Senior trade union officials warned last night that Germany's first public sector strike in more than a decade was the most likely outcome of last-ditch wage talks. Some economists encouraged the government to allow for a strike rather than agree a costly pay settlement with the services trade union Verdi. Mr Kurt Martin, the union's chief negotiator, said he would not accept an offer below the two-stage wage rise of 3 per cent set by an arbitrators' panel on Sunday a proposal already rejected by the fed

"The likelihood of strike is about 90 per cent," a senior Verdi official said. Mr Otto Schily, interior minister and the federal government's chief negotiator, argued that if a strike occurred, the employers' most recent offer of a 2.8 per cent rise would be withdrawn. "A strike will automatically mean a pay freeze," he said.

The two teams of negotiators were involved in talks last night in Potsdam near Berlin, in a final round of negotiations covering 2.9 million public sector workers, following the failure of arbitration at the weekend.