Germany's employers, unions and government will meet tomorrow for a fresh round of talks amid signs that they may be close to a compromise on lowering the statutory retirement age in return for wage restraint.

The meeting of the Chancellor, Mr Gerhard Schroder's Alliance for Jobs, which was announced unexpectedly yesterday, follows emphatic denials from employers that they will agree to lowering the retirement age from 65 to 60.

"There will be no pension at 60. We don't want to codify anything that will limit the room for manoeuvre of the social partners. Regarding the controversial debate among wage earners, I can only say: the alliance is not there to solve the problems of the unions," said Mr Dieter Phillip, who represents the owners of small businesses.

Unions argue that, by allowing employees to retire at 60 in return for the promise of moderate wage demands for the next few years, hundreds of thousands of jobs could be created for young people.

The government insists employers must pay the full cost of earlier pensions but Mr Schroder has promised to create the statutory framework for a reduction in the retirement age.

The Alliance for Jobs, a key element in Mr Schroder's government programme, has so far failed to make an impact on German unemployment, which stands above 10 per cent. Talks broke down before Christmas due to wrangling over the proposal for early pensions but, with annual pay negotiations looming in the biggest industrial sectors, both sides are eager to strike a deal.

Union leader Mr Roland Issen appeared yesterday to acknowledge that there was little prospect of the employers agreeing to the demand to pay pensions at 60.

"The pension at 60 is only part of an entire strategy for more growth and jobs in Germany. We always agreed that the alliance is not a short-term affair. There will always be situations where one side does not prevail with its ideas," he said.

But as government sources indicated that Mr Schroder had personally drawn up a compromise proposal on the pension issue, the Chancellor's spokesman sounded an upbeat note. "The government is going into these talks with a certain optimism," he said.