Germany’s two main political parties took another step toward a coalition with a deal to ease payroll taxes and labour market regulations in order to boost the lame economy, a senior negotiator said today.

Germany’s Social Democrats pressed for a new tax on high-income earners today as negotiators opened a decisive week in their efforts to form a new government - talks that will focus on plugging a huge budget shortfall.

THE future of Germany’s left-right coalition was thrown into deeper confusion last night after a senior conservative quit the planned government following an internal crisis in the Social Democrats.

Edmund Stoiber, who was set to become Germany’s economy minister, announced today that he would not participate in the incoming government.

A senior conservative’s participation in Germany’s proposed new left-right government was in doubt today as politicians struggled to digest the implications of a sudden leadership crisis in the centre-left Social Democrats.

Germany faces a €35bn budget shortfall, its two main political parties said yesterday, signalling tough spending cuts or tax hikes under a planned coalition even as its economy struggles.

Social Democratic Party chairman Franz Muentefering will serve as vice-chancellor and labour minister in a coalition government under conservative Chancellor-designate Angela Merkel, party officials said today.

Chancellor-designate Angela Merkel will have only limited authority in Germany’s planned left-right government, leaders of its two main parties said, as they prepared today for the start of full-blown coalition negotiations.

According to reports in the Passauer Neue Presse newspaper, Chancellor Gerhard Schroeder told his conservative counterparts during coalition talks yesterday that he would not join the new government.

Conservative leader Angela Merkel and Chancellor Gerhard Schroeder headed into a showdown today over who will lead a new government, seeking to end a post-election stalemate that is delaying efforts to tackle Germany’s stubborn economic problems.

CONSERVATIVE leader Angela Merkel pushed her demand to serve as Germany’s next chancellor while Gerhard Schroeder clung to his competing claim as they readied today for tough negotiations aimed at ending the country’s political crisis.

Germany’s top political leaders were to meet today at a summit aimed at resolving their two-and-a-half-week stand-off over who will lead the country, with Angela Merkel’s conservatives hopeful Chancellor Gerhard Schroeder will let go of the top job.

Chancellor Gerhard Schroeder and conservative rival Angela Merkel head into a third round of talks today on forming a possible coalition to resolve a deadlock over who should lead Germany.

CHANCELLOR Gerhard Schroeder yesterday signalled he may be ready to relinquish power two weeks after Germany’s most inconclusive post-war election, saying he would accept any decision his party takes.

German Chancellor Gerhard Schroeder and conservative challenger Angela Merkel have held talks that both sides called helpful – but they did not resolve their dispute over who should be the country’s next leader.

Aides to Chancellor Gerhard Schroeder and rival Angela Merkel showed no signs of compromise on their competing leadership claims as the pair met today for a second round of talks on forming a new German government.

A leader of Germany’s Greens today knocked down conservatives’ hopes the party would help opposition leader Angela Merkel become chancellor in a coalition government, citing major differences with her Christian Democrats and their pro-business ally.

Germany’s opposition leader Angela Merkel and the chairman of Chancellor Gerhard Schroeder’s party made the first contacts with potential coalition partners in a scramble for power after Germany’s inconclusive election.

GERMANY slid into political chaos yesterday after an inconclusive election left chancellor Gerhard Schroeder and his challenger Angela Merkel wrestling for the right to form a new government.

GERMAN Chancellor Gerhard Schroeder’s party took aim at the “market radicalism” of the conservative opposition yesterday as it geared up for early national elections, signalling it will present itself as defending social programmes and workers’ rights.

German chancellor Gerhard Schroeder plans to hold a parliamentary confidence vote by the beginning of July, the chairman of his Social Democratic Party said today, a move that would mean new elections must be held by September 18.

The chairman of German Chancellor Gerhard Schroeder’s Social Democrats today suggested that national elections should be brought forward by a year after the party suffered a stinging defeat in the country’s most populous state.

Chancellor Gerhard Schroeder’s party emerged weakened from elections in a small German state, where voters’ frustration with high unemployment helped make opposition conservatives the strongest force.

Germany’s governing Social Democrats emerged from local elections in the country’s most populous state trailing well behind the conservative opposition.

EAST GERMANS gave a strong boost to right-wing extremists and the former communists in two state elections, punishing the country’s biggest mainstream parties for the region’s high unemployment and cuts in social programmes.

East Germans gave a strong boost to right wing extremists and the former communists in two state elections, punishing the country’s biggest mainstream parties for the region’s high unemployment and cuts in social programmes.

CHANCELLOR Gerhard Schroeder pledged to pursue his economic reforms despite his party’s thrashing in European Parliament elections, its worst showing since the World War II in a nationwide German vote.

German Chancellor Gerhard Schroeder hopes to quell persistent dissent over his efforts to trim the generous welfare state by handing over the leadership of his governing Social Democratic Party today.

German Chancellor Gerhard Schroeder is stepping aside as chairman of his Social Democratic Party, a move that comes amid stubbornly low poll ratings and squabbling over the government’s future reform course.

The outcome of Germany's election is still not known as Chancellor Gerhard Schroeder and his conservative challenger Edmund Stoiber ran neck-and-neck tonight in one of the country's closest post-war elections.

A top aide to German Chancellor Gerhard Schroeder today defended the justice minister who compared President George Bush to Adolf Hitler.