The two party leaders, of the CDU and SPD, will set out the structure of exploratory talks in an initial meeting this afternoon, alongside CSU leader Horst Seehofer.
These exploratory talks resulting in an initial programme of government will begin in Sunday, and should be completed on January 11.
Coalition negotiations will put Angela Merkel’s reputation for consensus-building on the line, in her second bid to form a government since her party lost ground in September’s election.
A renewed grand coalition of Germany’s biggest parties would save the Chancellor from having to lead with a minority government – a feat which has never been attempted in the history of the Bundestag.
Whether the negotiations are a success could also determine whether she will be able to continue as CDU leader.
However Merkel will have to move mountains to build a successful government after weeks of bickering between the two blocs.
The groups – the CDU and CSU “Union” on one side and SPD on the other – are at odds on issues from healthcare and pensions to immigration and Europe.
Conservatives in both Union parties have stoked tensions in recent days over taxes and refugee policy.
CSU leaders in Bavaria have called for tax cuts for high earners and announced proposals to drastically reduce migrant benefits. In addition CDU and CSU have both backed proposals for medical testing to determine asylum seekers’ ages.
None of these policies is palatable to the pro-immigration, socialist SPD.
Its deputy leader Ralf Stegner expressed doubts a deal could be brokered between left- and right-wing parties, given the announcement of the inflammatory policies.
However CSU leader Horst Seehofer promised: “We will do everything in these talks to reach sensible agreements.”
Compromise, coalition, and a commitment to stability are the rule in German politics, meaning a deal is not unlikely. Nonetheless, negotiations are likely to be difficult in many areas.
Merkel will also have to reckon with SPD members, who will have the power to torpedo any coalition deal in a January 21 vote.
If the tone of negotiations so far is not satisfactory to party members – many of whom favour remaining in opposition, or a looser supportive arrangement with the CDU – they will be able to veto formal talks going ahead.
Only if the result is positive will the Chancellor be able to begin forming a government.
Additional reporting by Monika Pallenberg.