BERLIN: Chancellor Angela Merkel said Germany's top parties still had "big obstacles" to surmount before reaching a new coalition deal, ahead of a last-ditch round of negotiations Thursday.
The veteran leader, who is battling to form a new government to salvage her political future, warned it would be a "tough day" of talks, which were expected to stretch well into the night.
She said her conservative Christian Democrats would "work constructively to find the necessary compromises but we are also aware that we need to execute the right policies for our country".
September's inconclusive elections left Merkel without a majority and struggling to find partners to govern Europe's biggest economy.
After her earlier attempt at forging a coalition with two smaller parties collapsed, she is now pinning her hopes on renewing an alliance with the centre-left Social Democrats (SPD).
SPD leader Martin Schulz also spoke of "big obstacles" on the last day of preliminary talks in which the parties were sounding each other out over whether to move on to formal coalition negotiations.
He said his party wanted to ensure that the new government committed "above all to working toward renewal of the European Union".
President Frank-Walter Steinmeier reminded all sides that they "have a responsibility towards Europe and for reliability, partnership and engagement in international politics".
Merkel badly needs the talks to succeed, as do Schulz and the leader of her Bavarian allies, Horst Seehofer, said political analyst Karl-Rudolf Korte of Duisburg-Essen University.
"The negotiations are not just about a coalition, but also their careers. It would be the end for all three if this coalition does not come about," he told public broadcaster ZDF.
- Far-right threat -
Late on Thursday the parties are due to declare whether they will push on with efforts to forge a new government by around March or April.
Along the way, negotiators need to compromise on policy differences -- the SPD is seeking welfare gains while the conservatives are pushing for tax cuts as Germany's public coffers bulge.
As the clock ticks into a fourth month of political paralysis in Germany, Berlin's biggest EU partner France waded in, with its Finance Minister Bruno Le Maire on Wednesday echoing the SPD's demand for greater investment from Berlin.
Beyond fiscal and spending issues, the parties are struggling to fend off the encroaching far right, which has seized on anger over the influx of refugees and netted a record showing at the polls in September.
To halt a haemorrhage to the far right, Merkel's alliance wants a tougher stance on immigration, something that is hard to sell to the centre-left SPD.
Even if negotiators find a deal, it can still be torpedoed when SPD delegates and later rank-and-file members get to vote on whether the traditional labour party should once again govern in Merkel's shadow.
- 'Scepticism justified' -
SPD vice chairman Ralf Stegner underlined the deep uncertainty about a possible deal, tweeting that "scepticism was, is and remains justified", while the party's Karl Lauterbach said the "negotiations are difficult ... in all areas".
The SPD's youth wing chief Kevin Kuehnert is also energetically running a resistance campaign against any grand coalition agreement with the conservatives, known as a "GroKo" in German.
"I am very optimistic for the party congress: we can still stop the grand coalition," Kuehnert told Spiegel weekly.
He later told Zeit Online that he would embark on a #NoGroKo national tour to press his case before a September 21 party congress.
The SPD's youth movement leader believes that governing for another four years under Merkel would deal a death blow to the Social Democrats, who suffered a historic low score in September's elections.
Instead, Kuehnert favours the option of a minority government led by Merkel, even though her conservatives have rejected that option as too unstable.
A survey published by Focus magazine found that only 30 percent of Germans favour a return of the conservative-SPD alliance, while 34 percent prefer new elections.
Another poll, published by public broadcaster ARD, found that only 45 percent viewed a new GroKo positively, while 52 percent did not.
And a third survey, for business paper Handelsblatt, showed that 56 percent believed Merkel would not see out her four-year term.