German Chancellor Gerhard Schroeder and conservative leader Angela Merkel said they would talk to each other on forming a new government after Sunday’s election stalemate, but each insisted on leading it.

Merkel, still looking subdued and shocked after an unexpectedly poor showing in the vote, struck a conciliatory tone in promising to talk with all parties except the far-left Left Party.

“We don’t have a preference,” she told reporters, insisting however that her Christian Democrats (CDU) and their sister Christian Social Union (CSU) had come out on top in the vote, giving her the right to replace Schroeder as chancellor.

Schroeder’s Social Democrats (SPD), energised by a result that put them just a percentage point behind Merkel’s party despite forecasts of a blow-out, continued to sound defiant.

“It is clear that Germans do not want Mrs Merkel as their chancellor,” SPD chief Franz Muentefering told a news briefing. “We have a responsibility to make clear that we want to rule with Mr Schroeder as chancellor and implement much of that which we have undertaken to do.”

The likeliest outcome to Germany’s most inconclusive election in the post-war era remains a “grand coalition” of the CDU/CSU and SPD.

OCTOBER DEADLINE

But divergences between the parties — not only about who should lead but also over CDU pledges to free up the labour market and its opposition to Turkey joining the European Union — could prevent any accord before an October 18 deadline for the new parliament to sit.

The weeks leading up to that date will be characterised by much grandstanding and hard-nosed politics, as the SPD, CDU/CSU and their potential partners, the liberal Free Democrats (FDP) and Greens, manoeuvre to get the most out of the talks.

Both the Greens and the FDP, which with nearly 10 percent did far better than anticipated, will now be wooed by rival camps, although leaders from both parties vowed on Monday not to be lured into a three-way coalition.

In the meantime, the uncertainty weighed heavily on financial markets, which before the election had hoped for a clean sweep by Merkel’s conservatives and the FDP — a grouping that had vowed deep economic reforms.

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