German election: Preliminary coalition talks collapse after FDP walks out

Steinmeier with Merkel in Berlin on Monday

Steinmeier with Merkel in Berlin on Monday

The DIHK Chambers of Industry and Commerce said a prolonged period of uncertainty would be bad for the economy.

The reluctant partners were forced to pursue the three-way tie-up, untested at national level, by voters who deserted the main parties of left and right in a September election, returning a highly fragmented parliament.

Chancellor Angela Merkel pledged to navigate Europe's largest economy through a hard period ahead after the pro-business Free Democrats (FDP) pulled out of make or break negotiations with her Christian Democrats (CDU), Bavarian sister party the Christian Social Union (CSU), and the Greens. "As chancellor... I will do everything to ensure that this country comes out well through this hard time", she said.

Steinmeier has the power to call new elections, but some German leaders have expressed concerns that another vote could lead to the far-right AfD gaining even more than the 13 percent it garnered in the previous election. The deadline for talks on Sunday night passed with no announcement being made.

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But signs that talks were going badly began emerging and Bild daily said on its website that "failure is in the air" as the parties dug in their heels on key sticking points.

Merkel's conservative party has been trying to reach a comprise with the FDP and Greens over immigration, climate change, European Union and taxes but hasn't reached a deal on any issue. However, after suffering a humiliating election loss in September, the SPD has repeatedly reaffirmed that its role in the upcoming Bundestag will be in opposition.

Merkel, who has been in power for 12 years, could also lead a minority government although she had signalled that she was not in favour of such instability. Options include new elections or a minority government, unprecedented in the country's post-war history.

But that is not without peril for Merkel, who would face questions from within her party on whether she is still the best candidate to lead them into a new electoral campaign.

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Initially, it has been thought that the talks would end last Friday, but they were extended over the weekend in an effort to obtain agreement among the parties, a task that ultimately proved - at least for the moment - fruitless.

Merkel's Christian Democrats (CDU) had reached a deal on migrant policy with her conservative Bavarian allies the Christian Social Union (CSU) in October, agreeing to put a number on how many people Germany would accept per year on humanitarian grounds, namely a net total of around 200,000 individuals, but the FDP would not get on board.

"All sides are aware of their responsibilities".

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