After more than a month of gruelling negotiations, Christian Lindner, leader of the Free Democratic Party said there was no "basis of trust" to forge a government with Merkel's conservative alliance CDU-CSU and ecologist Greens.
"It is better not to govern than to govern badly," said Lindner, adding that "we cannot and will not answer for the spirit of the exploratory papers".
The talks, which turned increasingly acrimonious, had stumbled on issues including the divisive matter of immigration.
With the Social Democratic Party already ruling out returning to a coalition with Merkel, and the veteran leader herself refusing a minority government, Germany would likely be forced to hold new elections.
And Merkel, in power since 2005, would face questions from within her party on whether she is still the best candidate to lead them into a new electoral campaign.
Top-selling Bild daily said yesterday that a failure to forge a coalition puts "her chancellorship in danger".
Merkel had been forced to seek an alliance with the unlikely group of parties after September's elections left her without a majority.
Party chiefs had initially set 6:00 pm (1700 GMT) today as the moment of truth, but the deadline went by without a breakthrough -- the second overtime after already missing a previous target on Thursday.
But signs that talks were going badly began emerging and Bild daily said on its website that "failure is in the air" as parties dug in their heels on key sticking points.
Negotiators were unable to square that demand with the Greens' push for war refugees -- who benefit from temporary protection -- to be allowed to bring their family members to Germany.
"We will not accept that people who are already getting a lower status of protection by law are also excluded from family reunions. That is inhumane," Greens negotiator Juergen Trittin told the Bild am Sonntag newspaper.
The parties also differed on environmental issues, with the ecologists wanting to phase out dirty coal and combustion-engine cars, while the conservatives and FDP emphasise the need to protect industry and jobs.
Sueddeutsche daily noted that Steinmeier's warning came because he sees in new elections "the risk that even a bigger coalition or a Jamaica coalition would no longer have a majority".
"Then the loss would have been greater than the failure of forging a government," it said.
Disclaimer: No Business Standard Journalist was involved in creation of this content
You’ve reached your limit of {{free_limit}} free articles this month.
Subscribe now for unlimited access.
Already subscribed? Log in
Subscribe to read the full story →
Smart Quarterly
₹900
3 Months
₹300/Month
Smart Essential
₹2,700
1 Year
₹225/Month
Super Saver
₹3,900
2 Years
₹162/Month
Renews automatically, cancel anytime
Here’s what’s included in our digital subscription plans
Exclusive premium stories online
Over 30 premium stories daily, handpicked by our editors


Complimentary Access to The New York Times
News, Games, Cooking, Audio, Wirecutter & The Athletic
Business Standard Epaper
Digital replica of our daily newspaper — with options to read, save, and share


Curated Newsletters
Insights on markets, finance, politics, tech, and more delivered to your inbox
Market Analysis & Investment Insights
In-depth market analysis & insights with access to The Smart Investor


Archives
Repository of articles and publications dating back to 1997
Ad-free Reading
Uninterrupted reading experience with no advertisements


Seamless Access Across All Devices
Access Business Standard across devices — mobile, tablet, or PC, via web or app
