After nearly 24 hours of marathon talks, there was still no agreement in sight between Merkel's conservatives and the centre-left Social Democrats (SPD).
"No question that every time she needs to push a piece of legislation through she'd have to "ad-hoc" it...it would be on her shoulder to make a sale", said Jackson Janes, president of the American Institute for Contemporary German Studies at Johns Hopkins University.
Merkel's conservative bloc, including the CDU and the CSU, embarked on negotiations over the potential forming of a coalition with the Social Democratic Party (SPD) led by Martin Schulz on Saturday.
Going into the final round of "exploratory talks" between the parties, Merkel appeared upbeat but admitted that there were still "major obstacles" to overcome.
For four months Mrs Merkel and her Christian Democratic Union party have been attempting to form a coalition government.
But SPD leaders will have a harder time convincing members that they should approve the pact at a January 21 party congress and again in a postal vote at the end of formal coalition negotiations.
The compromise is still subject to final approvals by the two parties.
The increase demanded by the SPD of the top tax rate will not come, as no tax increases is stipulated in the policy paper. "I think we produced excellent results".
"What we need in Europe is the same as what we need on a national level, we need ... more cohesion", he said.
Strengthening the Franco-German relationship will be good. "That is why we want to further strengthen and renew German-French cooperation". "Facing the challenges of the world a strong Europe is in Germany's best interests and this is what we, the CDU and SPD have in common".
Merkel, still widely respected overseas after more than 12 years in power, is scrambling to prevent a further erosion of her personal authority at home and end months of uncertainty that have started to weaken Germany's global influence. "It is a significant, positive, forward-looking contribution to European policy debate in Europe", he added.
Among other things, the Social Democrats' leaders will still have to sell entering coalition talks to a party conference, and face much resistance.
A bitter point of disagreement - reunions of refugees with their families - ended with the promise to allow reunions eventually, but capped at 1,000 a month.
A survey published by Focus magazine found that only 30 percent of Germans favour a return of the grand coalition, while 34 percent prefer new elections. The formal coalition talks need the green-light to kick off.
However, the Social Democrats have more leverage this time round. They feared of the party being further minimalized under the Union.
But a successful conclusion of the talks does not spell the end, because the SPD's 450,000 rank and file will then be called to a vote on whether to sign on the dotted line.
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