Martin Schulz's social democrats offer Merkel a coalition lifeline

Merkel's party to meet with SPD in bid to break Germany's deadlock

Angela Merkel: 'I absolutely do not favor' a new election

Seehofer told German newspaper Bild am Sonntag that an alliance with the SPD was "better anyway than a coalition with the Free Democrats and Greens, new elections or a minority government".

Merkel believes Berlin can do business the way things are as she is leading an acting government with most of her former ministers, including SPD ones, still in post until a new coalition is formed.

"And I absolutely do not favour, if we can't do anything with the result, asking people to vote again".

The failure of her coalition talks with two smaller parties had left the country facing months of political paralysis.

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Speaking at a CDU party conference in Kühlungsborn in Northern Germany, she said: "The people have voted".

Steinmeier is scheduled to meet with Merkel, SPD leader Martin Schulz and CSU leader Horst Seehofer Thursday.

Schulz indicated on Friday that the SPD might consider coalition talks with the CDU/CSU alliance, although his party had initially ruled out this possibility.

With Germany's political map in flux, her aversion to governing without a parliamentary majority and the SPD's refusal to be her junior partner for a third time may both be negotiable. Two of Merkel's three terms to date have been in such a coalition.

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"We worked well together", she said, adding under the grand coalition, Germany enjoyed the strongest labor market for decades, a balanced budget and pensioners and families had benefited, she argued.

The CDU leader also said talks with the Social Democratic Party (SPD) would have to be conducted on the basis of mutual respect, and the compromise is part of it.

Schulz, who led the SPD to its worst result since World War II in September, faces increasing pressure within the party to step aside, a move that might help clear the way for a grand coalition.

An Emnid poll showed on Sunday that 52 percent of Germans backed a grand coalition.

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Mr Lindner told reporters: "It is better not to govern than to govern badly".

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