German Chancellor Angela Merkel, her Bavarian ally Horst Seehofer and SPD leader Martin Schulz agreed during a meeting late on Thursday to enter talks to find a way out of the political impasse, a party official said on Friday.
The three party leaders discussed various options for forming a government, including a Merkel-led minority government, but they voiced scepticism about this option, said the party official who spoke on the condition of anonymity and on the condition the party not be named.
Ms Merkel is casting around for a coalition partner after her centre-right bloc shed support to the far right in a September 24 election and her attempts to form a three-way tie-up with the pro-business Free Democrats (FDP) and the Greens failed.
Mr Schulz told magazine Der Spiegel Germany needed to change its Europe policy as a party source said the SPD would hold talks with Ms Merkel's conservatives in a bid to end political deadlock.
"Giving Emmanuel Macron a positive answer will be a key element in every negotiation with the SPD," Mr Schulz was quoted as saying in an interview on Friday.
He added a joint European tax policy should be introduced as well as an EU finance minister.
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