'Better not to govern than to govern badly': Germany in political crisis

Europe's biggest economy now faces weeks, if not months of paralysis with a lame-duck government that is unlikely to take bold policy action.

And with no other viable coalition in sight, Germany may be forced to hold new elections that risk being as inconclusive as September's polls.

Merkel had been forced to seek an alliance with an unlikely group of parties after September's elections left her without a majority.

But after more than a month of gruelling negotiations, the leader of the pro-business FDP, Christian Lindner, walked out of talks, saying 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," he said, adding that the parties did not share "a common vision on modernising" Germany.

Voicing regret for the FDP's decision, Merkel vowed to steer Germany through the crisis.

"As chancellor... I will do everything to ensure that this country comes out well through this difficult time," she said.

The Greens' leaders also deplored the collapse of talks, saying they had believed a deal could be done despite the differences.

The negotiations, which turned increasingly acrimonious, had stumbled on a series of issues including immigration policy.

Merkel's liberal refugee policy that let in more than a million asylum seekers since 2015 had also pushed some voters to the far-right AfD, which in September elections campaigned on an Islamophobic and anti-immigration platform.

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.

Party chiefs had initially set 6:00 pm (1700 GMT) Sunday 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.