The only party firmly shut out of any coalition deal is the far-right Alternative for Germany (AfD) party, whose anti-immigration and anti-euro stance has attracted many voters but alienated other political parties. Although the AfD has become the third largest party in Germany, garnering 12.6 percent of the vote, it is viewed as politically toxic and no party will make an alliance with it.

Whatever the make-up of a coalition government, Merkel is now weaker according to Adam Posen, president of the Peterson Institute for International Economics, and could be less effectual in Europe, particularly against a backdrop of proposals – by French President Emmanuel Macron – for greater economic integration in the euro zone.

“The big changes (after the election) are two-fold. First, simply, Merkel is in a much weaker position, even if she makes a coalition with the SDP or ‘Jamaica’ (the FDP and Greens) either way, she’s much more like the Netherlands now with a multi-party coalition, in the German upper house she won’t have a majority now, so she’s in a much weaker position,” Posen told CNBC Tuesday.

“Secondly, if the FDP – the so-called Liberals – are part of the coalition we should expect a slightly harder line on Europe in terms of bailouts which means that some of our aspirations for what a Merkel-Macron (French President Emmanuel Macron) engine could have done for Europe are probably reduced in likelihood or in scope.”

Throughout Tuesday, Germany’s main political parties – including the AfD, Greens, SDP and FDP — are holding meetings and are due to make statements.

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