Factbox: German coalition watch

Chancellor Angela Merkel led her conservatives to their best result in decades in a German election on September 22, but must still find a coalition partner to secure a third term.

She is expected to turn first to the center-left Social Democrats (SPD), with whom she ruled between 2005 and 2009, but could also talk with the environmentalist Greens.

Below are key coalition-related quotes from senior officials since the election, as well as areas of potential compromise on policy and personnel.


ANGELA MERKEL (CDU) - "We are, of course, open for talks and I have already had initial contact with the SPD chairman."

VOLKER KAUDER (CDU) - "The SPD is the bigger party in parliament, therefore we should offer to talk with them first. After all the statements during the campaign, this is also the right preference from a policy perspective."

HORST SEEHOFER (CSU) - "I won't hold such talks (with the Greens). End of story."

SIGMAR GABRIEL (SPD) - "A search has begun on how to form a government and the result is open. The SPD is not waiting in line or competing for this, after Frau Merkel ruined her previous coalition partner."

HANNELORE KRAFT (SPD) - "Ninety percent of SPD members in my region are against a grand coalition. There is no shame in going into opposition."

ANDREA NAHLES (SPD) - "There will be no Red-Red-Green (SPD-Left-Greens coalition) in this legislative period. We excluded this option before the election and we maintain this position."


TAXES - The SPD wants to raise tax rates on incomes above 100,000 euros to 49 from 42 percent, and is unlikely to agree to a coalition unless it gets some form of tax hike on high earners. In exchange, the CDU/CSU could seek backing for off-setting tax relief through the elimination of "cold progression", or bracket creep, after the SPD blocked those plans in the upper house of parliament last December.

WAGES - The SPD would likely make a nationwide minimum wage, a key plank of their campaign platform, a condition for a coalition. The CDU/CSU, which only supports minimum wages on a regional or sectoral basis, may have to compromise on a blanket wage, but it might be below the 8.50 euros the SPD wants.

EUROPE - No insurmountable differences. The SPD would seek symbolic steps to promote growth in struggling euro zone states, but is unlikely to press for more German taxpayer money to be used for this purpose. It will push for a financial transactions tax and faster movement towards a banking union where the banks themselves shoulder the costs of restructuring. The SPD is not expected to push hard for debt mutualisation, despite having backed the idea of a debt redemption fund during its campaign.

ENERGY - The SPD and CDU/CSU could reach a compromise on scaling back subsidies for renewable energy. The Greens, however, would be a more difficult partner for the conservatives as they oppose lower renewables incentives.

PUBLIC INVESTMENT - The SPD could push for more spending on education, infrastructure and R&D -- investments supported by German industry. The CDU/CSU is unlikely to oppose it, as long as "debt brake" rules are respected.


* In a "grand coalition", the SPD would likely get the first choice of a ministerial post. Much will depend on party chairman Sigmar Gabriel, who is believed to have set his sights on either the finance, foreign or labor ministries. He could also decide to opt out of government and take over the SPD leadership in parliament, though this could meet resistance from the party and incumbent Frank-Walter Steinmeier who is keen to stay put.

* Steinmeier is seen as the top candidate in the party for foreign or finance minister if Gabriel is not in the cabinet. Chancellor candidate Peer Steinbrueck has ruled out serving under Merkel and is expected to stick to that.

* Were Gabriel to opt for the finance ministry, one source said Merkel might want to shift incumbent Wolfgang Schaeuble to the foreign ministry. But the extensive travel involved in this post may be too much of a burden for the wheelchair-bound Schaeuble. He is dead-set on remaining finance minister, according to multiple sources. If the SPD were to opt for another ministry, he is expected to stay in his current job.

* Apart from Schaeuble, the other member of Merkel's CDU that is seen as a lock for the cabinet is Ursula von der Leyen, who may be keen on the foreign ministry. If she were to get this post, or move into the parliamentary leadership role held by Volker Kauder, it would be seen as a sign she was being groomed to succeed Merkel.

* It remains unclear whether the SPD's pre-election proposal to group together responsibility for all energy-related issues in one ministry -- they are currently shared between the economy and environment ministries -- will see the light of day. Merkel is likely to want a conservative loyalist to oversee her "Energiewende" shift from nuclear to renewable power.

(Reporting by Noah Barkin, Stephen Brown, Madeline Chambers, Andreas Rinke, Gernot Heller, Holger Hansen)