Angela Merkel fourth term in doubt as coalition talks fail

Efforts to form a three-way coalition government have failed, Chancellor Angela Merkel said on Monday, pitching Germany into its worst political crisis for decades, raising the prospect of new elections and casting doubt over her future.

The pro-business Free Democrats (FDP) withdrew from talks after more than four weeks of fruitless negotiations with Merkel's conservative bloc and the environmentalist Greens, saying there was not enough common ground.

With German leadership seen as crucial for a European Union grappling with governance reform and Britain's impending exit, FDP leader Christian Lindner's announcement that he was pulling out spooked investors and sent the euro falling.

A tired-looking Merkel said she would stay on as acting chancellor and consult President Frank-Walter Steinmeier on how to move forward. A deal had been within reach, she said.

With the Social Democrats (SPD) sticking on Monday to their pledge after losses in a September election not to go back into a Merkel-led "grand coalition" of centre-left and centre-right, the most likely option looked to be new elections.

Steinmeier, who in the ordinary course of events is meant to play a non-partisan role above the cut-and-thrust of party politics, was due to give a statement at 1330 GMT.

"It is a day of deep reflection on how to go forward in Germany," Merkel told reporters. "As chancellor, I will do everything to ensure that this country is well managed in the difficult weeks to come.

The failure of coalition talks is unprecedented in Germany's post-war history, and was likened by newsmagazine Der Spiegel to the shock election of US President Donald Trump or Britain's referendum vote to leave the EU - moments when countries cast aside reputations for stability built up over decades.