Rivals to Tackle Chancellor Issue Thursday

Both rivals for the top job, Chancellor Gerhard Schröder of the Social Democrats and his conservative challenger Angela Merkel, said the final round of exploratory talks on forming a left-right government Wednesday was "positive."

But they said "personnel issues" must be decided before formal coalition negotiations could begin -- officials from Merkel's Christian Democrats then revealed that the parties would sit down on Thursday to begin talking through the high-stakes issue.

A smiling Merkel, who is bidding to become Germany's first woman chancellor, said after two and a half hours of talks with the Social Democrats: "I would say this was a rather good day.

"I feel more optimistic than pessimistic. We had great success in agreeing on the content (of a program) ... I see a possibility to form a coalition."

Schröder agreed, telling reporters: "We have a strong basis for a grand coalition."

Way forward

The remarks soothed fears that the talks, a third round of exploratory negotiations after the parties finished just four seats apart in legislative elections, would flounder because of the row over who should lead a new government.

Merkel said the parties would try to cut a deal at a summit of party leaders.

"We need to see if we have a basis of trust for coalition talks. We must see if we can put together our respective households and part of this will be the issue of personnel," Merkel said.

However Schröder said that more government posts than just the chancellor's job would have to be discussed.

"I think it has become clear to the Union (Christian Democrats) that one cannot just settle one issue first," he said.

Schröder and Merkel have both staked a claim to the chancellery to lead the European Union's biggest country after the September 18 election failed to give either of their parties a governing majority.

Their only option now appears to join together in a "grand coalition" last seen in Germany in the late 1960s.

The conservatives have heaped pressure on Schröder to back down because as the leader of the biggest parliamentary group, albeit by a hair's breadth, Merkel holds the mandate to form a government.

High-stakes poker?

But many observers believe the charismatic chancellor, who has held the post for the past seven years, is playing a political poker game intended to secure the best possible coalition deal for his party.

"How much is Schröder worth?" the daily Bild asked on Wednesday, adding that the Social Democrats wanted to "sell the chancellery for as much gain as possible."

A poll by the Forsa research institute released on Wednesday showed that public support for Merkel as chancellor has grown, with 34 percent of people canvassed favoring her for the job, compared to 26 percent for Schröder.

Merkel has however faced criticism within her own party by its poor showing at the polls in an election that had seemed hers to win on the back of popular discontent with rising unemployment and Schröder's reform program.

On Wednesday one of her main rivals within the Christian Democrats, her former economics strategist Friedrich Merz, said the fact that only 35.2 percent of voters cast their ballots for the conservatives showed that there was a "problem with the campaign and with the people at the top."