German conservatives expect Chancellor Gerhard Schroeder to yield to Angela Merkel in their stand-off over who will head a new government, but a final deal will not come before Sunday, party leaders said on Thursday.
Merkel's conservatives and Schroeder's Social Democrats (SPD) are inching towards forming a coalition after neither won a majority with their preferred allies in a September 18 election.
But they have been unable to agree on who should be chancellor. Schroeder has refused to concede defeat, even though the conservatives won four more seats in parliament.
Christian Democrat (CDU) leader Merkel, her Bavarian ally Edmund Stoiber, head of the Christian Social Union, Schroeder and Social Democrat chief Franz Muentefering are due to meet from 7 pm (1700 GMT) on Thursday.
But Merkel, 51, cautioned that a deal would not be reached until the weekend, with more talks planned before Sunday.
"I have informed (the party executive) there will be further decisions made in the leadership talks and also said there will probably not be decisions from these talks before Sunday evening," she told reporters after a meeting of CDU leaders.
Both she and SPD leader Franz Muentefering said no further announcements were planned before the completion of talks, but they were confident a deal would be reached.
Schroeder, 61, signalled earlier this week he could be prepared to give up the post he has held since 1998, saying he would not stop the creation of a stable government.
Although they are traditional rivals, the tone of recent comments suggests the top parties can work together, providing a boost to both the euro and German shares as financial markets have banked on a new government tackling economic reforms.
The two sides appear to agree on the need to bring Germany's ballooning deficit back under EU limits, untangle a web of conflicting state and federal powers and simplify Germany's notoriously complex tax code.
But big differences exist on conservative plans to ease hiring and firing rules, loosen the system of sector-wide pay deals and on reforms to health insurance funding.
Muentefering said it was still the party's aim to keep Schroeder in the chancellery but his language contained none of the sometimes aggressive tone previously used by the SPD.
"The party wants him as chancellor. We'll fight for that and argue for it and hold talks," he said.
The strong objections to supporting Merkel as chancellor that were previously expressed by many in the SPD have also eased, according to people at a meeting of party leaders.
They said Ludwig Stiegler, deputy head of the parliamentary party who has vowed not to accept Merkel as chancellor, was isolated and faced objections from others at the meeting.
Senior conservatives refused to give way on demands that they name both the chancellor and the symbolically important president of parliament, although they were prepared to make concessions in other areas.
"For me, two things are non-negotiable," Christian Wulff, state premier of Lower Saxony, told n-tv television before the conservative meeting in Berlin. "One is the head of government and the other is the president of parliament," he said.
"Otherwise, everything is negotiable."
But there were still big policy differences to be overcome which could hold up forming a new government, he said.
"I'm afraid the negotiations are more likely to last three weeks than two, but if they're good negotiations with a good result, then the old rule applies: thoroughness before speed."
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