Merkel warns of tough talks as clock ticks on coalition deal

Chancellor Angela Merkel warned that "serious differences" remain between the parties hoping to form Germany's next government but voiced hope a deal would emerge Thursday, hours before a deadline that could trigger snap polls.

We have "very different positions" on some policy issues, Merkel told reporters, adding however that "I believe it can work".

After weeks of quarrelsome exploratory talks, Merkel's CDU/CSU bloc, the pro-business Free Democrats (FDP) and the left-leaning Greens are holding a final day of negotiations before announcing whether they have found enough common ground to begin formal coalition negotiations.

The awkward bedfellows, who differ on everything from refugees to climate protection and EU reforms, have been pushed together by September's inconclusive election, which left Merkel badly weakened as the far-right Alternative for Germany (AfD) lured millions of voters.

The stakes are especially high for Merkel, eyeing a fourth term, who set the Thursday deadline to reach an agreement in principle with the goal of having a new government in place by Christmas.

"If the conservatives, the Greens and the FDP can't pull together, there's no way to avoid new elections," Der Spiegel news weekly wrote.

"No one wants that. But is that enough to justify an alliance?"

The potential tie-up, dubbed a "Jamaica coalition" because the parties' colours match those of the Jamaican flag, is untested at the national level and how stable such a government would be is anyone's guess.

The final round of pre-coalition talks is expected to run late into the night as party officials tackle issues including migration.

Merkel is facing "her most dangerous night", Germany's best-selling Bild newspaper said.

"It's not just the chancellor's fourth term that depends on the success of Jamaica, but her entire political career."

(AFP)