Angela Merkel closer to forming coalition after SPD agrees to talks

Chancellor Angela Merkel's conservatives and their traditional centre-left rivals moved a decisive step closer to forming a new government yesterday, but the alliance of Germany's two biggest parties is still far from a done deal.

Merkel now plans to start formal coalition talks on Wednesday with the Social Democrats, who finished a distant second in the election.

Such a left-right alliance ruling Europe's biggest economy would have a strong parliamentary majority and be able to drive through policy against the opposition of the two smaller parties, the ecologist Greens and the far-left Linke.

The deal to embark on thorny negotiations on policy and haggling over ministerial posts came almost a month after Merkel's party triumphed in September 22 elections, but missed out on a clear majority to form her third-term government.

"We have noted commonalities, we have noted differences and we have seen there is mutual trust," said conservative negotiator Alexander Dobrindt, the general secretary of Merkel's Bavarian allies the Christian Social Union.

Sigmar Gabriel, the leader of the Social Democrats (SPD), signalled that the traditional party of working-class Germany would drive a hard bargain in helping Merkel back into power, especially on its core demand for a minimum wage.