cope with the cost of an above inflation three-year blue collar wage deal.

A joint statement from the Government and the Bermuda Industrial Union yesterday announced that an agreement had been signed.

Finance Minister Grant Gibbons said: "We will try and recoup these increasing costs within our existing Budget. But we will have to look for other things we can cut, or through attrition, reduce the number of personnel.'' Dr. Gibbons refused to comment on whether compulsory redundancies would ever be used to trim the Government payroll.

He said that Government had never had to resort to that before.

And he added: "We would seek to reduce costs by not replacing people who retire or leave.'' The agreement -- which has been the subject of talks for almost a year -- grants blue collar workers a 3.2 per cent hike in the first year and 3.4 per cent in the second.

But the increase for the third year remains unresolved, with a joint agreement to discuss an increase in the light of economic conditions nearer the time.

Dr. Gibbons said he hoped the third year rise would be below the level of the first two years.

"If the inflation rate continues to remain low, which we hope it will, we will have an opportunity to settle at 2.6 percent, a lower rate than for year one and two and more in line with inflation.'' The three-year agreement -- only reached after abitration -- covers increases for 950 Government manual workers, including garbage collectors, bus drivers, road sweepers and Public Works and Agriculture and Fisheries employees.

Dr. Gibbons added that the tax-payer stood to lose from the inflation-busting settlement.

He added that Bermuda relied on service industries like tourism and had to compete globally.

He said: "It's no surprise we are now getting comments on Bermuda being over-priced for what it offers.

"It will cost more for Government to provide the service it provides, because a large part of the Government's costs is labour.

"In the short term, it may look like a good deal for all these employees, but from a long term point of view, it's destructive.''