German Chancellor Angela Merkel said her conservatives faced tough negotiations with the Social Democrats (SPD) on Sunday as they seek to form a coalition government and it was unclear when the two blocs would be able to wrap up the talks.
More than four months after a national election, Europe's largest economy remains in political limbo without a new government. The two camps want to agree by the end of Sunday to renew the "grand coalition" that has governed since 2013 but some politicians say talks could run into Monday or Tuesday.
"It's not yet possible to say how long it will last — we did good groundwork yesterday but there are still important issues that need to be resolved," Merkel said before heading into negotiations.
The parties reached agreements on energy and agriculture on Saturday but continued to haggle over healthcare.
Merkel, who is betting on the SPD to secure her fourth term in office, added: "I'm going into talks with goodwill today, but I also expect that we'll face difficult negotiations."
SPD leader Martin Schulz said the opposing sides had come closer on many issues in recent days but remained at odds over rents, his party's demand to abolish fixed-term contracts for workers and its call to replace Germany's dual public-private healthcare system with one insurance system for all.
Healthcare and labour market policy are crucial for the SPD, whose 443,000 members - many of whom oppose forming another awkward partnership with Merkel after their party suffered its worst postwar result in September's election - will get the chance to veto any final coalition deal.
"We'll have to negotiate very, very intensively on these issues today and I think agreements are possible but they still haven't been reached," Schulz said.
The conservatives have rejected SPD calls for sweeping reform of health insurance and talks are now expected to focus on improving public healthcare, such as by changing billing rules for doctors, who earn more by treating private patients.
Merkel's bloc does not want to ban fixed-term contracts like the SPD but has offered to prevent the repeated renewal of such contracts as a compromise.
Schulz said he wanted talks to progress swiftly but that the parties should not put themselves under huge time pressure as this would not be helpful in the final phase of negotiations.
"Ultimately it's necessary to take the time you need to create a stable foundation for a stable government," he said, adding that Sunday's talks could run into the night.
SPD negotiator Manuela Schwesig urged all negotiating parties to all make concessions, saying it was difficult to explain to ordinary Germans why they were still waiting for a new government months after the Sept. 24 national election.
Conscious that the SPD needs to sell the prospect of another grand coalition to grassroots members by ensuring any coalition deal bears the hallmarks of SPD policy, Schwesig said: "We've promised our members that we'll negotiate until the other side squeals and we'll do that."