New German government to form 'by Christmas'

"We will negotiate in a tough manner, with the aim of forming a government before Christmas," SPD party chief Sigmar Gabriel said in a press conference after the vote.

The SPD set out 10 demands, including the imposition of a new financial transactions tax, which not all EU countries have signed up to and which is currently bogged down in legal challenges, and restrictions on EU weapons exports, including for the German weapons industry.

One demand which Merkel's allies have already signalled willingness to compromise on is a country-wide minimum wage at €8.5 euro per working hour.

More gender equality, measures against poverty and more investments in education are also on the wish list.

"We want to make the EU more capable of acting and to strengthen its structures through more democracy," the SPD said, adding that they want all EU countries to have "sustainable growth strategies" linked to their fiscal policies.

With coalition talks set to kick off just one day before an EU summit in Brussels on Thursday and Friday, EU officials are not expecting any big decisions on the eurozone governance at this meeting.

Der Spiegel reports on Monday that Merkel is again pushing for binding contracts between the EU commission and member states in return for access to a special eurozone budget.

The idea is not new and is hard to put in practice because it would require a change of the EU treaty which can only be done if all 28 EU countries and the European Parliament agree.

"Merkel is coming back to this idea after having been out of it for a while. She will realise there is great reluctance among other countries to change the treaty - this is a discussion that will be picked up again at the December summit," an EU source told this website.

Meanwhile, EU commission chief Jose Manuel Barroso is travelling to Berlin on Monday to meet Merkel on other EU files which are still blocked by Germany - setting up a eurozone-wide fund for failing banks and guaranteeing deposits across Europe.

But with the coalition talks barely under way and with the German finance ministry the most highly-prized post among the two parties, no movement is foreseen on that front either until a German government is formed.