Merkel: German coalition talks to be tough, unclear when they'll end

More than four months after a national election, Europe’s largest economy and pre-eminent power broker is in political paralysis, causing concern among investors and partner countries that policymaking on key issues like Britain’s looming departure from the European Union and euro zone reform may be held up.

The conservatives and SPD had set themselves a Sunday deadline to agree on renewing the “grand coalition” that has governed since 2013 but some politicians said that the discussions could run into Monday or Tuesday - and even then, SPD grassroots members still need to agree to any deal.

“It’s not yet possible to say how long it will last - we did good groundwork yesterday but there are still important issues that need to be resolved,” Merkel, in office for 12 years, said before heading into negotiations.

The parties reached agreements on energy and agriculture on Saturday but continued to haggle over healthcare.

Merkel, who is betting on the SPD to secure her fourth term in office, added: “I‘m going into talks with goodwill today, but I also expect that we’ll face difficult negotiations.”

SPD leader Martin Schulz said the opposing sides had edged closer on many issues in recent days but remained at odds over his party’s demand to abolish fixed-term contracts for workers and its call to replace Germany’s dual public-private healthcare system with one insurance system for all.

Healthcare and labour market policy are crucial for the SPD, whose 443,000 members - many of whom oppose forming another awkward partnership with Merkel after their party suffered its worst post-war result in September’s election - will get the chance to veto any final coalition deal.

“We’ll have to negotiate very, very intensively on these issues today and I think agreements are possible but they still haven’t been reached,” Schulz said.

The conservatives have rejected SPD calls for sweeping reform of health insurance and talks are now expected to focus on improving public healthcare, such as by changing billing rules for doctors, who earn more by treating private patients.

Labour market policy is another serious stumbling block - Merkel’s bloc does not want to ban fixed-term contracts like the SPD but has offered to prevent the repeated renewal of such contracts as a compromise.

Two negotiating sources told Reuters that the parties had reached an agreement on residential rents and construction of social housing, issues they had been wrangling over on Saturday, but this deal still needed to be approved by senior negotiators.

Schulz said he wanted talks to progress swiftly but that the parties should not put themselves under huge time pressure as this would not be helpful in the final phase of negotiations.

“Ultimately, it’s necessary to take the time you need to create a stable foundation for a stable government,” he said, adding that Sunday’s talks could run into the night.

SPD negotiator Manuela Schwesig urged all negotiating parties to make concessions, saying it was difficult to explain to ordinary Germans why they were still waiting for a new government month after the September 24 national election.

Conscious that the SPD needs to ensure any coalition deal bears the hallmarks of SPD policy to sell it to grassroots members, Schwesig said: “We’ve promised our members that we’ll negotiate until the other side squeals and we’ll do that.”