It's probably now going to come to industrial action

Martin Kannegiesser, Gesamtmetall

"Unfortunately the talks failed and we very much regret it," said the head of Gesamtmetall, Martin Kannegiesser.

IG Metall's head Klaus Zwickel said employers had "thrown away the last chance of solving the wage conflict peacefully".

The talks covered 820,000 workers in one region of Germany, but the deal had been expected to set the pattern for settlements across the country.

IG Metall had originally asked for a 6.5% pay rise, while employers were offering only 2%.

The union is reported to have cut its demand to about 4%, but employers refused to raise their offer above 3.3% over 15 months.

Martin Kannegiesser said the offer represented the "threshold of pain for our companies".

"It's probably now going to come to industrial action. We just have to see it through," he said.

Damage

In recent weeks, IG Metall has been stepping up the pressure on employers by staging a number of brief stoppages.

But a full strike affecting key engineering sectors such as the car industry could be much more damaging for the economy, and a political embarrassment for the government.

Chancellor Gerhard Schroeder faces a general election in September, and has already been forced to admit that he will not meet a promise to reduce unemployment to 3.5 million before the poll.

The number of jobless in Germany is currently hovering around the 4 million mark.