BERLIN - German industrial union IG Metall resumed pay talks with employers on Wednesday with both sides warning failure to make progress would lead to an all-out strike that could dent economic recovery.
"I think if we don't get a breakthrough today then there is little chance of avoiding a big conflict," Otmar Zwiebelhofer, the employers' chief negotiator in Baden-Wuerttemberg state where the talks were taking place, told German radio.
IG Metall has promised an all-out strike if there is no wage deal by the end of February, although a spokesman said "that won't be decided today or tomorrow," a reference to a strategy meeting of senior union officials due to take place on Thursday.
Germany's key engineering industry employs 3.5 million people at automakers such as BMW AG, DaimlerChrysler AG and Adam Opel AG, as well as hundreds of smaller firms.
Joerg Hofmann, IG Metall's negotiator in Baden-Wuettemberg, which traditionally acts as pathfinder for the whole country's engineering wage accords, indicated the union may make a new offer at Wednesday's meeting.
He told German radio the union may drop its key demand for a 4 percent pay rise over 12 months in favor of a lower settlement stretched over a longer period. However, he also warned there would be no solution if employers stuck to their demand for longer working hours.
Economists say an all-out strike could dent recovery in Europe's largest economy and hurt its chances of attracting much-needed investment.
Officials at the talks in Pforzheim near Stuttgart said Martin Kannegiesser, head of the employers group, could join the talks later on Wednesday and the IG Metall spokesman said union leader Juergen Peters would also attend, if necessary.
The union said brief stoppages to pressure employers during talks would continue at more than 100 plants, hitting BMW, DaimlerChrysler and Opel.
Several rounds of talks across Germany have stalled after employers offered IG Metall less than half the 4 percent pay rise it demanded for 3.5 million industrial workers this year.
The union also wants employers to drop a demand for more flexible and possibly longer working hours, ranging between 35 and 40 hours a week compared to the 35 hours standard in western Germany.
IG Metall was forced last year to abandon a strike in eastern Germany to try to enforce a 35 hour week there compared to the current 38 hours.
Employers say more flexible contracts will secure and possibly create jobs by making German firms more competitive and allowing them to adapt to fluctuations in demand. They have declined to alter an offer for two 1.2 percent pay rises over 27 months until the union budges on working hours.