Germany's Bavarian conservatives are pressing for corporate tax cuts and abolition of a tax imposed after reunification to help poorer eastern states, which could complicate talks with the Social Democrats (SPD) on forming a new government. Chancellor Angela Merkel hopes to secure a fourth term in office by persuading the centre-left SPD to extend the "grand coalition" that ruled Germany for the past four years, even though both blocs suffered big losses in September's election.

Exploratory talks are scheduled from January 7 to January 12. The SPD, which initially wanted to stay in opposition, has agreed to explore the possibility in the interest of political stability after Merkel's coalition talks with two smaller parties collapsed in November.

But SPD officials have made no promises. Policy papers prepared by Bavaria's CSU, sister party to Merkel's Christian Democrats, point to difficult negotiations ahead at a time when Merkel and others are calling for quick work to form a stable new government.

The CSU, historically more conservative that Merkel's party, will play a key role in the coalition talks.

Copyright Reuters, 2018