European Central Bank President Jean-Claude Trichet called on euro zone countries on Thursday to rein in spending, particularly on wages in the public sector, amid a worrying rise in people out of work.
"Unemployment is a clear concern right now in many parts of the euro area … wage restraint would help a lot in this respect," Trichet said in a speech at the Institute of International and European Affairs in Dublin.
"National authorities should pursue courageous policies of spending restraint especially in the case of public wages."
The euro zone economy is sinking deeper into its first ever recession, worsened by a global credit crunch which has slashed financing to companies and households, choking demand and prompting corporate belt-tightening.
ECB policymakers have suggested the bank may cut its rate again in March after lowering borrowing costs by a total of 225 basis points to 2.0 percent as the inflation rate halved and recession deepens.
Ireland, the former "Celtic Tiger" economy, has been one of the euro zone members hardest hit by the downturn as the bursting of a local property bubble and a string of homegrown banking scandals have exacerbated the impact of a global drop in demand.
PEOPLE UPSET
The Irish government is under pressure from Brussels and credit ratings agencies to reduce a sky-high budget deficit following the loss of crucial property-related taxes.
But its plan to introduce a pension levy on public sector workers prompted 100,000 people to take to the streets in protest last weekend. On Thursday thousands of lower-paid civil servants went on strike in the first industrial action of its kind in Ireland for about 20 years.
Trichet praised Dublin for "acting resolutely" to deal with its fiscal problems but outside shuttered government offices, clerical workers were scathing over what they said was an unfair burden.
"We see every day what sort of state our economy is in. We are often the ones that are attacked when people get upset about their situation," said Gillian Lynch, a striking social welfare officer and mother of two. "We are happy to pay our share but something more equitable like a levy of 1-2 percent, not 7 percent."
Public discontent with the government's handling of the economy has been further stoked by banking scandals which have created an impression of a cosy corporate culture.
Trichet warned that Ireland's construction and banking sectors, which face a steep rise in bad debts following a protracted fall in land and property prices, needed to re-adjust.
"The Irish economy clearly faces severe challenges over the next few years — and hard decisions will have to be taken," Trichet told an audience that included Ireland's Finance Minister Brian Lenihan. "I am optimistic about the prospects for the country," he added.
But Irish people do not share Trichet's optimism. Consumer sentiment in the country weakened in February and economic morale overall in the euro zone plumbed new record lows that month, data showed on Thursday.
