Merkel holds crunch talks with Bavaria allies on coalition path

BERLIN: Germany's Angela Merkel was meeting leaders of her Bavarian conservative sister party on Sunday to hammer out policy differences, including on immigration, which could clear the way for talks with two other parties on a coalition.

It could take months to get a full coalition deal and investors are concerned about the prospect of a policy standstill in Europe's biggest economy. If no deal is reached, the prospect of a minority government or new elections loom.

"We must form a government quickly. This is about more than just us," Interior Minister Thomas de Maiziere told the conservative youth wing in Dresden on Saturday.

"Agreement on a common position is necessary and possible tomorrow," added de Maiziere, who is a member of Merkel's Christian Democrats (CDU).

A weakened Merkel, in power since 2005, aims to build a nationally untested coalition between her conservative bloc and the pro-business Free Democrats (FDP) and the environmentalist Greens who are far apart on issues from tax and energy to Europe.

Merkel has first to get her own house in order and agree on common ground between her CDU and Bavaria's Christian Social Union (CSU) who have for decades formed a parliamentary bloc together.

The CSU has made Merkel's life difficult after she won a fourth term as chancellor in a Sept. 24 vote but bled support to the far-right.

The main round of talks got going early on Sunday afternoon and it was unclear how long they would go on. The CDU had held a preparatory meeting in the morning.

The main sticking point is immigration.

The CSU blames Merkel's decision in 2015 to keep Germany's borders open, resulting in almost 1 million people arriving in the country that year, many fleeing war and hunger in the Middle East and Africa. Most entered via the southern state of Bavaria.

Ever since, the CSU has insisted on an upper limit on refugees of 200,000 a year.

Merkel rules out a cap, saying it would breach Germany's constitution which guarantees the right of asylum to anyone facing political persecution.

Fearing heavy losses to the far-right Alternative for Germany (AfD) in a state election next year, the CSU is digging in its heels on the issue.

The stakes are also high for the CSU's combative leader Horst Seehofer who is fighting for his political survival after a poor election performance. The CSU slumped to 6.2 percent, measured nationally, from 7.4 percent in 2013.

At the conservative youth conference, Merkel said the talks with the CSU, which will include leading members of both parties, would be difficult but she implored both sides to compromise.

An immigration law, which has some support among conservatives, FDP and Greens, could provide wiggle room by distinguishing between economic migrants and refugees and controlling migration to help plug gaps in the labour market.