Public sector employees are in for a below-inflation pay raise of 3 percent this year, the government said yesterday while vowing to stay out of the increasingly caustic wage talks between banks and union groups. The Economy and Finance Ministry said a tight income policy is necessary if the budget deficit is to be kept below 3 percent of gross domestic product – a level in line with European Union rules. «We have decided on these (wage) increases after exhausting all the limits within the budgetary policy,» the ministry said. Pensioners will receive a slightly higher hike of 4 percent, but retired farmers will see a 7 percent increase. Inflation this year is estimated to hit about 3.6 percent. The news is likely to trigger strike action from union groups, who lobbied for pay raises of around 7 percent. The General Confederation of Greek Labor (GSEE), the country’s largest union group, said the government is dodging its pre-election promises and that workers will respond by taking action. Labor relations within the financial sector are also heading for problems after banks refused on Tuesday to negotiate employee wages collectively, opting instead to bargain with each company individually. The news has outraged union leaders, who have described the move as a breach of the constitution and called on the government to intervene. The conservative government appears to be silently backing the move as it refuses to take a position on the issue. «The state does not intervene in (work) contracts,» said government spokesman Evangelos Antonaros. «It is a matter for social partners.» Due to state holdings in lenders such as National Bank and Emporiki, the government has played a large role in their policymaking in the past. The banks argue that since these stakes have fallen over years of sell-offs, institutional investors, spurred by growing competition, are demanding changes. The Federation of Bank Employees’ Unions (OTOE) has called a 24-hour strike for Monday.