German Chancellor Angela Merkel and her former centre-left partners are to meet again on Friday for more crucial coalition talks in an effort to end a political stalemate.
The negotiations with Social Democrats (SPD) leader Martin Schulz come after Mrs Merkel failed to form a three-party coalition deal last week.
Any deal could take weeks to be reached.
The SPD governed in a “grand coalition” with Mrs Merkel between 2013 and 2017.
Held in Berlin at the invitation of President Frank-Walter Steinmeier, the talks began on Thursday and covered issues including housing, healthcare and migrants.
Under pressure, Mr Schulz agreed to hold discussions with Mrs Merkel’s Christian Democrats (CDU) and her Bavarian allies, the Christian Social Union (CSU).
He had promised to take the SPD into opposition after September’s election, when his party had its worst result since 1949.
Mrs Merkel failed to form a coalition government with the liberal Free Democrats and the Greens, after the FDP pulled out of talks.
The delay in forming a new coalition – the biggest crisis of Mrs Merkel’s career – has worried some European Union allies, who see Germany as a pillar of stability in the bloc.
Germany’s Spiegel newspaper has billed it as a fight for Mrs Merkel’s political survival.
What is being discussed?
In the campaign, the (SPD) favoured more spending on education and infrastructure, changes in health insurance, and no cap on the number asylum seekers.
Speaking on Wednesday, Mr Schulz said: “I cannot tell you what the outcome of these talks will be. I can ensure you only this: that I’ll campaign for the best solution for our country, that my party is aware of its overall responsibility for political stability.”
Meanwhile, Mrs Merkel said Germany needed to keep growth-friendly investment and budget consolidation policies. She may also want to pursue a tougher migrant policy to win back conservative voters.
What could happen?
- The SPD could join Mrs Merkel in a coalition
- Mrs Merkel could form a minority government with the Greens with SPD support. But the chancellor previously said she preferred new elections to an unstable minority government
- President Steinmeier could call a new election, but experts say the chances of this happening are remote after the SPD agreed to talk. Polls suggest a new vote would produce a result similar to September’s election. There is also the fear that the far-right Alternative for Germany (AfD) could benefit the most