Merkel seeks coalition partners in splintered Germany

Chancellor Angela Merkel got down to work on Tuesday in the fractured political landscape left by Germany's "earthquake" election, seeking a ruling majority to help neutralise a newly empowered hard right.

Merkel was to hold meetings at the Bundestag lower house, where the Christian Democratic Union/Christian Social Union (CDU/CSU) group saw its number of seats axed to 246 from 309 previously following its worst poll showing in seven decades.

CSU support plunged on Sunday to 6.2 percent - measured nationally - from 7.4 percent in the last election in 2013.

Joining her at the Reichstag parliament for the first time were the 93 deputies of the Alternative for Germany (AfD).

"The language of the campaign is different than the one in parliament," one of the party's leading members, Alexander Gauland, told reporters outside the main chamber.

"We know that we have a big responsibility in parliament, also to our voters."

Gauland, a CDU defector, had sparked outrage in the run-up to the election for incendiary comments, including urging Germans to be "proud" of their WWII veterans and calling for a government official who is of Turkish origin to be "dumped in Anatolia."

The AfD, already present in 13 of Germany's 16 regional parliaments, took 12.5 percent of the Bavarian vote on Sunday.

Merkel's border policy

The AfD poached support from both mainstream camps, the conservatives and the Social Democrats (SPD), junior partners in the "grand coalition" that has led Germany for eight of Merkel's 12 years in power.

A total of five million voters turned their backs on the governing parties, and 1.5 million of them voted for the AfD.

According to opinion polls, most of those voters pointed to anger over Merkel's border policy, which allowed more than one million asylum seekers into the country since 2015.

But after the SPD scored a humiliating 20.5 percent, a post-war record, it ruled out further cooperation with Merkel, meaning her search for a ruling alliance became infinitely more complicated.

Coalition efforts

Weakened, Merkel finds that her only real option of building a coalition in her fourth term is to enlist both the pro-business Free Democrats (FDP) the environmentalist Greens, who disagree on issues from energy to tax, Europe and migration.

While the FDP and Greens have signalled some willingness to compromise, CSU, which forms a parliamentary bloc with Merkel's CDU, struck a far harsher tone on Tuesday.

"The CSU has given voters guarantees and one of those is an upper limit on refugees. We must limit migration," CSU General Secretary Andreas Scheuer told the Passauer Neue Presse daily, in comments echoed by other leading figures.

Bavaria was the main entry point for migrants to Germany in 2015 and the CSU wants to limit the number of migrants to 200,000 a year.

Jamaica coalition

Bavarian state interior minister Joachim Herrmann also reiterated the CSU's demand, but he struck a slightly more positive note about the prospects of a 'Jamaica' coalition - so-called because the parties' colours mimic the island's flag: black for CDU/CSU, yellow (FDP) and green.

"With goodwill on all sides, it is possible. But it is not easy," he told German radio.

Apart from the CSU's red line on migrants, agreement with the eco-friendly Greens looks difficult on emissions policy.

Bavaria is home to the luxury carmakers BMW and Audi, and the CSU is strongly resisting any prospect of bans on diesel and other combustion engines after an industry emissions scandal.

The Greens and the FDP are also far apart on deepening EU integration, military spending and the response to the diesel crisis given Germany's outsized dependence on the car industry. 

"It is clear that complicated coalitions come to happen if all parties behave responsibly and if all partners agree on taking on the issues that are very important for the other partners," said the Greens' main green candidate for the general election Katrin Goering-Eckardt on Tuesday.

Leaving AfD 

Frauke Petry, the co-leader of the far-right AfD, is leaving the party, two days after a national election made it the third-largest group in parliament, media reported, in a major blow to the party's credibility.

Several senior AfD members had urged Petry, the highest-profile figure in the AfD's more moderate wing, to quit the party after she shocked them on Monday by saying she would not sit with the AfD in the Bundestag.

"It's clear that this step will follow," Petry was cited as saying in the eastern city of Dresden by several German media, including Spiegel Online and newspaper websites. 

She did not say when she would quit, they said.

Her spokesman could not immediately confirm the reports.

Marcus Pretzell, a senior member of the far-right AfD and the husband of party co-leader Frauke Petry, on Tuesday told a regional party branch he wanted to leave the AfD, a regional lawmaker in the AfD said.

"Mr Pretzell told the parliamentary group he wants to leave the parliamentary group and then also the AfD," said Helmut Seifen, a lawmaker in the regional assembly of the western state of North Rhine-Westphalia said.

Pretzell declined to comment.

Euro zone 

With months of uncertainty ahead, the euro slipped to a one-month low on Tuesday after its worst day so far this year as investors worried that delays could weigh on the economy and make closer euro zone integration difficult.

Another key question for investors is whether the hawkish Wolfgang Schaeuble remains finance minister of Europe's biggest economy.

On Tuesday, some conservative allies pressured him to take a new job as president, or speaker, of parliament.