Bank of Greece Governor Nicholas Garganas has come under heavy fire from trade unions who call his incomes policy and labor market deregulation proposals anti-labor and designed to lower working peoples’ incomes in favor of capitalists’ profits. With this denunciation of «neo-liberal recipes,» trade unions preclude all debate and insist on high nominal wage rises. We must admit that their position finds favor with the public, since inflation has cut into incomes and everyone would like to make up for this loss. We cannot, however, blind ourselves to another cruel reality: the fact that high nominal wage rises also stoke inflation, prevent new hirings and investment and dampen industrial activity. In other words, what employees gain in the short term, they lose in the long term. Since 2000, nominal pay annual hikes have ranged between 5 and 7 percent. Inflation has averaged 3.5 percent during this period, while EU inflation has averaged 2 percent. This means that Greece is gradually losing its competitiveness; as a result, the unemployment rate is stuck at over 10 percent and private investment shows zero growth. The problem is real and it would be willful blindness on our part to ignore it. On the other hand, persistent inflation and unemployment encourages populist demands for high pay rises. We all complain about unemployment, but maintain a hypocritical silence over labor market rigidities that help maintain unemployment. Unfortunately, the unemployed are not represented by the union and are easy to forget about; at a maximum, they see their plight exploited from time to time by the media. This does not mean that unemployment statistics are not alarming: A couple of days ago, it was announced that the unemployment rate among those aged 18-24 reaches 45 percent in central Macedonia. In his interim Monetary Report submitted to Parliament on Thursday, Garganas takes note of the loss in competitiveness, due to inflation higher than the eurozone average. He also underscores the fact that, to bring down inflation, an accord between employers and unions on wage restraint is necessary. Wages must be compatible with price stability (i.e. inflation below 2 percent) without leading to real income losses. Garganas has repeatedly called for wage rises not to exceed average eurozone inflation plus any gains in productivity. The government is seriously considering his proposal; it is one of the alternatives considered ahead of the announcement of the government’s public sector pay policy, in January. However, Garganas’s proposal mainly concerns the private sector, where pay rises are the result of free collective bargaining between the General Confederation of Greek Labor (GSEE) and industrialists, merchants and small-business people. Of course, GSEE is completely opposed to the Garganas proposal. However, this time unions must consider it carefully for the following reasons: First, it accepts that real incomes should not decline; second, Garganas backs it up with statistical models showing that, if his advice had been followed since 2002, inflation would be just 2 percent this year, instead of 3.6 percent. True, real wages would have risen only 9.4 percent instead of 10.2 percent, but the base would have been laid for higher investment, faster growth and job creation. Unfortunately, the unions have fallen victim to the lure of high nominal pay rises, what economists call the «money illusion» which ends up harming them in the long run.