Odd Andersen, AFP | German Chancellor Angela Merkel has until midnight on Thursday to piece together a governing coalition.

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.

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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 talks before announcing if they have found enough common ground to begin formal coalition negotiations.

The awkward bedfellows, who differ on everything from refugees and climate protection to 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.

For Merkel, eyeing a fourth term, the stakes couldn't be higher.

"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."

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 the thorniest outstanding issues.

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."

Merkel herself set the Thursday deadline to reach an agreement in principle, with the goal of having a new government in place by Christmas.

But given the deep divisions between the parties, FDP deputy leader Wolfgang Kubicki floated the prospect of extending the exploratory talks.

"I believe we should give ourselves a few more days to reach a strong and sensible agreement if it doesn't happen tonight," he told Spiegel.

Compromises

Migration is one the most contentious items still on the docket after voters punished Merkel's decision to allow in over a million asylum seekers since 2015.

The conservatives are eager to tighten asylum policies, with Merkel's Bavarian CSU sister party even seeking a cap on migrant numbers.

But that is anathema to the Greens, who are pushing to ease restrictions on family reunifications for asylum seekers.

The FDP's Kubicki urged the Greens to soften their stance, but they appear in little mood to compromise after already watering down key campaign pledges to overcome deadlocks on the environment.

The Greens notably abandoned demands for a 2030 end date for coal-fired plants and the internal combustion engine, and called on the other parties to show the same flexibility.

But Green proposals to make polluting diesel cars less attractive and close the country's 20 dirtiest coal plants have also met with resistance from the conservatives and the FDP, who worry about job losses and disrupting the mighty auto and energy sectors.

The sniping continued as the deadline loomed, with the CSU's outspoken negotiator Alexander Dobrindt accusing the Greens of "clinging to ancient demands".

The Greens' political director Michael Kellner hit back, accusing Dobrindt of "wanting the talks to fail".

'Take Macron's hand'

Despite the rifts on display, the parties have been able to reach some broad agreements in recent weeks.

At a time when the state coffers are bulging, they have committed to maintaining Germany's cherished balanced budget, improving the nation's outdated internet infrastructure and increasing child benefits.

The parties, who are broadly pro-EU, also made headway on Europe after the liberal Free Democrats dropped their demand to wind down the eurozone's bailout fund.

Should a Jamaica government emerge, French President Emmanuel Macron could find in Merkel a willing and welcome co-pilot in his ambitious drive to reform the bloc -- although his plans for a eurozone budget and finance minister will still prove divisive in Berlin.

The Greens' co-leader Cem Ozdemir said Germany should "take Macron's extended hand" and play a leading role in strengthening Europe.

As the clock ticks down towards the crunch deadline, commentators say all sides will want to avoid triggering snap polls that could end up bolstering the AfD.

Surveys suggest there is little appetite for a return to the ballot box, and some two-thirds of voters say they expect the coalition negotiations to succeed.

(AFP)

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