Germany's Greens rule out further coalition talks with Merkel


* Greens say see too many policy differences with Merkelbloc

* Merkel continues talks with Social Democrats

* Third round of talks expected on Thursday

* Most Germans would like to see a 'grand coalition' withSPD

By Alexandra Hudson

BERLIN, Oct 16 (Reuters) - Germany's Greens ruled out anyfurther coalition talks with Angela Merkel's conservatives earlyon Wednesday, leaving the chancellor to focus on discussionswith the centre-left Social Democrats (SPD) in her efforts toform a new government.

After almost six hours of detailed policy discussions theGreens concluded they simply did not have enough in common withMerkel's conservative bloc in areas such as energy, climatetargets and taxation, to make further discussions fruitful.

"After these talks the Greens do not find themselves able toenter coalition talks," said Hermann Groehe, second-in-commandof Merkel's Christian Democrats (CDU).

"We will approach the representatives of the SPD tomorrowwith a view to scheduling the explorative talks we had alreadyeyed for Thursday."

Merkel needs to find a partner for her third term after shewon September's election but fell short of an absolute majority.Polls suggest the German public would like her to enterfull-blown negotiations with the SPD, and aim for a repeat ofthe 'grand coalition' in which she governed from 2005-2009.

The SPD, however, are playing hard to get. Itsrepresentatives spoke to the CDU and its Bavarian sister party,the Christian Social Union (CSU), for eight hours on Monday, andwhile stating their willingness to talk again, they also saidthey could also say no to Merkel.

The prospect of months of coalition talks worries Germany'sEuropean partners, who fear delays to crucial decisions forfighting the euro zone crisis, such as a plan for banking union.

An eventual grand coalition is expected to boost spending oninvestment in Germany, helping shore up Europe's largest economyand increasing trade with the struggling euro zone, helpingaddress imbalances.

Although the CDU/CSU and Greens were ultimately unable to bridge differences, the fact that the former arch-enemies spokeat all and for so long is already groundbreaking and signals anew political culture in Germany.

"I want to stress that even in areas where there weredifferences, there were none which we would have viewed asinsurmountable," said Groehe.

However, taxation appeared a major stumbling block, with theGreens anxious to fund an ambitious investment programme.

Former Greens co-chair Claudia Roth said: "We always said itwas about seeing whether there was a solid foundation for fouryears of government together - and after these talks it appearsthere wasn't."

The policy divide with the SPD looks to be smaller.

The SPD has already signalled it could stop insisting on taxhikes if Merkel's camp can come up with other ways to pay formore investment in infrastructure, education and research, whichall the mainstream parties agree is necessary.

The big sticking point is a minimum wage. In the talks onMonday, the SPD made clear it would not compromise on its demandfor a nationwide wage floor of 8.50 euros per hour.

But even here, the divide between the parties is more aboutmethod than substance. Merkel agrees in principle to the idea ofa wage floor, but wants this to be negotiated sector by sector,rather than imposed from above.

On a range of other issues, from how to tackle Europe'seconomic and financial woes to completing Germany's shift fromnuclear to renewable energy, the differences are minimal.

Still, the path to an eventual grand coalition won't besmooth.

SPD leaders must take care not to appear overly eager for adeal with Merkel given deep scepticism among the party's rankand file. On Sunday, 200 senior SPD members will vote on whetherto continue coalition talks, and any final decision on forming anew government will be put to a vote by the party's 472,000members.

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