Exploratory talks are scheduled from Jan. 7 to Jan 12.
The SPD, which initially wanted to stay in opposition, has agreed to explore the possibility in the interest of political stability after Merkel’s coalition talks with two smaller parties collapsed in November.
But SPD officials have made no promises.
Policy papers prepared by Bavaria’s CSU, sister party to Merkel’s Christian Democrats, point to difficult negotiations ahead at a time when Merkel and others are calling for quick work to form a stable new government.
The CSU, historically more conservative that Merkel’s party, will play a key role in the coalition talks. The two conservative parties have presented a more unified front in recent months after prolonged conflict over Merkel’s decision in 2015 to welcome over a million migrants to Germany.
In a paper leaked last week, the CSU said it wanted military spending to reach NATO’s target of 2 percent of national output, called for a hardline position on immigration, and rejected closer European integration, charting a collision course with the SPD.
Now, a draft economic policy paper prepared for a CSU party meeting this week, sets up a further conflict over taxes.
In the paper, first reported by German magazine Focus, the CSU calls for cuts in corporate tax rates given U.S. tax cuts and similar moves afoot in Britain and France.
“If Germany does not act, it will in the near future have one of the highest corporate tax rates in international comparison,” the paper said.
SPD parliamentary group leader Andrea Nahles has called for increasing taxes on the wealthy. Her party is pressing for more spending on infrastructure, education, health care and other social priorities.
The CSU paper also called for complete abolition of the so-called solidarity tax, a view not shared by the SPD.
Pressure is mounting on Merkel to form a new government three months after the election.
Former finance minister Wolfgang Schaeuble, now president of the lower house of parliament, on Saturday said he could not rule out a minority government if no deal emerged.
Another alternative would be a new election, but political experts say that could result in further gains for the far-right Alternative for Germany (AfD), which parlayed concerns about migration to enter parliament for the first time in September.
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