German Chancellor Gerhard Schroeder and conservative challenger Angela Merkel held talks that both sides called helpful -- but they did not resolve their dispute over who should be the country's next leader.
Merkel came out of Wednesday's meeting at the Reichstag parliament building looking relaxed and describing the talks as "constructive and serious," while Franz Muentefering, head of Schroeder's Social Democratic Party, called the preliminary discussions "fruitful."
Both sides said they focused on policy, but had to leave their most serious dispute -- over who should be the next chancellor -- for further talks in the coming weeks. The two sides are scheduled to meet again next Wednesday.
Germany's stock market, however, seemed willing to ignore the political stalemate and hit a new high for the year.
Germany's Sept. 18 election resulted in both Schroeder's government of Social Democrats and Greens and Merkel's conservatives falling short of a majority in the Bundestag, or lower house. The two sides have had to turn to each other to try to form a majority across the left-right divide.
Merkel's Christian Democratic Union and their allied Bavaria-only sister party, the Christian Social Union, won 225 seats to 222 for the Social Democrats, with one further seat yet to be decided. She says that gives her the right to be Germany's first female chancellor.
Both sides stressed Wednesday's meeting was only a prelude to decide whether full-fledged coalition negotiations could be opened.
"We held exploratory talks, we discussed policy," Muentefering said of the two-hour meeting. "All personnel questions still need to be clarified, but we did not discuss them today."
Merkel said that "it is very clear what is still dividing us and that is the conservatives' claim to the chancellorship, but anyone expecting a resolution today would have had false expectations from these exploratory talks."
The two sides discussed policy differences on such thorny questions as reforming Germany's labor market and how to reduce its budget deficit.
Schroeder, standing next to Muentefering, said that the preliminary nature of the talks meant that the chancellorship question would be answered later.
"We are exploring the question of whether full-fledged negotiations can start," Schroeder said. "In such a phase, it's a political mistake to pose ultimatums."
Both sides have said another round of preparatory talks will be held next Wednesday. Before that, voters in the eastern city of Dresden turn out on Sunday in the last balloting of the election -- a vote that was put off because of a candidate's death. Pollsters say the delayed vote will decide one last seat, but likely will not alter the stalemate that emerged from the election.
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