Election means three-party German government likely

The two main rivals both have said they will try to head the next government. But the splintered election result means that either will need both the Greens and the liberal Free Democrats to form a majority.

The Greens have traditionally been more aligned with the SPD, while liberal leader Christian Lindner had previously said he preferred a coalition with the conservatives.

Both kingmaker parties are now keeping their options open, and Lindner suggested they should be talking to each other first and decide how to proceed.

"The German political system is gradually moving toward a system with more different parties, but not in a revolutionary way," Dr Katrin Böttger, director at the Berlin-based Institute for European Politics told EUobserver, adding this is a trend rather than an exception.

She noted that two "popular parties" remained the two largest factions in Bundestag, but that it also became clear that the far-right Alternative for Germany (AfD) is here to stay.

Böttger said all the parties are "constructively" looking for a government that will be likely be headed by Scholz.

This will be the first three-way coalition in Germany since the 1940s, she noted.

It will be a challenge for Lindner to team up with SPD, as his pro-business party vowed not to raise taxes and to restore limits on borrowing. Both would be tough demands for the Social Democrats and the Greens, both of which want to boost spending and tax the wealthy.

In 2017, it was Lindner who pulled the plug on a three-way coalition with Merkel's Christian Democrats and the Greens, but Böttger expected the FDP leader will want to avoid repeating the same scenario.

Böttger said it will come down to how the ministry portfolios will be distributed, and if party leaders can bring their members on board.

She said a plausible outcome could be that the Greens get the foreign ministry and the FDP get the finance minister post under a Scholz chancellory.

Unlike in other European parliamentary democracies, in Germany, it is not the head of state - currently president Frank-Walter Steinmeier, who hails from the SPD - who picks a designated leader, who then tries to form a coalition.

It is the parties themselves who will first attempt to come to an agreement.

Four years ago, Angela Merkel needed almost six months to bring together a grand coalition with the Social Democrats. In the end, the SDP did need a little nudging from Steinmeier to enter that coalition.

Meanwhile, if this time talks drag on beyond Christmas, Merkel will surpass Helmut Kohl to become Germany's longest-serving postwar chancellor.

Whats does it mean for EU?

Protracted coalition talks mean a prolongation of difficult conversations in the EU too, at a time of a packed EU agenda: decisions will have to be made on the new deficit and debt rules, climate and migration policy, and the EU's role in the world.

However, with French elections coming up next spring, major decisions are likely to be held off until then, not primarily because of German coalition talks.

Böttger argued that once there is a government in place in Berlin, it should speed up internal coordination among coalition partners on EU policy issues, to have a clear German position at the European level.

Böttger also said she hoped the new government would "take a leap of faith and invest more in the EU", and move towards other member states' positions to find common ground.

She highlighted migration, where Germany could take a step towards southern European countries' position, or foreign policy, where Germany could move toward a more common position.

"Germany has to be a bit more visionary and brave, not so narrow-minded and be able to find package deal solutions," she said, highlighting cooperation with France.