BERLIN (REUTERS, AFP) - German Chancellor Angela Merkel said on Sunday (Jan 7) she was optimistic going into exploratory talks with the Social Democrats (SPD), whose leader Martin Schulz said his party would not draw any red lines at the start of discussions.
Merkel's conservative bloc and the SPD have scheduled five days of talks to see if they can find enough common ground to form a re-run of the 'grand coalition' that has governed Germany for the past four years.
Horst Seehofer, leader of the Christian Social Union (CSU) - the Bavarian sister party to Merkel's Christian Democrats (CDU) - said he was going into the talks in "high spirits" and said the parties needed to come to an agreement.
After initial discussions on Wednesday, the parties issued a joint statement saying "trust has grown, we are optimistic about the start of negotiations".
But the talks are not without pitfalls - including tricky questions surrounding the more than a million asylum seekers who have arrived in Germany since 2015.
The far-right anti-immigration AfD had capitalised on growing misgivings in Germany over the new arrivals, winning more than 90 parliamentary seats in the watershed election.
Merkel was left without a majority, while the centre-left SPD found itself with its worst post-war score.
Anxious to stem the haemorrhage to the far right, the conservative wing of Merkel's party as well as her Bavarian allies CSU are championing a tougher stance on immigration - including demands that are unpalatable for the SPD.
But with an eye on a regional election in Bavaria later this year, where current polls show that the CSU could lose its absolute majority, party chief Horst Seehofer said it was clear that "things can't go on as before".
The CSU wants financial handouts to asylum seekers reduced and medical tests to determine if migrants are lying about their age in the hope of winning refugee status.
But Schulz signalled that the conservatives would have to compromise not only on immigration issues, but also on the centre-left's social welfare demands such as higher taxes for top earners.
"We will see if Madame Merkel and Mr Seehofer want to form a stable government with the SPD or not," he told Bild daily.
The SPD had initially vowed to go into opposition, but the collapse of coalition talks between Merkel and smaller parties pushed the Social Democrats to reconsider.
Schulz told Bild the talks "will be difficult. We will stay firm".
As both sides square up for a battle at the negotiating table, the parties have agreed on a gag on media interviews, with publicity limited to joint statements.
The decision is aimed at preventing a rerun of Merkel's previous failed attempt at forging a coalition late last year, when interviews given by negotiators soured the atmosphere.
Despite the two sides' apparent commitment to keeping it together, the latest opinion polls suggest that a potential new grand coalition is finding little favour with Germans.
A survey published by Focus magazine found that 34 per cent of Germans prefer new elections, while only 30 per cent favoured a return of the conservative-SPD alliance.
Another poll published by public broadcaster ARD found that only 45 per cent of Germans view a new grand coalition positively, while 52 per cent considered this a bad option.
Rachel Tausendfreund from the German Marshall Fund think-tank noted, however, that a deal may be the best option, not only for Germany but also for Europe, particularly if the SPD manages to extract key compromises on EU and social welfare reforms.
"It could indeed be dangerous for the SPD, but the alternative is by no means safe. Better to take a bullet for Europe than poison for a very uncertain chance at renewal."