Chancellor Angela Merkel led her conservatives to their best result in over two decades in a German election on September 22 but must still find a coalition partner to secure a third term.
A second round of exploratory talks with the Greens saw the environmentalist party conclude that further talks with the conservatives would be fruitless, leaving Merkel to focus on negotiations with the Social Democrats (SPD).
Below are key coalition-related quotes from senior officials, as well as areas of potential compromise on policy and personnel.
HERMANN GROEHE (CDU)
"Representatives of the CDU/CSU and the Greens led further intensive exploratory talks again today to find out whether it would make sense to enter coalition negotiations to build a government together... I inform you that the exploratory talks will not be continued and that coalition talks will not be entered into."
"I want to stress also that even in areas where there were differences, there were none which we would have viewed as insurmountable. And at the same time there is a clear no from us to the massive tax increases that the Greens see as inevitable - and which from our conviction … are out of the question."
"After these talks the Greens do not find themselves able to enter coalition talks. We respect this decision of course. We will approach the representatives of the SPD tomorrow with a view to scheduling the explorative talks we had already eyed for Thursday."
ALEXANDER DOBRINDT (CSU)
"The talks were very serious, to be honest, more serious than expected at the beginning. The mood was good, factual and quiet. We noticed that the Greens made a long part of the journey towards us but some distance remained and the Greens were not willing to bridge that distance. My feeling was that the Greens have understood the election result ... but were unable to take on the responsibility."
"From our side we did not see any problems that would have been insurmountable... We made clear what is not doable with us on taxes. That's a clear statement that can't be changed and the Greens made clear that that is a threshold they can't cross."
CEM OEZDEMIR (GREENS)
"Of course there's a regret that the bridge can't be built strongly enough to last for four years. We appreciate the shift (from the CDU/CSU) but for us it is not enough yet."
"The door has not been nailed shut with nails you can't pull out but that's a hypothetical question and one should not give hypothetical answers to hypothetical questions."
CLAUDIA ROTH, GREENS
"When we asked how should investment in the future, in education, climate policy and such be financed? We did not present our party program with all our own financial estimates but asked how do you want to finance it? We didn't say it had to be done exactly as we proposed ... but how does the other side want to solve the challenges? We negotiated twice and discussed all points from A to Z in depth and don't think that there can be substantial change in a third round of talks."
POTENTIAL POLICY COMPROMISES
TAXES - During the campaign, the SPD urged a hike in tax rates on incomes above 100,000 euros to 49 from 42 percent to pay for higher investments in infrastructure, education and research. Merkel and her conservatives are open to higher public investment but have ruled out financing this through tax hikes or higher debt. Both sides have signaled a readiness to compromise, but finding the required revenues will be difficult. One solution for bringing more cash in longer-term would be to close tax loopholes for multinational corporations.
WAGES - The SPD has made a nationwide minimum wage one of its main demands in exploratory coalition talks. The CDU/CSU, which only supports "wage floors" on a regional or sectoral basis, may have to accept some form of blanket minimum wage, but it could end up lower than 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 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.
BARGAINING FOR CABINET POSTS
* Finance minister Wolfgang Schaeuble has signaled a desire to stay in his post, and is said to have the support of Merkel. Unless the SPD or Greens insist on the finance ministry as a condition for entering a coalition with Merkel, Schaeuble is given a good chance of continuing in his current position.
* For the SPD, much will depend on party chairman Sigmar Gabriel, whose name has been linked to various ministries -- including labor, finance and foreign. 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.
* If Gabriel is not in the cabinet, Steinmeier is seen as a candidate for the top SPD ministry, which could end up being foreign, finance or a new ministry grouping energy and infrastructure. SPD parliamentary whip Thomas Oppermann has also been mentioned as a possible finance minister, though interior or defense might be better fits. Chancellor candidate Peer Steinbrueck has made clear he will not have a role in a Merkel cabinet.
* Were the SPD to claim the finance ministry, one source said Merkel might want to shift Schaeuble to the foreign ministry. But the extensive travel involved in this post may prove too much of a burden for the wheelchair-bound Schaeuble.
* Apart from Schaeuble, the other member of Merkel's CDU who 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, many would see it 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 someone she trusts to oversee her "Energiewende" shift from nuclear to renewable power.
(Compiled by Berlin bureau)