Merkel and SPD coalition talks enter final make-or-break phase

By Stephen Brown

BERLIN (Reuters) - Angela Merkel's conservatives and Germany's Social Democrats have forged a political marriage before and know each other's ways, but as a new "big day" approaches, they are having to work hard to convince sceptical party members and the business world that they should give it another go.

Merkel's Christian Democrats (CDU) and Bavarian allies were the clear winners in September's election, taking 41.5 percent of the vote, but their former liberal partners in government lost all their seats, so the centre-right still needs to form a coalition with the humiliated centre-left.

After three weeks of negotiations on policy details, coalition talks enter the "hot phase" this week, and the knottiest problems must be resolved in a final session on November 26 for the chancellor to have a new government by Christmas.

Both sides are making big concessions, but the conservatives want their landslide election victory reflected in the deal and the subsequent division of cabinet posts. Two conservatives spoke this weekend of "not letting the tail wag the dog".

The SPD had its second-worst result of the post-war era, appealing to just 25.7 percent of voters, but doesn't want to look like Merkel's doormat.

"Forty percent of voters chose the conservatives' platform. Support for the SPD's ideas was much lower. This simple fact has to be reflected in the 'grand coalition' programme," Finance Minister Wolfgang Schaeuble told Bild newspaper in a preview of Monday's edition.

From the sidelines, the industrial sector frets about the coalition undermining Europe's biggest economy.

Four big car manufacturers - Volkswagen, BMW, Daimler and GM's Opel - wheeled out their bosses for a joint newspaper interview on Sunday to warn, in the words of Daimler's Dieter Zetsche, that "if conditions in Germany deteriorate, we'll have to think about moving production elsewhere".

That will worry Merkel, known as the "auto chancellor" for her links to the sector, and SPD Chairman Sigmar Gabriel, whose party is close to the trade unions. Neither wants to put at risk the high employment rate and solid economic recovery.

After Gabriel told a party congress in Leipzig he wanted to "strengthen the economic competence" of the SPD, CDU Secretary General Hermann Groehe said this should mean "the coalition parties can work together to avoid putting German jobs at risk".

TIME TO DELIVER

If the devil is in the detail, he will make himself at home in a draft coalition document up to 160 pages long, the product of 12 working groups. SPD delegates in Leipzig will be ploughing through it before deciding how to vote in a ballot of 470,000 party members due by early December.

In theory, a "no" from SPD members could hijack the whole process, which would likely result in a new election.

But the leadership of both camps, while talking tough, signalled that a deal would be reached by November 26.

"If everything is in the coalition treaty, then, damn it, we should be in no doubt about the SPD signing it and enabling a majority," said Gabriel on Saturday. "Now you have to deliver, dear conservatives."

The SPD have dropped one of their main election positions - higher taxes on the rich - but dug in their heels for a blanket minimum legal wage of 8.50 euros an hour. Merkel - and most business leaders - would rather have wage floors established sector by sector, by employers and workers rather than Berlin.

But she signalled at a rally on Friday that she was ready to cede on wages and also meet the SPD halfway on its demand to grant dual citizenship for non-European Union residents, a big issue for Germany's large Turkish community.

"If you put down red lines on every single point, you can't carry out coalition talks," said the pragmatic Merkel, who has moved her party further left in eight years in power, dropping conservative credos like nuclear power and military service.

Political scientist Everhard Holtmann sees a "window of opportunity for the grand coalition since the chancellor made it clear the conservatives are ready to make concessions on issues like the minimum wage and possibly also dual citizenship".

The final 10 days of talks are still expected to be tense; conservative parliamentary leader Volker Kauder predicted "the major points of conflict will be decided in the last two days".

He portrayed the negotiations so far as a victory for the Merkel camp, telling a Sunday paper that campaign commitments to block tax hikes, new debts or crisis tools making Germany liable for other euro zone states' finances had prevailed.

Gabriel's talk of opening up to future alliances with the hardline Left Party, which has been ostracised for decades, was described as unhelpful by conservatives, but Holtmann saw it as a sop to SPD left-wingers opposed to another grand coalition.

With major differences between the SPD and Left on foreign policy especially - the Left opposes NATO membership, overseas military operations and weapons exports - he said the alternative of the SPD, Left and Greens using their slim numerical majority in the Bundestag to get rid of Merkel remained "totally unrealistic".

(Reporting by Stephen Brown; Editing by Will Waterman)