Merkel could suggest a cooling-off period for the four parties - her CDU and their Bavarian allies the CSU, the Greens and the FDP - that have been struggling to form a coalition for more than a month, before inviting them back for a new round of talks.
Yet their differences over immigration, climate and Europe seem irreconcilable. The greatest rift was between the FDP and the Greens, according to the CDU’s Jens Spahn, who told ZDF TV that negotiations between the CDU-CSU and FDP “would have been finished in two weeks”.
The parties spent Monday trading recriminations, with the FDP saying that zero progress had been made and the Greens accusing the FDP of shirking their responsibilities.
Dragging out talks risks seeing parties harden their positions, making an agreement seem even more unlikely.
What if Merkel went back to her old allies?
The only obvious alternative to a so-called "Jamaica coalition" between the CDU-CSU, the Greens and the FDP is an alliance between Merkel’s conservatives and the Social Democrats (SPD), which has been her junior coalition partner for the past four years.
But the SPD has already ruled out another grand coalition between them. After polling at an all-time low in September’s vote, the party announced it would go into opposition. One of its deputy leaders, Ralf Stegner, reaffirmed that position on Monday, saying that there was “no mandate for a grand coalition”.
Nonetheless the SPD is under pressure to reconsider, with the CDU’s Spahn saying it was up to the party to decide whether it wanted to govern or “remain maliciously in the corner”.
Could Merkel give up on a majority?
Germany could find itself with the first minority government in its post-war history if Merkel opts to team up with one of the CDU-CSU’s smaller allies - the Greens, for instance.
Doing so would oblige her to scrape together a few dozen extra votes from other parties each time she wants to pass something in parliament, something she has never before had to do at the head of a comfortable majority.
“It would require more coalition building and work in the parliament than she is used to,” commented Pepijn Bergsen, lead analyst for Germany at the Economist Intelligence Unit.
“However, the lack of an obvious successor, her continued popularity (especially given that she has been in office for 12 years) and the need for strong leadership at a time of significant external challenges - such as Brexit and EU reform - mean that she would probably remain in place even in such an event.”
Will Germany go back to the polls?
New elections seem like the most probable option - though the road to them is far from clear.
The decision ultimately rests with President Frank-Walter Steinmeier, who has to formally dissolve the parliament before a new election can be called. Before he can do that various other constitutional boxes need to be ticked, and that could take months.
Merkel met Steinmeier on Monday to discuss the next steps.
President Steinmeier urged political parties to reconsider their positions and find compromises to form a government on Monday, making clear calling snap elections was not his desired option.
Angela Merkel meeting President Steinmeier at Bellevue Palace in Berlin on Monday. Photo: DPA.
"Building a government has always been a difficult process of give and take, but the mandate to form a government is... perhaps the highest mandate given by voters to a party in a democracy. And this mandate remains," said Steinmeier.
Should a new vote take place, the discord between mainstream parties could strengthen the anti-immigrant Alternative for Germany (AfD) party - and lead to the FDP being blamed for any gains the far-right makes.
Is Germany's future at risk?
The setback is "a disappointment for the German economy", said Eric Schweitzer, president of the DIHK chambers of industry and commerce.
"There's a danger that work on important issues for the future of our country will now be delayed for a long time," he said.
The German economy has been growing even faster than predicted, powered by stellar domestic and foreign demand, record-low unemployment and low interest rates.
Last month the government sharply lifted its growth forecast for the year from 1.5 to 2.0 percent, with recent consumer confidence and business surveys adding to a picture of an economy in glowing health.
But the momentum can only continue, economists say, if the government takes the necessary steps to deal with the country's ageing population and creaking infrastructure.
"The collapsed talks will probably have no impact in the short run," said economist Carsten Brzeski of ING Diba bank.
"However, given the lack of structural reforms and the urgent need for investments in digitalization and education, German politics should not waste too much time if they don't want to put the economy's future at risk," he warned.
What does all this mean for Europe?
It’s not great.
Chancellor Angela Merkel and French President Emmanuel Macron. Photo: DPA.
“We hope for Germany and for Europe that our main partner is stable and strong so we can move forward together,” French President Emmanuel Macron said on Monday, commenting that political tension in Germany was “not in our interest”.
The collapse of coalition talks has dealt a blow to Macron’s hopes to reform the EU. With Germany set for weeks if not months on an interim government, Europe’s powerhouse is unlikely to commit to any big decisions any time soon.
"I fear that the European Union is going to be paralyzed for the next few months,” Dominik Grillmayer, an expert at the Franco-German Institute in Ludwigsburg in Germany, told AFP.
“Nothing is going to move forward on the reforms or the Brexit negotiations.”
With AFP and DPA