Greek industrialists yesterday said pay raises will not exceed the 2-3 percent of other eurozone countries, signaling that stalled negotiations with the country’s powerful labor unions would not conclude soon. The umbrella union General Confederation of Greek Labor (GSEE) had entered talks demanding an 8 percent pay raise and employers had offered 2.8 percent, below inflation estimated at 3.2 percent this year. In past deals, a middle ground has been found but industrialists, boosted by the conservative government’s tight incomes policy, made clear they would not budge much, raising the specter of intense labor strife in coming months. «Our offer may be below Greek inflation but it covers the eurozone average inflation and a big part of the productivity gains of 2005,» said Odysseas Kyriakopoulos, chairman of the Federation of Greek Industries (SEV). The two sides have been locked in talks for weeks and unions, which have paralyzed the country in the past, will go on a major strike on March 15 to press their demands. The two-year deal that ended in 2005 gave average annual pay raises of 5 percent. «There is no way we will get anywhere near those levels this year,» Kyriakopoulos said. «Foreign direct investment in our country is disappointing. The message is clear that we need to improve our competitiveness and, although salaries are not the only factor, they also play a role.» Greece has the eurozone’s worst competitiveness, according to a study by the International Institute for Management Development, and foreign direct investment (FDI) has been falling steeply in recent years. Eager to reduce its budget deficit, the government announced a tight 2006 wage policy for public servants – offering for the first time in years below-inflation rises of 3 percent and boosting SEV’s bargaining position. After revealing it underreported its budget deficit to the European Union for years, Greece must now bring it under the 3 percent of GDP cap or face sanctions. At the same time, Brussels urged Athens to push much-need structural reforms to secure long-term fiscal health. Echoing public opinion polls, Kyriakopoulos said unemployment, which was 9.7 percent at the end of 2005 compared to the eurozone’s 8.3 percent, was Greece’s biggest problem. Job creation essential Kyriakopoulos said the key to creating jobs is more labor market flexibility. «We need to relax some of the rules relating to the way we work, our work hours and the way we are compensated,» he argued. SEV, whose members employ about half a million people, suggested operating outside labor deals to create jobs in areas or sectors suffering the most, such as the textile industry or ship repair. «Our society is still more preoccupied with how to distribute the pie rather than increase it,» he said. «In some regions of the country, unemployment reaches 20 percent. We propose exceptions to the collective agreement and using local deals to give a boost to local economies.» Structural changes, such as cutting red tape and simplifying laws, are also necessary to improve Greek competitiveness as foreign investors look at more welcoming Balkan neighbors. «Greece is still not at the top of the list of foreign investors and we need to make it more attractive,» Kyriakopoulos said. «It’s not a matter of introducing incentives. It’s a matter of eliminating counterincentives.» He said the government must launch as soon as possible regular impact assessments of every new law on competitiveness to encourage entrepreneurship. «The complexity of legislation adds to the uncertainty and is an additional obstacle to FDI,» he said.