(CNN) Fresh elections in Germany appeared increasingly likely Monday evening after Chancellor Angela Merkel announced that she preferred a new vote over governing without a parliamentary majority.

The country has been plunged into its worst political crisis in years after negotiations to form the next government collapsed overnight, dealing a serious blow to Merkel and raising questions about the future of the longtime Chancellor.

Merkel's party, which lacks a majority in the Bundestag, had spent weeks trying to cobble together a ruling coalition with three other parties. But the plan fell apart when the liberal Free Democratic Party (FDP) walked out of talks shortly before midnight on Sunday over disagreements on issues ranging from energy policy to migration.

"I am very skeptical and I believe that new elections would be the better path," she said. Merkel also confirmed that she would be ready to lead her party into any new vote.

She did not rule out further talks with other parties, however, and acknowledged that the country's next steps were in the hands of German President Frank-Walter Steinmeier.

German President Frank-Walter Steinmeier said Monday that the country's parties had a responsibility to try to form a government.

Merkel met with Steinmeier earlier in the day to discuss the country's options. Speaking after their meeting, Steinmeier described the situation as unprecedented in postwar Germany and urged the country's parties to work together to try to form a government.

But Merkel is not the only party leader who has voiced doubt about whether further talks could lead to a resolution. Martin Schulz, the leader of the Social Democrats -- the second largest party in parliament after Merkel's Christian Democratic Union (CDU) -- described new elections as "the right path" earlier Monday.

Either way, the setback has raised concerns about the political stability of Europe's largest economy. The euro weakened against major currencies on Monday and Germany's DAX dropped 0.4% in early trade before recovering its losses.

Why the "Jamaica coalition" fell apart

Merkel had hoped to build a coalition consisting of her conservative CDU, its sister party the Christian Social Union, the pro-business FDP, and the Green Party.

The FDP's walkout came after the four parties had already missed several self-imposed deadline to resolve their differences.

"The four discussion partners have no common vision for modernization of the country or common basis of trust," said Christian Lindner, leader of the FDP. "It is better not to govern than to govern badly."

Speaking Monday, he expressed regret that the talks had failed but said that his party would have had to compromise on its core principles.

The parties failed to make progress on a number of policy areas -- including the right for family members of refugees in Germany to join them there -- and tensions had risen.

While the FDP blamed the CDU/CSU alliance for the breakdown, the Green Party thanked Merkel and the leader of the CSU, Horst Seehofer, for negotiating "hard" but "fair," and accused the FDP of quitting the talks without good reason.

The so-called "Jamaica coalition" -- named after the parties' colors -- would have been unprecedented at federal level.

How did we get here?

Merkel's position was widely seen as unassailable in the run-up to September's elections, with many commentators suggesting the outcome was so predictable as to be boring.

But the country's two mainstream parties -- Merkel's CDU/CSU alliance and the center-left Social Democratic Party (SDP) -- suffered big losses on the night.

Unable to form a coalition with one other party (as is the norm in Germany), Merkel emerged from the election substantially weakened.

On Monday, the AfD hailed the collapse of coalition talks. "We are glad that Jamaica isn't happening," said AfD co-leader Alexander Gauland. "Merkel has failed." His co-leader, Alice Weidel, welcomed the prospect of fresh elections and called on Merkel to resign.

The Chancellor told state broadcaster ZDF Monday evening that she has not considered resigning. "There was no question that I should face personal consequences," she said.

What options does Merkel have?

Short of resolving the impasse with the FDP, Merkel's options are limited.

The SPD, Merkel's junior governing partner for the last four years, ruled out a renewal of their so-called "Grand Coalition" on the night of the election and reiterated that position on Monday.

The SPD is also reluctant to renew the coalition as it would leave the AfD as the largest opposition party, granting it a set of privileges including the right to respond first to the Chancellor and a boost in resources -- an outcome none of the other parties want.

Merkel's CDU/CSU alliance could still attempt to form a minority government with either the FDP or the Green Party separately, but this has happened rarely -- and never successfully -- at the federal level in Germany.

If all other options fail, Steinmeier, the German President, has the power to set in motion a complex process that could lead to a new vote next year.

But recent polling puts all parties roughly where they were on election night, meaning a new election could result in similar deadlock.