* Key conservatives signal readiness to grant SPD tax rise
* Social Democrats most likely partner for Merkel third term
* But SPD will ask high price for new "grand coalition"
* Coalition talks could last months, Greens purge leadership
By Stephen Brown
BERLIN, Sept 25 Conservative allies of Germany's
Angela Merkel said on Wednesday they might agree to raise taxes
to help lure the defeated centre-left Social Democrats into a
grand coalition that would keep the chancellor in power.
Their overtures came in media interviews ahead of a meeting
of SPD leaders in Berlin on Friday, where the opposition will
try to chart its new course after losing a third parliamentary
election to Merkel and her Christian Democrats (CDU) on Sunday.
Both the SPD and the Greens, Merkel's potential coalition
partners following the failure of her previous allies, the
pro-business Free Democrats, to win any seats, have been playing
hard to get by suggesting they do want to join her government.
The Social Democrats saw their support crumble during
Merkel's previous left-right grand coalition in 2005-2009 and so
may drive a high price for their support.
Tax policy is one area where the Christian Democrats could
now give some ground - in a negotiating process that could keep
Germans, the rest of Europe and investors guessing for months.
"I could imagine raising the top tax rates in exchange for
tax cuts at the bottom," Norbert Barthle, a senior member of
parliament for the CDU, told the Rheinische Post newspaper.
His message was echoed by deputy leader Armin Laschet in
another paper. And, in a third interview, even hardline Finance
Minister Wolfgang Schaeuble refused to rule out tax increases
that his party had rejected during the election campaign.
"Let's wait and see how the talks go," Schaeuble said.
The CDU had campaigned against any tax increases on high
incomes; the SPD had said higher taxes were needed for education
and infrastructure. It may yet shun any CDU offers. Many in the
centre-left party say they would prefer to stay in opposition.
Some SPD leaders want to put any proposed coalition deal to
a vote by the party's 472,000 members, an unwieldy process.
The chancellor increased her own party's share of the vote
on Sunday but fell just short of an absolute majority. And with
the Free Democrats just falling short of the 5 percent needed to
take seats in parliament, she looks likely to form a government
with one of three other parties who made it into parliament.
MERKEL'S OPTIONS LIMITED
The radical Left party is out of the question as a partner
for her conservatives, leaving only the SPD and Greens. Both
have begun the bargaining season by saying they would rather
stay in opposition than help Merkel rule for a third term.
The SPD remains the most likely partner in the long run.
Even after a second consecutive disastrous election, it is the
biggest party after the conservatives and will ask a high price.
The SPD leadership will discuss strategies and the proposed
membership vote on Friday. Grassroots supporters find the idea
of being Merkel's junior partner again distasteful and it is far
from certain that SPD members would back a grand coalition.
"At the end of such a process, our members must have the
last word," said Nils Schmid, SPD leader in Baden-Wuerttemberg
who wants any coalition deal put to a vote. His supporters, he
said, had "no interest in always saving Frau Merkel's bacon".
But given that Merkel's options other than a coalition are
an unstable minority government or new elections, political
scientist Hans Vorlaender said the likely ultimate outcome was
"a more Social Democratic" country.
"The advantage is that it would ensure greater political
stability and there would be no blockades by the Bundesrat,"
said the Dresden University professor, noting Social Democrat
control in the upper house of parliament.
The Greens are purging their leadership after an election
that relegated them to being the smallest party in parliament.
Katrin Goering-Eckardt, one of the few Greens leaders left
standing, said differences with the conservatives were too wide
for the two parties to work effectively together in government.
"It would have no credibility and would not help a stable
government, after the views expressed in this campaign," said
Goering-Eckardt, who like Merkel is an east German close to the
Lutheran church, though she is 12 years younger at 47.
Right-wingers in the Merkel camp, such as Bavarian state
premier Horst Seehofer, find the Greens hard to stomach but even
his objections are not set in concrete.
First ruling out any contact, he softened this to rejecting
"Greens leaders who played a role in the election campaign" and
appeared to leave a door open to the likes of Goering-Eckardt.
More significantly still, finance minister Schaeuble said he
could work with pragmatists like Winfried Kretschmann in
Baden-Wuerttemberg, who is the Greens' first state premier.
Asked by Die Zeit weekly if the Greens were a coalition
option, Schaeuble said: "It depends which Greens we're talking
about." The minister, who is himself from Baden-Wuerttemberg,
urged rapid negotiations "given some important European policy
decisions we are faced with, for example on banking union".
Progress on pressing euro zone issues, including creating a
banking union to restore confidence in the bloc's financial
system, slowed in the months before the election as Merkel
avoided agreeing anything that might upset German voters.