Migration and cuts among Merz's priorities for German coalition talks

By Thomas Escritt

BERLIN (Reuters) - Germany's would-be Chancellor Friedrich Merz identified on Friday migration, economic competitiveness and spending cuts as major areas needing agreement with intended coalition partners to form a government.

Exploratory talks between the conservative bloc - his Christian Democrats and their Bavarian CSU partners - and the Social Democrats (SPD) concluded earlier this week with a 162-page draft. Party leaders must now craft a government programme.

"We need to come up with a common vision of how we imagine Germany over the next 10 years," Merz said in the lobby of SPD headquarters, a building he was entering for the first time.

With Germany in its deepest economic and diplomatic crisis in decades, the next government's challenges include compensating for the U.S.'s dwindling commitment to European defence under Donald Trump and restructuring the economy for an environment less conducive to global trade.

Merz conceded that in parts the proposals thrashed out by the 16 specialist working parties were contradictory.

"Some of the working parties clearly interpreted that job as 'make a wish'," he said. "But our personal trust in each other has been growing over the past few days, so I'm optimistic."

KEEPING OUT AFD

The conservatives, who won the February 23 election, have no alternative to a coalition with the SPD if they are to cut out the second-placed Alternative for Germany, a far-right party.

But the SPD's views are often far from Merz's, especially on welfare, migration and tax. Drafts show the SPD is more focussed on integrating migrants already in Germany, while the conservatives' focus is on securing borders.

"We have a common goal: The number of migrants coming to Germany must come down quickly and sustainably," he said.

"The second topic will be the competitiveness of our economy ... And then we will have to discuss the budget ... We will have to save comprehensively."

Merz's focus on cuts may also prove hard to reconcile with the SPD's desire to shift the tax burden away from lower earners towards the rich.

"This is a collection of very different ideas and desires," said SPD chairwoman Saskia Esken of the draft.

"Our means are limited."

The conservatives are under pressure not to concede too much to the SPD, who came third in the election. Polls already show a shift away from the conservatives towards the AfD.

(Reporting by Thomas Escritt; Editing by Andrew Cawthorne)