The Irish Independent reports that the Government and unions finally got down to business last night amid growing signs they will seal a new rescue pact for the economy by Tuesday's deadline.

Taoiseach Brian Cowen's promise to deliver €2bn in spending cuts by next week received a much-needed shot in the arm after unions agreed to enter talks.

The breakthrough came after the Government spelt out the dire challenges facing the country in its long-awaited framework for economic renewal.

Stumbling blocks remain over the thorny issue of public sector pay cuts, but there are signs that a deal could be struck -- even by next week's tight deadline.

In the first indication that they may have to compromise on pay, IMPACT -- the country's biggest public sector union -- warned its members the Government was likely to impose the cuts anyway, "if a deal cannot be done over the coming days".

A briefing from the union's central executive committee -- seen by the Irish Independent -- says the economic crisis "inevitably means discussing options that would have been entirely out of the question just a few weeks ago".

Outwardly, unions representing public workers are still resisting Government attempts to push through a 10pc cut in their salaries. But there is speculation they might accept an increase in the contribution government workers make towards their pensions, rather than a pay cut.

The IMPACT document also recognises that deferring the pay deal is now likely to be on the Government's agenda, despite the unions' previous opposition to such a postponement.

The Government earlier outlined, in stark terms, the extent of the problems facing the country as it battles the "most profound global economic crisis in 70 years".

In its road map for economic recovery -- titled the Draft Framework for a Pact for Stabilisation, Social Solidarity and Economy Renewal -- it predicts:

• 120,000 more job losses by the end of 2010.
• National income will fall by 10pc in the same period.
• Tax deficits will soar to €8bn this year -- and will rise even further in 2010.
• Exchequer borrowing must fall below 3pc by 2013.

Tax

Significantly, the document confirms the Government has asked the Commission on Taxation to look at areas where it can raise tax revenue.

This spells bad news for PAYE workers, particularly those in the 41pc income tax bracket. The commission's report, which will be completed by September, is expected to recommend raising the top rate of tax.

However any changes to the tax regime will not be enforced before the next Budget.

Meanwhile, in a boost for workers, Junior Trade Minister John McGuinness last night hinted that reductions in electricity and gas bills might be part of the deal.

Despite the apparent breakthrough, ICTU general secretary David Begg warned of a "tough battle" ahead.

The Irish Independent also reports that ECB President Jean-Claude Trichet appeared to rule out another cut in interest rates, sending the euro and market rates higher.

In recent days, traders have increased bets on a half-point cut when the ECB meets next Thursday, but Mr Trichet downplayed the importance of the meeting, which comes sooner than is usual after this month's decision by the Governing Council to cut rates to 2pc.

"I said that the next important rendez-vous is in March," Mr Trichet told Bloomberg Television in an interview in Davos. "In March we'll have a lot of new information," he said.

On the Dublin market, a worldwide rally in bank stocks helped the Irish banks post strong gains yesterday.

The rally came on the back of speculation that the Obama administration's plan to absorb toxic assets will help stabilise lenders' balance sheets.

US and European banks soared in early trade and the mood remained upbeat after Wall Street opened for trade.

In Dublin, AIB gained almost 39pc while Bank of Ireland was up 27pc and Irish Life & Permanent finished with a near 16pc gain. The Irish banks were also helped by speculation that the Government will come up with some form of insurance scheme to help with bad debts.

The Irish Times reports that as talks began between the Government and social partners on how cuts of €2 billion in public spending can be achieved this year, Taoiseach Brian Cowen said last night that a consensus would bolster confidence in the Irish economy and improve its image on international markets.

However, Fine Gael accused the Government of basking in pious platitudes about partnership at a time when people’s jobs, businesses and houses were on the line.

The social partners including Ictu and employers’ body Ibec agreed yesterday to begin detailed talks on the basis of a framework document that includes a commitment to finding spending cuts of €2 billion this year.

Mr Cowen thanked the social partners for their strong commitment to developing “an unprecedented approach to tackling the immediate economic challenges”. He said that stable public finances were essential for the future of the economy.

Mr Cowen said that intensive talks over the next few days would address steps to be taken under the headings of public expenditure, taxation, fostering an equitable approach, and delivering fiscal stabilisation.

“I believe it imperative that we pursue a collective approach,” he said. “Indeed, with adjustments of the scale envisaged, establishing a degree of consensus on a credible framework will help bolster confidence internally and externally. This will help our position vis-a-vis international markets and investors as well as boosting confidence at home.”

The general secretary of the Irish Congress of Trade Unions, David Begg, said last night that the Government had not yet put forward any specific proposals on how the €2 billion in cuts sought would be achieved.

It is expected that taxation and equity issues will be discussed during the talks today but the issue of public sector pay is not expected to be reached before the weekend.

Fine Gael finance spokesman Richard Bruton said the framework was full of pious platitudes but devoid of decisions. “The framework does not chart the courageous course . . . it is a document designed to get everyone inside the tent, even the most disgruntled. The Taoiseach seems to have become so obsessed with the process of social partnership that he has lost sight of the objectives that he has to achieve,” said Mr Bruton.

He said it was long past the time for ritual dances. “People’s jobs are on the line, people’s businesses are on the line, people’s homes are on the line. The warm glow that will come from the signing of this agreement will be quickly overwhelmed by the chill winds of economic reality. We need a government that will make decisions, not stretch language to accommodate every possible interpretation of their intentions.”

Last night the country’s largest public sector union warned its members that unpalatable measures would have to be contemplated if cuts in basic pay and pensions are to be avoided.

In a memo to members, Impact general secretary Peter McLoone said that the Government’s preferred option for generating savings of €2 billion seemed to be cutting public service salaries by 10 per cent.

He said that if the Government was to be persuaded not to impose a blanket pay cut it was likely to seek one or more of the following measures: significant additional pension contributions; changes in premium and overtime pay; changes to travel and subsistence; the deferral of the national pay deal.

Union sources said that a Government commitment to extra taxation would be crucial. They are looking for evidence that the wealthy will be asked to pay more tax and they want it to happen this year. An income-related property tax and a windfall tax are among the objectives.

Another issue of concern to the unions is the re-engagement of the Construction Industry Federation (CIF) in the talks. They are seeking a commitment that the organisation accept the national pay deal agreed last autumn before it can come back into the process.

The Irish Times also reports that Intel has chosen its Leixlip campus as one of two new European RD hubs in a move that could lead to new jobs and investment in the future.

The US firm, which employs 5,000 in Ireland, said yesterday it would set up the two “Open Labs” in Leixlip and Munich as part of a new initiative to co-ordinate the work of 800 Intel researchers at different sites in Europe. They will focus on research that aims to improve the performance of microprocessors and computing devices they power.

At the launch of the Intel Labs initiative in Brussels, company chairman Craig Barrett said he was “very exited” by the potential of Intel’s Irish research teams. He also downplayed the prospects of job losses at Intel’s Leixlip facility, saying the future is still “bright”.

“We recently announced some factory restructuring and it didn’t include Ireland . . . so there is no immediate danger of job cuts in Ireland, but no one can predict the future. This is one of the worst recessions we have ever seen. So we will take it day by day,” he said.

Mr Barrett declined to comment on fears US companies may pull out of Ireland if there is a second No vote on the Lisbon Treaty, saying this was a decision “for EU citizens”.

But Martin Curley, director of Intel Labs Europe, said Ireland was too small to have a “go it alone” strategy with regard to the EU and the treaty.

“We have the opportunity to be an equal player in Europe . . . it is critically important that we embrace that. We only have to look at Iceland and look at the consequences of being outside European networks,” said Mr Curley, who noted that Irish membership of the Union was a critical factor for Intel when setting up back in 1989.

“One of the drivers was the idea of fortress Europe and import tariffs that would be placed on US and other foreign companies that would be importing products into Europe,” he said.

The Irish Examiner reports that Independent News and Media (INM) has declined to comment on speculation over which specific non-core assets it is looking to sell, but it is believed that no Irish subsidiaries are due to be offloaded.

The Tony O’Reilly-led newspaper publishing and media group confirmed earlier this week, that it would be seeking to sell a number of non-core assets as part of its cost savings initiatives.

Two subsidiary companies — Cashcade, which operates the Foxybingo.com gaming website in Britain, and Verivox, a Germany-based price comparison website — have been mentioned as likely sale candidates. While INM would not comment on this, an industry source suggested these would certainly be the type of assets likely to be sold. They added most disposals would also probably be international, rather than Ireland- based.

With regard to the Irish market, it had been rumoured that INM could be looking to sell its huge stake in the Sunday Tribune. However, the likely prospect of that title moving from its home on Dublin’s Baggot Street to the Independent Newspapers (Ireland) headquarters on Talbot Street, seems to suggest the contrary.

INM is looking to make savings of about €1.5 million in its Irish newspaper titles by implementing pay cuts of 5% to 10%. Following earlier resistance, it is understood a majority staff at Independent Newspapers voted in favour of the plan last Friday. Such a move seems likely to have avoided any threat of job losses at INM’s Irish newspapers.

The group has already said it will save money by not paying out a dividend to shareholders for last year; while the potential sale of its 39.1% stake in APN in Australia, has been put on hold while credit markets remain weak.

The company’s shares rose on the ISEQ yesterday by 3c to 33c.

The Financial Times reports that the world economy will this year suffer its worst performance for more than 60 years with a serious risk that 50m people will lose their jobs, international organisations warned on Wednesday.

The warnings came as the Federal Reserve expressed fresh concern about deflation, noting that the US economy had “weakened further” since its last policy meeting in December.

The US central bank made no immediate move to purchase Treasury securities – disappointing some in the markets – and signalled that its preference is to expand targeted credit operations instead. The Fed said it would “assess whether expansions of or modifications to lending facilities would serve to further support credit markets”.

Earlier, the International Monetary Fund increased its estimate of credit losses on US-based assets from $1,400bn to $2,200bn. It also said world output, measured at market exchange rates, would fall in 2009 for the first time since the second world war. Weighted by purchasing power, growth would be very slightly positive.

The new growth forecasts mark a huge revision – down by more than 1.5 percentage points – from the IMF’s previous forecast for the year in spite of the inclusion of the fiscal stimulus efforts by governments into its predictions for the first time. Advanced economies, the IMF predicted, would contract 2 per cent in 2009 with the UK hit hardest.

In Geneva, the International Labour Organization said the global recession would lead to a “dramatic increase” in unemployment this year, which would certainly lead to 18m-30m additional unemployed and more than 50m “if the situation continues to deteriorate”.

The forecasts helped frame a sombre and gloomy mood as executives and policymakers started the annual meeting of the World Economic Forum in Davos, with leaders stressing the sharp and synchronised nature of the downturn, expressing concern about global policy co-ordination, and some scepticism that fiscal interventions would ensure a recovery.

Barack Obama, US president, meanwhile hosted a meeting with corporate leaders to rally support for a fiscal stimulus – which may now exceed $825bn – amid resistance from Republicans opposed to massive government spending. Werner Wenning, chairman of Bayer, the German pharmaceuticals group, was among several saying he did not expect solutions to be found during the week-long event. The problem, said Stephen Roach, chairman of Morgan Stanley Asia, was that the US consumer was only in the first stages of a rebalancing that would take a number of years and reduce consumption and increase saving. In the meantime, China, the world’s workshop, would find it difficult to expand production and, “as the Chinese economy has hit a wall, so has the rest of Asia”.

US bank stocks ralliedon hopes that the Obama administration was moving ahead with plans for an “aggregator” bank that would buy toxic assets. Remarks by Tim Geithner, the new Treasury secretary, who played down the prospect of nationalisation, helped to buoy investor sentiment. In New York, Wells Fargo was up 30.9 per cent, Citigroup 18.6 per cent, Bank of America 13.7 per cent and JPMorgan Chase 10.4 per cent

The FT also reports that Lady Cohen wasted no time this week. The chairwoman of a British parliamentary committee on European financial regulation got straight down to business when she asked Lord Myners, minister for the City of London: “Is there a need for an EU-wide supervisory body?”

As British politicians and bankers battle to contain the crisis engulfing the financial sector, they are also having to devote more and more time to the wider European debate on how to avoid this turmoil happening again.

A high-level review by Jacques de Larosière, the former Banque de France governor, is due next month. No one knows what it will contain, but London is aware that some suggestions put forward elsewhere in Europe could have negative ramifications for the UK.

“The UK has a lot to lose if it were decided to centralise more regulation in Europe,” says John Tattersall, partner in PwC’s financial advisory practice. “There is definite concern about what way these discussions might go.”

Lord Myners avoided wading too deep in response to the baroness’s question.

“It’s a legitimate area of inquiry, quite frankly, given what has happened,” he told the committee on Tuesday, referring to the financial crisis. “I think we should be open-minded about all options.”

What London thinks on this topic will matter because of its status as a leading financial centre.

“We’re not just sitting between North America and Europe, there’s no other city in Europe which frankly comes anywhere near matching that global reach, and our priorities are to look at this on a global basis,” says Stuart Fraser, head of the policy committee of the City of London corporation, the business district’s local authority.

To that end, most UK-based groups support development of the system of colleges of supervisors, where national regulators who supervise each company, such as a bank, discuss and co-ordinate their oversight. This is still largely informal, but could include non-EU countries, such as the US, for global institutions.

UK opposition to a single European regulator is strong. Recently Jean-Claude Trichet, head of the European Central Bank, said he “stood ready” to take on more bank supervision. This was seen by some in London as a direct threat to the Financial Services Authority, the City watchdog, but in reality, any ECB move without London backing would lack authority.

“The ECB are conscious that this is somehow a factor that has to be taken into account in constructing these arrangements,” David Green, co-author of a book on financial regulation, told the committee. “The ECB has clearly recognised that the euro area and the non-euro area, particularly the UK, are completely integrated financially.”

London institutions are also generally in favour of plans to strengthen the three so-called Lamfalussy committees. These are the result of a previous review of EU financial regulation, and bring together banking watchdogs (CEBS), insurance and pensions supervisors (CEIOPS) and securities regulators (CESR).

The British Bankers’ Association is particularly keen on a stronger role for CEBS and closer co-ordination with CEIOPS too, given the close links between many banks and insurers.

“They’ve got to have more power, more resources and a set of duties,” says Angela Knight, chief executive of the British Bankers’ Association, who is wary of calls to set up entirely new groups. “We need to find the best possible way of regulators working together and being co-ordinated. Well? Let’s use what we’ve got and shape it to the new requirements.”

The BBA has submitted a paper to the de Larosière review and says awareness of the topic and its importance is growing in the City, but warns it is not possible to produce a single “London view” of where European regulation should head.

Mr Fraser agrees: “There’s consensus around broad principles, but we’re still feeling our way on this and there is no easy answer.”

The New York Times reports that at first, it will trickle into paychecks in small, barely perceptible amounts: perhaps $12 or $13 a week for many American workers, in the form of lower tax withholding.

For the growing ranks of the unemployed, it will be more noticeable: benefit checks due to stop will keep coming, along with an extra $25 a week.

At the grocery store, a family of four on food stamps could find up to $79 more a month on their government-issued debit card.

And far bigger sums will appear, courtesy of Washington, on budget ledgers in state capitals nationwide: billions of dollars for health care, schools and public works.

There is no doubt that the impact of the $819 billion economic stimulus package advanced by President Obama and approved by the House on Wednesday will start to be felt within weeks once the final version becomes law.

But estimating how effective the huge program of tax cuts and spending will be in getting America’s economic engines humming again is a far more complex calculation requiring almost line-by-line scrutiny of the 647-page bill, lawmakers, economists and policy analysts say.

While it may be difficult to predict how well the overall plan will work, it is easier to draw conclusions about its individual components, gauging them against the basic goal of any stimulus: to promote economic activity and create jobs as quickly and efficiently as possible.

Devising any economic stimulus plan is tricky: initiatives that can be carried out relatively fast, like tax cuts, tend to provide less bang for the buck in terms of generating jobs and economic growth, while initiatives likely to spur more robust activity, like public works projects, can take so long to get under way that they arrive too late.

Tax Cuts

The provisions intended to have the swiftest impact are the tax cuts, totaling $275 billion, roughly a third of the package.

Republicans say the cuts are too small, some Democrats say they were ill designed in a vain effort to appease House Republicans, and some economists say both sides are right: that the plan should include more effective tax cuts and more of them, and also address specific problems like the weak housing market.

Mr. Obama’s signature tax cut would provide a credit of up to $500 for individuals and $1,000 for couples. It won praise in an analysis by the Tax Policy Center, a nonpartisan research group, because it could be carried out quickly, by reducing the amount of money withheld from paychecks.

But the same group also criticized it because it would help families earning as much as $150,000 a year, who are more likely to save than spend. (Saving, or paying off debt, might make sense for individual households, but what the economy needs most is for people to spend money, helping stores to sell more, factories to produce more and employers to avoid cutting additional jobs.)

Some experts say adjusting withholding rates could prove complicated, delaying the money. But the White House says the plan would work even better than a lump-sum rebate; some research suggests that rebate checks are more likely to be saved than tax reductions spread out over a length of time.

Even some economists who generally support the stimulus think that the main tax proposal would provide limited economic lift.

“People are going to spend 30, 40 cents on the dollar, so the multiplier is going to be low,” said Adam S. Posen, deputy director of the Peterson Institute of International Economics.

Aid to States

One area where analysts say the bill would be relatively effective is in providing assistance to states, many of which, to comply with balanced-budget requirements, are facing the prospect of steep cuts in jobs and services. Aid to states does not expand economic activity, but it helps prevent cuts that would make the downturn even worse.

An $87 billion provision increasing the federal contribution for Medicaid costs is expected to go a long way to help states close their budget gaps.

But there has been little discussion so far on a proposal by the Senate Republican leader, Mitch McConnell of Kentucky, that aid to states be provided in the form of loans, encouraging them to spend the money wisely and, once the economy rebounds, obligating them to help reduce the national debt.

The bill would also create a $79 billion state fiscal stabilization fund, disbursing half the money in late 2009 and half in late 2010. The Congressional Budget Office has estimated that little of that money would be spent this year.

Infrastructure

The greatest prospect of delay in spending is on infrastructure. The bill provides $30 billion for highway construction and tens of billions more for other transportation projects, water projects, park renovation, military construction, local housing projects and more.

A Congressional Budget Office analysis found that only 64 percent of the bill’s spending would be completed within 19 months, and spending on construction projects was among the slowest.

If the economic recovery is slow, that timing could work out perfectly, giving the economy a jolt just when faster-acting components are wearing off. But if there is a quicker-than-expected rebound, many of those projects could start just in time to compete with renewed private spending.

Then there is the risk that the projects themselves have little or no long-term economic value and simply drive up the budget deficit. Democrats bowed to Republican pressure on Tuesday and stripped from the bill a $200 million provision for National Mall restorations.

Education, Health Care And Alternative Energy

A look at more than $140 billion in the bill’s spending on education finds some that can move quickly — for instance, $13 billion each over two years for Title I schools, which serve impoverished students, and for special education under the Individuals With Disabilities Education Act.

But also included are programs that even under the most optimistic timetable will take longer to complete, like $20 billion for school renovations. These would provide little near-term help for the economy.

Similar scrutiny could be trained on health care and especially on alternative energy programs. Like some of the education spending, a large chunk of health care spending would not start until 2012 or later, when, most experts think, the recession will be over.

Automatic Stabilizers

Unemployment benefits and food stamps are such useful stimulus tools that budget analysts refer to them as “automatic stabilizers.”

They are built into the system, allowing money to flow quickly to people who need it and are likely to spend it.

The House bill would spend $20 billion over five years on added food stamps. If the recovery legislation is adopted by mid-February, officials say, the first added food stamps will be delivered in April and nearly all of that aid used that month.

The legislation would also devote roughly $43 billion over two years to extend and increase unemployment benefits. The provision would add as much as 33 weeks of benefits, for states with the highest unemployment rates.

The NYT also reports that by almost any measure, 2008 was a complete disaster for Wall Street — except, that is, when the bonuses arrived.

Despite crippling losses, multibillion-dollar bailouts and the passing of some of the most prominent names in the business, employees at financial companies in New York, the now-diminished world capital of capital, collected an estimated $18.4 billion in bonuses for the year.

That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller.

While the payouts paled next to the riches of recent years, Wall Street workers still took home about as much as they did in 2004, when the Dow Jones industrial average was flying above 10,000, on its way to a record high.

Some bankers took home millions last year even as their employers lost billions.

The comptroller’s estimate, a closely watched guidepost of the annual December-January bonus season, is based largely on personal income tax collections. It excludes stock option awards that could push the figures even higher.

The state comptroller, Thomas P. DiNapoli, said it was unclear if banks had used taxpayer money for the bonuses, a possibility that strikes corporate governance experts, and indeed many ordinary Americans, as outrageous. He urged the Obama administration to examine the issue closely.

“The issue of transparency is a significant one, and there needs to be an accounting about whether there was any taxpayer money used to pay bonuses or to pay for corporate jets or dividends or anything else,” Mr. DiNapoli said in an interview.

Granted, New York’s bankers and brokers are far poorer than they were in 2006, when record deals, and the record profits they generated, ushered in an era of Wall Street hyperwealth. All told, bonuses fell 44 percent last year, from $32.9 billion in 2007, the largest decline in dollar terms on record.

But the size of that downturn partly reflected the lofty heights to which bonuses had soared during the bull market. At many banks, those payouts were based on profits that turned out to be ephemeral. Throughout the financial industry, years of earnings have vanished in the flames of the credit crisis.

According to Mr. DiNapoli, the brokerage units of New York financial companies lost more than $35 billion in 2008, triple their losses in 2007. The pain is unlikely to end there, and Wall Street is betting that the Obama administration will move swiftly to buy some of banks’ troubled assets to encourage reluctant banks to make loans.

Many corporate governance experts, investors and lawmakers question why financial companies that have accepted taxpayer money paid any bonuses at all. Financial industry executives argue that they need to pay their best workers well in order to keep them, but with many banks cutting jobs, job options are dwindling, even for stars.

Lucian A. Bebchuk, a professor at Harvard Law School and expert on executive compensation, called the 2008 bonus figure “disconcerting.” Bonuses, he said, are meant to reward good performance and retain employees. But Wall Street disbursed billions despite staggering losses and a shrinking job market.

“This was neither the sixth-best year in terms of aggregate profits, nor was it the sixth-most-difficult year in terms of retaining employees,” Professor Bebchuk said.

Echoing Mr. DiNapoli, Professor Bebchuk said he was concerned that banks might be using taxpayer money to subsidize bonuses or dividends to stockholders. “What the government has been trying to do is shore up capital, and any diversion of capital out of banks, whether in the form of dividends or large payments to employees, really undermines what we are trying to do,” he said.

Jesse M. Brill, a lawyer and expert on executive compensation, said government bailout programs like the Troubled Asset Relief Program, or TARP, should be made more transparent.

“We are all flying in the dark,” Mr. Brill said. “Companies can simply say they are trying to do their best to comply with compensation limits without providing any of the details that the public is entitled to.”

Bonuses paid by one troubled Wall Street firm, Merrill Lynch, have come under particular scrutiny during the last week.

Andrew M. Cuomo, the New York attorney general, has issued subpoenas to John A. Thain, Merrill’s former chief executive, and to an executive at Bank of America, which recently acquired Merrill, asking for information about Merrill’s decision to pay $4 billion to $5 billion in bonuses despite new, gaping losses that forced Bank of America to seek a second financial lifeline from Washington.

A Treasury Department official said that in the coming weeks, the department would take action to further ensure taxpayer money is not used to pay bonuses.

Even though Wall Street spent billions on bonuses, New York firms squeezed rank-and-file executives harder than many companies in other fields. Outside the financial industry, many corporate executives received fatter bonuses in 2008, even as the economy lost 2.6 million jobs. According to data from Equilar, a compensation research firm, the average performance-based bonuses for top executives, other than the chief executive, at 132 companies with revenues of more than $1 billion increased by 14 percent, to $265,594, in the 2008 fiscal year.

For New York State and New York City, however, the leaner times on Wall Street will hurt, Mr. DiNapoli said.

Mr. DiNapoli said the average Wall Street bonus declined 36.7 percent, to $112,000. That is smaller than the overall 44 percent decline because the money was spread among a smaller pool following thousands of job losses.

The comptroller said the reduction in bonuses would cost New York State nearly $1 billion in income tax revenue and cost New York City $275 million.

On Wall Street, where money is the ultimate measure, some employees apparently feel slighted by their diminished bonuses. A poll of 900 financial industry employees released on Wednesday by eFinancialCareers.com, a job search Web site, found that while nearly eight out of 10 got bonuses, 46 percent thought they deserved more.