With a Saturday deadline looming to seal a coalition deal, the conservative Christian Democrats (CDU), their sister party the Christian Social Union (CSU) and the centre-left Social Democrats have agreed on more than 20 billion euros ($23.64 billion) in budget savings, a source close to the talks said.
That puts them roughly halfway down the road to their goal of finding 35 billion euros in savings to bring the country's budget deficit in line with European Union limits by 2007.
But while agreements on budget cuts grab the headlines in Germany's press, disputes on some sticky issues will be deferred until after a cabinet is in place, meaning a new wave of political bickering may await the future coalition.
Erwin Huber, a CSU politician who took part in the fifth round of coalition talks on Monday, said the parties may agree to disagree on healthcare, putting off a decision on reform of the system until next year.
"We will have to continue consulting on structural changes (to the healthcare system)," Huber said.
On healthcare, the CDU/CSU has advocated a flat-rate premium for all insured adults, while the SPD wants wage earners to pay into a so-called "citizens insurance" system.
The future coalition partners have also failed to agree on what to do with the country's nuclear power plants, the last of which are slated to be shut down by around 2020.
The SPD would like to adhere to a 2000 law requiring the phasing-out of nuclear energy, while the CDU/CSU want to extend the life of Germany's 17 atomic power stations. This is another dispute the two sides plan to return to later.
The SPD and CDU/CSU were forced into talks after a September 18 election gave the CDU/CSU a razor-thin victory with no chance of forming a majority centre-right cabinet.
Despite fundamental differences over fiscal, labour market, energy and healthcare policy that led to bitter verbal jousting during the campaign, they are forging ahead with negotiations. Failure could plunge Germany into political turmoil.
The CDU/CSU and SPD agree in principle to raise the country's value added tax (VAT) beginning in 2007, though they will keep it below 20 percent, a source close to the talks said.
It currently stands at 16 percent.
They are also discussing an SPD campaign promise to raise the tax rate on top earners.