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Former rivals embrace as German coalition talks begin

German Chancellor and leader of the Christian Democratic Union (CDU) Angela Merkel sits in her limousine as she leaves the first round of co
German Chancellor and leader of the Christian Democratic Union (CDU) Angela Merkel sits in her limousine as she leaves the first round of co

By Andreas Rinke and Holger Hansen

BERLIN (Reuters) - It was a scene that might cause shock in the United States or Britain, where the partisan divide is much deeper, making political compromise seem impossible at times.

But in Germany, where Angela Merkel's conservatives and the Social Democrats (SPD) put months of hostility behind them on Wednesday, sat down at the same table and even hugged each other, the readiness to forge consensus barely raised an eyebrow.

At the start of coalition negotiations that are expected to last six weeks, 77 politicians from the rival camps buried the hatchet and held a cordial first meeting at the headquarters of Merkel's Christian Democrats (CDU) in Berlin.

None of the animosity of the past months was evident. On the contrary, the gathering had the look of a family reunion.

"For people whose interactions in recent months were limited to an election battle it is important to set another tone and build personal relations," said Andrea Nahles, general secretary of the SPD.

"We all hugged to begin with. That was very helpful," added Alexander Dobrindt, her counterpart with the Bavarian Christian Social Union (CSU), sister party to the CDU.

The first formal session of coalition negotiations lasted less than two hours and was dominated by procedural matters.

The big group, which is due to meet once a week for the next six weeks to hammer out policy compromises based on the proposals of 12 working groups, decided their next meeting on October 30 -- which will take place at SPD headquarters -- would focus on European issues.

Some of Germany's allies are hoping a government that includes the SPD will take a softer approach towards struggling southern euro members, but any changes are likely to be subtle.

The SPD is expected to push for a European financial transactions tax, harsh rules for creditors to bear the cost of failing banks, and a renewed effort to stem youth unemployment in southern Europe. These are all themes that Merkel has supported in one form or another.

Other challenges include agreeing a minimum wage, overhauling a renewables law that has sent energy costs soaring, and finding funds to raise public investment on infrastructure, education and research - a major demand of the SPD.

MODEST SHIFT LEFT

"The new government's domestic policy agenda should bring a modest shift to the left with stricter labour market regulation and a minimum wage," Barclays economist Thomas Harjes wrote in a research note this week.

The parties ruled together in Merkel's first term from 2005 to 2009 in the first "grand coalition" Germany had seen since the 1960s.

That partnership proved far more successful and harmonious than many experts had predicted, agreeing to raise the retirement age to 67 from 65 and a range of policies to shield Germany from the global financial crisis that broke out in 2008.

After the 2005 election, it took the parties more than two months to form a new government. This time it is likely last even longer.

Based on the current timeline, Merkel would not be formally voted in as chancellor until parliament's last session of the year, the week before Christmas.

Her conservatives delivered their strongest result in over two decades in the September 22 election but fell several seats short of a parliamentary majority. Exploratory talks with the Greens collapsed last week, allowing Merkel to focus on opening formal negotiations with the SPD.

Only at the end of the talks will the party leaders divide up cabinet posts. The top prize is the finance ministry, but the SPD is divided over whether to claim that or go for other high profile portfolios such as the foreign or economy ministries.

(Additional reporting by Alexandra Hudson; Writing by Noah Barkin)

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