Merkel fourth term in doubt as German coalition talks fail

BERLIN (Reuters) - Chancellor Angela Merkel said on Monday her efforts to form a three-way coalition government had failed, thrusting Germany into a political crisis and pushing Europe’s largest economy closer to a possible new election.

The pro-business Free Democrats (FDP) unexpectedly pulled out after more than four weeks of negotiations with Merkel’s conservative bloc and the ecologist Greens, citing irreconcilable differences.

The euro hit a two-month low against the yen soon after FDP leader Christian Lindner said on Sunday that his party was withdrawing as the three would-be partners could not find common ground on key issues.

A tired-looking Merkel said she would stay on as acting chancellor and would consult with President Frank-Walter Steinmeier on how to move forward, adding that a deal had been within reach.

“It is a day of deep reflection on how to go forward in Germany,” Merkel told reporters. “As chancellor, I will do everything to ensure that this country is well managed in the difficult weeks to come.”

It was a sobering moment in the career of a woman who during 12 years in power has become a symbol of stability, leading the euro zone during its debt crisis and forging a deal between the European Union and Turkey to stem migrant arrivals.

Merkel was weakened after a September election as voters angry with her decision in 2015 to open Germany’s borders to more than a million asylum seekers punished her conservatives by voting for the far-right Alternative for Germany (AfD) party.

The collapse of the talks suggests Germany is heading towards two options unprecedented in the post-World War Two era: Merkel forms a minority government, or the president calls a new election if no government is formed.

The center-left Social Democrats (SPD), Merkel’s current coalition partners who were the second-biggest party in the election, have ruled out a repeat of an alliance with her conservatives, who won the vote but were left with fewer seats.

However, Merkel ally Jens Spahn said he was not yet thinking about new elections and held out the possibility of teaming up with the SPD, with whom the conservatives still rule in a caretaking capacity.

“We have a capable acting government, the necessary things can get done,” he said. “There is no grounds for panic.”

“Some SPD ministers have made clear they want to govern,” Spahn told n-tv television. “The SPD will have to... decide whether it is ready to take responsibility, for the biggest country in the middle of Europe.”