Merkel appears to be leaning towards her centre-left rivals to form a "grand coalition", despite disagreements between the parties over introducing a minimum wage to Germany.
Her victorious CDU and their Bavarian allies, the CSU, met with the Social Democrats (SPD) in Berlin on Monday afternoon for the second time to discuss a potential coalition. The meeting lasted eight hours and ended with talk of meeting again on Thursday.
On Tuesday Merkel is also set to meet the Green Party for the second time to discuss the possibility of governing with them.
The election on September 22nd left Merkel's Conservative bloc just short of a majority needed to govern.
Polls overwhelmingly suggest Germans prefer a coalition between Merkel and the SPD over the Green Party which took around eight percent of the vote.
Observers believe the so-called "grand coalition" between the two parties is drawing closer, but the SPD is insisting on the introduction of a national minimum wage in Germany as part of any deal - something Merkel rejected during the election campaign.
Social Democratic (SPD) secretary general Andrea Nahles said the talks with
the CDU were "very intensive".
"On certain subjects we can see convergence, on others differences, for
example on the minimum wage or on taxes," she told a press conference with
members of the CDU and its Bavarian sister party the CSU.
Before the talks began on Monday she highlighted the importance of a minimum wage in any deal with Merkel. "We are talking about a statutory, nationwide minimum wage of €8.50 an hour in the east and west," she said.
Any agreement with the CDU/CSU would go before SPD party members to approve in a vote.
The head of Bavaria's CSU, Horst Seehofer, has come out in favour of a partnership with the SPD over the Green Party, who Merkel was due to meet this week for their second round of talks.
The CSU will decide on Wednesday or Thursday in a telephone conference who it would prefer to govern with. The CDU will also decide this week.
CDU Finance minister Wolfgang Schäuble said he could see a new government forming by mid-November, but Seehofer said that would be "challenging".
READ MORE: A third of Germans want fresh elections
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