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Another Angela Merkel-led grand coalition in Germany: What you need to know

The leaders of the conservatives and Social Democrats are discussing the possibility of renewing their government partnership. So what's at stake, and what are the sticking points?

In her capacity as the leader of the conservative CDU, Angela Merkel met Thursday evening with the head of the Bavarian conservative party Horst Seehofer, Social Democratic (SPD) chairman Martin Schulz and German President Frank-Walter Steinmeier. Now, the two parties are conferring internally about the prospects. Here's what you need to know about all the talks about a new possible German government.

How did we get here?

After the CDU/CSU outperformed the SPD in Germany's September 24 national election, Merkel was charged with forming a government, while Schulz declared that the Social Democrats would go into the opposition. But the breakdown of talks to form a three-way coalition between conservatives, the center-right business-friendly Free Democratic Party and the Greens (FDP) has put the grand coalition back on the table as the only other realistic chance for a parliamentary majority.

Read more: The pros and cons of a grand coalition

After pressure from within his own party, Schulz dropped his categorical opposition to continuing the current arrangement between Germany's two largest political parties, traditionally rivals.

What do the two parties agree upon?

There is broad consensus between conservatives and Social Democrats on foreign policy and the European Union. Angela Merkel is a committed European, and conservatives have no problem with Social Democratic Foreign Minister Sigmar Gabriel, who would be more than happy to stay on in that post. The issue of refugees is also unlikely to be a deal-breaker, although the SPD and the conservatives would have to hammer out a compromise on a hard cap on the number of refugees Germany accepts annually and on whether family members have a right to come join all refugees.

Otherwise, the two sides could likely reach consensus about popular initiatives like investing more in education, hiring more police officers and improving Germany's mediocre digital infrastructure. A law governing immigration to Germany would be within the realm of possibility too.

Watch video 01:57

CDU and SPD: similarities and differences

What are some major points of conflict?

Merkel has said "economic growth" should be at the core of potential coalition talks, while Schulz made "social equity" the focus of his unsuccessful campaign to unseat the chancellor. Those are the basic contours of the core disagreements between the two parties, as two examples illustrate.

The Social Democrats have floated the idea of unified health insurance for all, co-financed by employers and employees. That hasn't gone down well with privately insured people, and conservatives hate the idea.

The CDU/CSU favors using surplus state revenues to finance a broad-based tax cut, but the Social Democrats want to see any tax relief targeted at low- to middle-income Germans and favor raising the inheritance tax and the uppermost income tax rates.

What's the mood as the two parties decide whether to start negotiating?

Somewhere between gloomy and mixed. The decision by the conservative agriculture minister in the caretaker government to go it alone in an EU decision about a controversial herbicide, glyphosate, raised the hackles of SPD leaders who said it undermined trust. In return the CDU-CSU has warned the Social Democrats not to demand too much, pointing out that the SPD took only 20.5 percent of the vote on September 24. No one seems particularly enthusiastic about a second grand coalition on the trot.

Who wins and loses?

Merkel being sworn in

Merkel's first and third governments were grand coalitions

The biggest winner in such an arrangement would be Angela Merkel. She's already headed two grand coalitions in her 12-plus years of governing, and what she mainly wants at present is to form a stable government.

For her parliamentary group, the CDU/CSU, another spell with the Social Democrats would be a dubious blessing. The conservatives would be again the senior partners in the government, but they also recorded their worst election results in decades in September — perhaps in part because Merkel has moved them so far to the left.

Arguably, the Social Democrats would again come out the "losers" of such an arrangement. The SPD's share of the vote has declined every time after they've done deals with the conservatives, and it's hard to see them recovering after another stint as Merkel's junior partners.

How likely is an agreement then?

Having already reached a number of agreements with the left-leaning Greens, the conservatives would likely be able to compromise with the Social Democrats. It's the SPD that will have to overcome more resistance to another grand coalition.

Steinmeier and Schulz (picture-alliance/dpa/Bundesregierung/J. Denzel)

Steinmeier (left) has been meeting with party leaders like Schulz to talk about possible compromises

Two factors encourage Social Democrats to do a deal. Firstly, President Steinmeier, himself a former SPD leader, has urged the party to cooperate with their rivals for the good of the country. Secondly, Social Democrats have no reason to expect they would do any better in a snap election, so SPD members of the Bundestag would risk losing their seats if Germans go back to the voting booths.

On the other hand, opinion surveys indicate that only around a third of the Social Democratic rank-and-file favor another grand coalition. There's a broad consensus that the party would be better served by going into the opposition and regrouping.

What happens if no agreement is reached?

The two remaining options are a snap election or a conservative-led minority government tolerated by the Social Democrats.

With the popularity of Germany's two biggest parties declining, the disadvantages of a new vote for them are obvious. The fear is that the far-right populist Alternative for Germany (AfD) party would emerge stronger if Germans went back to the polls.

A conservative-led minority government would mean that the CDU/CSU would have to seek partners for every bit of legislation it wanted to enact. Hardly a stable situation.

The Social Democrats would be in the opposition, but they would also be caught in a dilemma. The more government initiatives they tolerated, the more they would be open to accusations of pursuing a grand coalition in everything but name. The more government measures they refused to support, the more they could be charged with obstructionism. Hardly an enviable situation.

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