 101 per cent in nominal terms, but real take-home-pay decreased by more than 7 per cent because of inflation and tax. Since partnership began, in the 12 years to 1999, manufacturing earnings increased by 59 per cent in nominal terms but real take-homepay increased by over 35 per cent because of low inflation and significant tax reductions.

We are finally reaping the benefits of the sacrifices made during the initial years of the process. The growth in real incomes has been particularly high over the three years of Partnership 2000 - 15 per cent compared to about 5 per cent during each of the three previous agreements.

The outside observer must be surprised that we seem about to let a winning formula slip out of our grasp. There is no longer the same widespread understanding there once was of the interaction between the various elements of the national agreements - moderate nominal pay increases, taxation reductions, fiscal prudence and strategic investments - and how these formed the basis for growth, employment creation and rising living standards.

I fully endorse the aspirations of all our citizens to achieve real improvements in their standards of living. I also recognise there is widespread disillusionment about issues from our past which are now coming to light as a result of various investigations. Justifiable anger should not divert us from pursuing prudent policies. We have to plan to achieve improvements in our living standards that will endure over time.

The framework for a new agreement is already being shaped by the work on the forthcoming NESC Strategy Report, by the far-reaching investment programme of the National Development Plan and by the continuing talks on a new framework for managing public service pay.

If nothing else, the current difficulties on the public service pay scene have brought home to all concerned the need to modernise our entire system of public service pay management. We need to devise a new, innovative and flexible approach which meets a number of key objectives. It should: * Ensure that whatever pay determination arrangements and industrial peace terms may be agreed at national level are adhered to in practice.

* Do away with the system of rigid analogues and fixed internal relativities.

* Incorporate, within a national framework, greater flexibility to deal with the particular operational requirements of each sector.

* Facilitate and support the public service modernisation programme.

* Recognise that closer links between pay and performance have an important role to play in this regard, while acknowledging that this issue should be dealt with in a way which recognises the different circumstances of the various sectors.

* Allow the public service to attract its fair share of talent in a new labour market situation.

Much work has already been done in the discussions ongoing with the Public Services Committee of ICTU and the results of a study undertaken by a firm of outside consultants are currently being considered by both sides.

I was accused of scaremongering when I said recently that the approach being pursued by the nursing unions endangers the entire national partnership approach. The reality, as the Taoiseach said recently, is that "It is simply implausible in the present context to suppose that developments in any part of the public service can be viewed in isolation and will not have a domino effect on other groups, sectors or indeed society as a whole."

Under our present system of pay determination it is clear that if nurses were to secure increases now in breach of the Labour Court's findings and the agreed terms of Partnership 2000, this would lead to claims by other public service groups. These would quickly erode any temporary advantage nurses felt they had gained and also spill over into the private sector, with fatal consequences for our competitiveness.

Nurses are rightly held in very high regard by society and they deserve to be remunerated fairly for their contribution to the health services. Nurses have already secured significant improvements in their position over the past three years. The only way they can improve their position further is for their representatives to work with other public service unions and the Government on developing an agreed framework on public service pay within which the reasonable aspirations of all public servants, including nurses, could be met in a way which respects the needs of our ultimate paymasters - the taxpayers.

The development of a new and modern approach to public service pay presents a very challenging agenda for all concerned. I want to make clear that the Government doesn't claim to have a monopoly of wisdom on the issue. I want the proposals of both sides to be examined openly and constructively. However, I am convinced the existing system cannot be allowed to drift on. We need to resolve the current difficulties and develop a better way forward. Our success or failure in this regard will have a crucial bearing on whether a successor to Partnership 2000 can be agreed and the social partnership process successfully maintained.