Negotiations between the CDU/CSU and the SPD have entered what many hope could be the final round, with a number of issues still unsettled between the parties. The negotiations could take at least two more days, as the parties try to iron out the details of another grand coalition.

German news agency DPA, citing party sources, reported that talks would not conclude on Sunday, but would most likely resume on Monday morning.

Chancellor Merkel said that it was not yet possible to say how long the talks would last.

Going into the talks, Chancellor Merkel appeared to be cautiously optimistic

"We did good groundwork yesterday but there are still important issues that need to be resolved," Merkel told reporters before heading into the talks. "I'm going into talks with goodwill today, but I also expect that we'll face difficult negotiations."

"We know what task we have and are trying to do justice to it."

SPD leader Martin Schulz meanwhile said the opposing sides had reached agreement on certain policies in recent days but still remained at odds over a number of issues.

"The (…) parties have agreed and come closer on many points in recent days, but there are still issues to discuss - particularly on questions of social policy," Schulz told reporters as he arrived at the talks.

More than four months after holding general elections, Germany remains in political limbo without a new government. The efforts to put together a governing coalition has become the most protracted in Germany's post-World War II history.

Disagreements continue as parties enter final round

The parties managed to reach agreement on energy and agriculture issues as well as on the divisive issue of refugee family reunifications, but there's still no consensus, especially over healthcare reforms. The conservative CDU/CSU bloc have squarely rejected SPD calls for introducing sweeping changes to Germany health insurance system which would see the country's universal multi-payer health care system replaced by a national single-payer model.

Especially younger members of the SPD have spoken out against forming another so-called "grand coalition" - or "GroKo" in German

"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 told reporters.

To secure a deal between the two parties, the 443,000 SPD members would have to approve a coalition treaty by ballot, but many remain skeptical about renewing the grand coalition alliance that has governed Germany since 2013, with both SPD and the CDU/CSU having suffered losses in the election.

A considerable number of SPD members are expected to veto any final coalition deal. SPD negotiator Manuela Schwesig urged all negotiating parties, however, to make concessions in order to form a new government, saying it was difficult to explain to ordinary Germans why they were still waiting for a new government months after the September 24 national election.

Chancellor Angela Merkel and SPD-leader Martin Schulz continue to face hurdles in a number of social policy issues

No alternative to 'grand coalition'

Merkel's attempt to put together a governing coalition with two smaller parties had collapsed in November, leaving her no choice but to approach the SPD for a renewed "grand coalition."

Schulz, who had previously ruled out forming another "grand coalition" between Germany's biggest parties, ultimately changed his mind, attracting some criticism from certain parts of his party.

Failure to reach an agreement between the parties, or a rejection by Social Democrat members, would leave Merkel with a minority government. Or it may force her to hold fresh elections.

ss/cl (AP, Reuters)