German Chancellor Angela Merkel's conservatives and the centre-left Social Democrats had still not reached an agreement on formal coalition talks as more than 18 hours of exploratory closed-door discussions continued before the expected Friday deadline.
Conservative negotiator Armin Laschet told a business group on Monday they had wrapped up talks on energy policy, but gave no details.
SPD leader Martin Schulz also spoke of "big obstacles" on the last day of preliminary talks in which the parties were sounding each other out over whether to move on to formal coalition negotiations. But Merkel would have to ask Steinmeier to do this, which she can't do because she is running a minority, "caretaker" government. We have decided together to bring in the power of the Federal Republic of Germany on an economic and political level to make Europe again the big project. Both parties also reportedly want to transform a rescue fund that was used during the euro zone sovereign debt crises and are prepared to boost Germany's contributions to the EU.
European Commission President Jean-Claude Juncker hailed as "positive" plans for Europe in a deal that brings Merkel a step closer to forming a coalition government.
But some in the wary SPD rank and file said the deal lacked sufficient concessions to the center-left party, which after four years of a sometimes awkward coalition with Merkel suffered its worst election results since 1933 last September.
But her party failed to gain an overall majority and it has so far failed to negotiate a coalition.
Despite the agreement, the possibility of a new coalition of Mrs Merkel's bloc with the Social Democrats, as governed Germany in the outgoing government, is still far from a done deal. Bild asked Merkel on Thursday.
"It would be the end for all three if this coalition does not come about", said Karl-Rudolf Korte of Duisburg-Essen University.
The policy paper is the first response to French President Emmanuel Macron's ambition for profound changes of European Union in post-Brexit area, saying that "the renewal of the European Union will only succeed if Germany and France work together with all their strength".
The deal cleared a first hurdle when the SPD's 45-member board approved it. And it's unclear whether Merkel would lead her party in another vote.
The SPD s youth wing chief Kevin Kuehnert told Zeit Online that he would embark on a national tour to press his case to opposing a new grand coalition before a September 21 party congress.
But SPD leader Martin Schulz, a former president of the European Parliament, is pursuing a very different vision, calling for the creation of a United States of Europe by 2025 - seen as an expensive distraction by many conservatives.
Recent polls suggest another ballot would result in a similar outcome.
Some political observers expect a now weakened Merkel to leave early and allow a successor to settle into the chancellorship ahead of 2021 elections.
Merkel has been largely absent from the worldwide stage in recent months as she focuses on her domestic woes, just as a newly confident France is looking for a strong partner in Berlin to help drive President Emmanuel Macron's European Union reform plans.
"In the interest of her party's electoral strength, she should not stay in office for the entire legislative term".