The government’s incomes policy for the public sector in 2005 will contain pay increases above the inflation rate but lower than expectations, sources say. According to preliminary figures, most likely to be announced this week, increases for public servants will be no more than 3.5 percent, while pensioners are likely to get 3.8 percent. Ministers reportedly take the view that such increases test the limits of the economy. However, the size of the increases appears to have become a source of friction inside the government, with some populist ministers, like that of Labor, Panos Panayiotopoulos, attempting to appear more «generous,» albeit with a reminder that his recommendations are not being adopted by his colleague in Economy and Finance, Giorgos Alogoskoufis. Part of Alogoskoufis’s hopes for dampening spending rest on containing the number of new hirings in the public sector, which the populist flank considers counter to improving public services. In an attempt to rein in any such generous tendencies, Prime Minister Costas Karamanlis was said to have warned ministers that «there are no ‘good’ ministers promising increases and ‘bad’ ones who don’t.» With public finances now under close surveillance by the European Commission and Ecofin, the EU’s council of finance ministers, the government appears resolved to bringing the budget deficit down to at most 3.5 percent of gross domestic product (GDP) this year, from the heights of more than 5.5 percent in 2004. This close monitoring is expected to be confirmed, with some new and strict admonitions, at Ecofin’s next scheduled meeting on February 17.