Merkel to brief German president on coalition talks' failure

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Germany's Liberal Party (FDP) has broken off talks about forming a new government coalition with the conservative bloc of Chancellor Angela Merkel and the Greens, after the parties were unable to agree on basic issues.

As coalition talks dragged out without a breakthrough, Germany's President Frank-Walter Steinmeier issued a warning to parties in the talks.

"It is a day of deep reflection on how to go forward in Germany", Merkel told reporters. "But I will do everything possible to ensure that this country will be well led through these hard weeks".

Europe's biggest economy now faces weeks, if not months of paralysis with a lame-duck government that is unlikely to take bold policy action.

Free Democrat leader Christian Lindner told reporters that his party chose to withdraw rather than further compromise its principles and sign on to policies the party was not convinced of.

Top-selling Bild daily said earlier Sunday that a failure to forge a tie-up - dubbed a "Jamaica coalition" because the parties' colours match those of the Jamaican flag - puts "her chancellorship in danger".

Looking ahead, if it comes to a new election, polls now suggest it would produce a very similar parliament to the current one, which would make efforts to form a new government similarly hard.

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The FDP had made abolishing the tax, which was due to expire in 2019, an election promise.

The Greens' leaders also deplored the collapse of talks, saying they had believed a deal could be done despite the differences. "German companies must now prepare for a possibly long period of uncertainty".

The break down of the talks came as a surprise, especially as it was announced by the resurgent FDP, Merkel's preferred coalition partners who had dropped out of parliament four years ago and had ruled with her conservatives 2009-2013.

While the FDP continues to demand tax cuts, the trickiest sticking point concerns immigration, where the CSU insists on capping new arrivals at 200,000 a year. Merkel said a compromise with the Greens on immigration had also been possible.

The critical points of disagreement from the FDP's point of view included the government's refugee policy, environmental and climate protection.

"It is better not to govern than to govern badly", he said, adding that the parties did not share "a common vision on modernising" Germany.

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