Chancellor Angela Merkel's conservatives are meeting the center-left Social Democrats (SPD) for a second round of preliminary talks on Monday afternoon and plan to decide by the end of the week whether to start formal coalition talks with them or the Greens.
A grand coalition between the conservatives and the SPD -- Merkel's preferred option because it would give her comfortable majorities in both houses of parliament -- is looking increasingly likely.
So far at least, progress has been easier than anticipated. The two parties are finding scope for compromises on a range of domestic policy issues including the introduction of a minimum wage, tax policy and the energy revolution.
The allocation of cabinet posts could, however, prove contentious. The SPD wants the post of finance minister, a key position in tackling the euro crisis which is currently occupied by veteran Wolfgang Schäuble of Merkel's Christian Democratic Union (CDU), but Merkel doesn't want to hand it over.
Wrangling Over Cabinet Posts
The SPD also wants the labor portfolio, which would require Labor Minister Ursula von der Leyen to find another post. Rumor has it that she would like to be foreign minister, but sources have told SPIEGEL that Merkel may offer her the Health Ministry instead, a less attractive position.
There is speculation that Schäuble could become Foreign Minister and that SPD member Jörg Asmussen, currently on the European Central Bank's executive board, could replace him as finance minister.
Another difficult issue is likely to be dual citizenship. Merkel's CDU and its Bavarian sister party, the Christian Social Union (CSU), oppose it and the current law requires people born in Germany to foreign parents to choose by the age of 23 whether they want to be German or foreign citizens. The SPD wants to amend the law and allow permanent dual citizenship.
Merkel said last week she wants to know which party she will be entering formal coalition talks with by Oct. 22, when the newly elected Bundestag, Germany's lower house of parliament, assembles for its first session.
That doesn't mean a new government will be in place by that date, though. It means she wants to be sure who her likely coalition partner is going to be.
'New Government by Mid-November'
Schäuble told reporters that a new government could be formed quite quickly. "I think we'll have a new government by around the middle of November," he said Saturday on the sidelines of international financial talks in Washington.
Merkel, who led her conservatives to their best general election result since the heady days of reunification in 1990, is just five seats short of an absolute majority.
Some observers said in the immediate aftermath of the election that the coalition talks could drag on to the end of the year or even into January. Germany may have a government a lot sooner than that.