By Markus Wacket and Thomas Escritt
BERLIN (Reuters) - Chancellor Angela Merkel said her conservatives and their would-be partners, the Social Democrats (SPD), had much to do if they were to agree a coalition government, with the parties haggling over labour rights.
The parties secured agreements on less contentious issues on Friday, but, arriving on the eve of a weekend of marathon talks, Merkel said they faced divisions in crucial areas.
"We have goodwill to overcome them, but there is still a lot of work ahead for us," she told reporters.
The two camps aim to finalise a deal for four more years of a "grand coalition" by the end of the weekend or early next week, some four months after an inconclusive election plunged Germany into unaccustomed political uncertainty.
The parties have agreed some eye-catching measures, including a 50 percent tax write-down for fleet electric cars and a 12-billion-euro public investment programme to improve sluggish data networks, documents seen by Reuters showed.
In the field of labour rights, where the SPD wants to signal to its members that it has set its stamp on the deal, the SPD and conservatives agreed to the right for employees in companies with more than 45 employees to move seamlessly back and forth between full- and part-time work.
But long lines of text highlighted in yellow showed that the parties had yet to decide on the exact wording of that agreement.
And some SPD members said they wanted to revisit a coalition blueprint agreed in January that said the parties did not expect annual migration to exceed 220,000 per year because they were annoyed that Merkel's Bavarian allies seemed to be considering this as an upper limit to migration rather than a prediction.
The parties agreed they wanted to boost the rights of consumers by allowing collective lawsuits. Consumer associations and politicians had called for class-action lawsuits to be made possible during the Volkswagen <VOWG_p.DE> diesel emissions scandal.
Other agreements included to raise child benefits by 25 euros per child per month and to give German authorities the ability to deprive people with dual citizenship of their German citizenship if they fight abroad for an extremist organisation.
Arriving for the final round of talks, SPD leader Martin Schulz said his party would insist on more progress in this and in healthcare, where the party hopes to reduce difference in the service experienced by the privately and publicly insured.
The parties have yet to reach an overall agreement on healthcare, but made some progress on Friday, agreeing to boost funds for hospitals for restructuring, digitalisation and new technologies.
The centre-left SPD has sagged even further in opinion polls since suffering its worst result of the postwar era in the Sept. 24 election.
Many SPD activists, who must ratify any coalition deal in a postal ballot, would prefer to see their party reinvent itself in opposition rather than join another coalition with Merkel after serving as junior partner from 2013 to 2017.
For Merkel, another loveless grand coalition is her best chance of securing a fourth term after the failure of earlier talks with two smaller parties late last year.
Her bloc and the SPD have already agreed terms in other areas. Germany's booming economy has allowed them to agree an extra 11 billion euros for education and compromise deals have been reached on migration and healthcare policy.
Some of the accords are noticeably less ambitious than those reached in the previous talks with the two smaller parties. Then, negotiators agreed to spend 20 billion euros over a longer period on building a better national broadband network. Privatisations are also now off the agenda.
Despite the differences between the parties, Horst Seehofer, Merkel's Bavarian ally, whose party has in the past been most sceptical about a renewed coalition with the SPD, was optimistic.
"I think we'll get this done in the coming days," Seehofer said. "So far, there is no reason to expect we will need longer than Sunday."
(Writing by Thomas Escritt; Additional reporting by Thorsten Severin, Sabine Siebold, Hans-Edzard Busemann and Michelle Martin; Editing by Janet Lawrence and Robin Pomeroy)