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Leader of the German Green Party Cem Ozdemir and leader of the Christian Democratic Union of Germany (CDU) Angela Merkel accompanied by the politicians of their parties are seen on the balcony of German Parliamentary Society offices prior to the exploratory talks about forming a new coalition government held by CDU/CSU in Berlin, Germany, October 18, 2017. REUTERS/Fabrizio Bensch

(reuters_tickers)

By Madeline Chambers

BERLIN (Reuters) - Chancellor Angela Merkel's conservative bloc and the pro-business Free Democrats described their first talks on building a coalition government as constructive on Wednesday, but a meeting later with the Greens could prove more difficult.

Merkel, weakened by election losses last month, wants to forge an alliance between the bloc - her Christian Democrats (CDU) and Bavarian Christian Social Union (CSU) - the Greens and the Free Democrats (FDP), but they differ on many policies.

Setting the stage for tough talks that could take several months, politicians from all parties have set out their stall, narrowing room for compromise in areas from immigration to the European Union and environmental policy.

After the first two-hour meeting, general secretaries from the two conservative parties and the FDP emerged, smiling, to tell reporters the talks had been positive.

"It was a good exchange, at times nice and above all mutually respectful and joyful," said CSU General-Secretary Andreas Scheuer.

Merkel, whose conservatives bled support to the far right in the Sept. 24 election, warned her parliamentary party on Tuesday they would have to compromise.

Chancellor for 12 years and known as a skilled negotiator, she angered many voters over her open-door migrant policy and her conservatives saw their worst election result since 1949.

She has said she expects a government to be in place by Christmas, but others say January is more likely, pointing to a months-long policy standstill in Europe's biggest economy.

The prospect of a minority government or new election hangs over the talks, a scenario Merkel wants to avoid due to fears the far-right Alternative for Germany (AfD) could make bigger gains.

"It is totally conceivable that before Christmas or in January we say that the whole thing is pointless and we'll talk to the Social Democrats (SPD)," Peter Ramsauer, a senior CSU member not on the negotiating team, told Deutschlandfunk.

The SPD, which suffered its worst result since 1933, has said it will go into opposition.

GREENS TOUGHER

A Jamaica coalition, so called because the parties' black, yellow and green colours match those of the Caribbean nation's flag, untested at the national level, is in place in the northern state of Schleswig Holstein but the first regional experiment, in Saarland, failed.

The conservative bloc is due to meet the Greens later on Wednesday.

"That'll probably be a bigger, tougher task," said Scheuer.

On Thursday, the FDP and Greens talk before all three parliamentary groups, involving more than 50 people, meet for the first time on Friday.

"The first steps on this path went well, in an objective, solution-oriented atmosphere," said FDP General-Secretary Nicola Beer. "We agreed that some of us might need to be creative to continue on this path in this way."

The talks are focussed on building trust and agreeing a format for future talks rather than tackling hard policies.

CDU General-Secretary Peter Tauber, who described a "good feeling" at the talks, said: "Our clear goal is to have a good government for our country in the end."

One of the toughest policy areas will be immigration.

Merkel, further weakened on Sunday by losses in a state election, has had to give way to the CSU on immigration, effectively bowing to a demand to limit the number of people allowed into Germany. That may be unacceptable to the Greens.

Merkel has spoken of a coalition that focuses on providing a sustainable social security system and has stressed the importance of investing in digital technology.

The budget surplus could accommodate the potentially competing demands for tax cuts and investment.

(Additional reporting by Michelle Martin and Holger Hansen; Editing by Janet Lawrence)

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