* Exploratory talks on "grand coalition" begin
* SPD strikes tough negotiating stance as members wary
* Prolonged coalition talks risk inaction on EU
By Sarah Marsh
BERLIN, Oct 4 Angela Merkel holds preliminary
talks with the Social Democrats (SPD) on Friday to sound out the
scope for compromises to form a "grand coalition", marking the
start of complicated horse-trading that could drag on into next
Germany's European partners are watching the coalition
manoeuvring in Berlin closely, concerned that delays could push
back EU-wide decisions on important financial crisis-fighting
measures like the ambitious banking union project.
"Europe is watching us, the world is watching us," Merkel
said at an event in Stuttgart ahead of the negotiations. "We
have the common responsibility to build a stable government."
The SPD are seen as the conservative chancellor's most
likely partner, but they have said they will not be rushed into
a deal. Merkel will also hold preliminary talks with the Greens
next week, playing potential partners off against each other.
Merkel said the landslide victory of her conservatives in
the Sept. 22 election had underscored voters' trust in them.
"Now I will obviously try to justify this trust by fair talks."
There is deep resistance among SPD members to entering
another "grand coalition" with Merkel, after hooking up with her
in her first term only to plunge to their worst post-war result
in the 2009 election.
Merkel's outgoing ally, the Free Democrats, suffered the
same fate. After four years as her junior partner, they obtained
less than 5 percent of the vote and so were booted out of the
German parliament for the first time since 1949.
The talks on Friday aimed to examine whether policy
compromises are feasible. Once these preliminary discussions are
completed, a group of 200 senior SPD officials from across
Germany must flash a green light before the party enters more
formal coalition negotiations with Merkel's conservatives.
"It is still an open question as to whether or not it will
come to formal coalition talks," said Andrea Nahles, general
secretary of the SPD, striking a firm negotiating stance.
Nahles has said it could take until December or January for
a government in Europe's largest and most powerful economy to be
Political risk analyst Carsten Nickel at Teneo Intelligence
said such claims were tactical posturing and he expected a deal
earlier, noting that "a prolonged period of partisan bickering
would not pay off with Germany's stability-prone electorate."
Moreover no party would want to risk exacerbating the euro
zone crisis. Merkel's cabinet will act as caretaker government
and "act if immediate decisions were required, for instance on
Greek financing needs for 2014", Nickel said.
"Where possible, however, the preference will be to postpone
decisions until a new government is in place."
WILLING TO COMPROMISE?
The aim of the formal coalition talks would be to agree a
policy blueprint for the next government, as well as the
allocation of top cabinet posts.
At the very end, the SPD has said it will have to go back to
its 472,000 grassroots members and seek their approval before
agreeing to an alliance with Merkel.
This raises pressure on the chancellor to make compromises,
but it also poses a serious risk to the SPD leadership.
If the SPD rank and file were to reject a coalition deal
negotiated by their leaders, party Chairman Sigmar Gabriel and
other senior figures would probably have to step down.
Merkel's Christian Democrats and the SPD appear headed for a
showdown over tax policy and bellwether cabinet positions,
including the influential finance ministry now led by Merkel
ally Wolfgang Schaeuble.
Leading conservatives have sworn to stand by their campaign
promise not to increase taxes. The SPD campaigned on a platform
of tax hikes for top earners to fund improvements in
infrastructure and education.
Schaeuble said that by giving Merkel such strong backing,
voters had shown they were against tax rises. In an interview
with mass circulation Bild am Sonntag, he said: "We will fight
for each and every point in our campaign programme".