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By Dave Graham
BERLIN (Reuters) - Leading members of German Chancellor Angela Merkel's conservatives and the pro-business Free Democrats said on Saturday that a deal on forming a centre-right coalition government was likely next week. Thorny issues, including the scale of tax cuts and how to finance them, remain but the parties have agreed other matters, ranging from financial market regulation to policy on Turkey's bid for European Union membership and online monitoring.
Germany's conservative bloc, comprising Merkel's Christian Democrats (CDU) and the Bavarian Christian Social Union (CSU), are trying to forge a policy agenda for the next four years with the Free Democrats (FDP) after together they won enough votes in a September 27 election to rule in a coalition.
CSU General Secretary Alexander Dobrindt said after six hours of talks on Saturday that consensus between the parties was growing. "From our point of view, we can say everything can be resolved in the next week," he told reporters.
Party leaders, including Merkel, will continue negotiations on Sunday on the most difficult issues. A final deal, which will include the sensitive division of cabinet posts, is expected towards the end of next week.
Tax is one of the main sticking points. Both parties want tax cuts but they are at odds on the amount. Talks in the last 24 hours have focussed on cuts of about 20 billion euros (18 billion pounds) but it is unclear how they will be financed while Europe's biggest economy is running a bulging budget deficit.
Leading CDU politician Juergen Ruettgers said there would have to be talks about how to rein in spending. "There will not only be talks about good deeds, there will also have to be talks on how to finance them," said Ruettgers.
In addition to the 20 billion euros of possible tax cuts, there is a 30 billion euro hole in the budget to plug.
A working group drawing up policy on economic matters said the parties had agreed to cut the costs of bureaucracy which would especially help small and medium-sized businesses.
The parties are also wrangling over Germany's health fund which needs a 7.5 billion euro cash injection. The new coalition will keep the fund, which the FDP had wanted to abolish, but make big changes to it, said leading CDU member Ursula von der Leyen.
The parties have also broadly agreed they want to extend the working lives of some nuclear power plants, but details are unclear.
(Writing by Madeline Chambers; editing by David Stamp)