Triumphant Merkel starts tough task of seeking coalition

By Stephen Brown

BERLIN (Reuters) - Germany's Angela Merkel began trying to persuade her centre-left rivals to keep her in power on Monday, after her conservatives notched up their best election result in more than two decades but fell short of an absolute majority.

Even the chancellor's political foes acknowledged she was the big winner of the first German vote since the start of the euro crisis in 2010 thrust the pastor's daughter from East Germany into the role of Europe's dominant leader.

But despite leading her conservatives to their best result since 1990, with 41.5 percent of votes putting them five seats short of the first absolute majority in parliament in over half a century, the 59-year-old Merkel had little time to celebrate.

"We are, of course, open for talks and I have already had initial contact with the SPD (Social Democratic Party) chairman, who said the SPD must first hold a meeting of its leaders on Friday," Merkel told a news conference, adding that she did not rule out talks with other potential coalition partners.

Analysts say coalition building could take as long as two months given signs Merkel's SPD arch-rivals would play hardball over repeating the 'grand coalition' she led from 2005-2009. That coalition worked well for Merkel in her first term but cost the SPD millions of leftist votes.

"It will be an extremely long road," said Ralf Stegner, head of the left wing of the SPD which has major reservations about becoming junior partners again to Merkel's Christian Democrats (CDU) and her Bavarian the Christian Social Union (CSU) allies.

The 150-year-old SPD may have finished a poor second with their second-worst post-war result, but they know Merkel has to come knocking after her current centre-right coalition partners, the Free Democrats (FDP), failed to get back into parliament.

One SPD leader, speaking on condition of anonymity, half-joked that it would have been better if Merkel had got her own slim majority: "That would have been the worst punishment for her - to bear responsibility for everything on her own."

TOUGH BARGAINING AHEAD

But in German politics, where only one post-war chancellor has won an absolute majority - conservative patriarch Konrad Adenauer, in 1957 - complex coalition-building is par for the course and few politicians build consensus better than Merkel.

Her calm leadership through the euro crisis has reinforced her status as "Mutti" (mother) of the nation, but she counted on the SPD and Greens' support on all the euro zone bailout votes.

Polls show a majority of German voters would like another 'grand coalition', as do many of Germany's partners in the euro currency area, who expect the SPD to soften Merkel's austerity-focused approach to struggling euro zone states like Greece.

German government bond futures rose but the euro came under pressure on worries about how long it will take Merkel to form a coalition. Continuity may come at a high price for Merkel, in terms of cabinet posts and policy concessions for the SPD.

"You should ask the CDU first if they are willing to pay a price," said SPD Chairman Sigmar Gabriel, after being asked by reporters what his demands might be.

The SPD might insist on its campaign demands for a legal minimum wage and higher taxes on the rich. It could demand the finance ministry, pushing out respected 71-year-old Wolfgang Schaeuble, or other posts like the foreign or labour ministries.

"There will be no quick formation of a government," said an SPD insider. "The party will try to drive up the price."

After an election that gave a slim numerical majority to the leftist opposition, the SPD and Greens may even feel pressure to review a historical taboo against allying with the Left Party, heirs to the communists who built the Berlin Wall and still inspire distrust beyond their steady 8.5 percent of votes.

If Merkel and Gabriel do not agree - there is no love lost between them since the SPD chairman leaked a text message from Merkel to the media - she could switch her focus to the Greens.

Many progressive CDU supporters favour this option and think Katrin Goering-Eckardt, a 47-year-old Greens leader from east Germany who is close to the Lutheran church, is a snug fit.

But the CDU's conservative wing, embodied by tough-talking parliamentary leader Volker Kauder, dislike the pacifist and ecologist party which campaigned for tax hikes on the wealthy.

"The tax orgy that the Greens have proposed makes it very difficult with them," said Kauder.

The Greens, disappointed with their 8.4 percent result, may be wary of forming an alliance with a chancellor who bestows the kiss of death on her coalition allies.

In 2009, the SPD's reward for collaboration was their worst post-war election result. The Free Democrats replaced them in government only to crash out of parliament four years later.

"Maybe we won't find anyone who wants to do anything with us," said Merkel with a smile on Sunday night.

That would force her to form a minority government - very unlikely - or President Joachim Gauck would have to call a new election. No post-war government ever had to do that straight after winning, especially one with such a strong mandate.

Economists at J.P. Morgan estimated the likelihood of the conservatives partnering the SPD at 70 percent, the Greens at 25 percent and the other scenarios - a minority Merkel government or a "Red-Red-Green" leftist government - at under 5 percent.

For now, Merkel is one of few EU leaders to survive the debt crisis, in which 19 of her peers have lose their jobs. She also saw off a challenge from the new eurosceptic party Alternative for Germany, which had threatened to break into parliament.

(Additional reporting by Erik Kirschbaum, Holger Hansen and Gernot Heller; editing by Philippa Fletcher)

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