Employers are understood to have made an initial offer of just 3% against an annual inflation rate which has already hit 3.5%.

Taoiseach Bertie Ahern last week urged both sides to make a deal after almost four months of negotiations. However, the Irish Bank Officials Association said this weekend that it will not accept anything less than 10% over two years and that this is supported by most of the private sector unions at the talks.

"On the one hand we have public servants in well-paid, secure jobs with huge pensions, then we have poorly paid, insecure jobs with no pensions for the rest of us, " said the bankers' union spokesman.

It is understood that Dermot McCarthy, secretarygeneral at the Department of the Taoiseach, told unions and employers last week that the government expects inflation to rise to 4% by the end of 2006 and then to dip slightly to 3.5% next year.

This would suggest a government compromise solution of 7.5% over two years between the respective positions of 10% and 6%.

Sources close to the talks said huge pressure will now be put on both parties to reach agreement as they begin their 111th day of negotiations.

"They will be locked into Government Buildings today and won't be allowed to come out without a deal, " said the source.