CDU/CSU leader Friedrich Merz has said he wants a government in place by Easter to deal with multiple crises roiling Germany, but the talks will have to navigate tricky areas where the two parties clashed on the campaign trail.
Migration and security
The CDU/CSU has long pushed for more restrictions on irregular migration and their position only hardened in the wake of several deadly attacks blamed on migrants and asylum seekers in recent months.
The SPD has itself promised more deportations of foreign criminals and hailed the drop in the numbers of people arriving in the country via irregular means.
However, until now the SPD has refused to support one of the CDU/CSU's central promises: a plan to turn back all undocumented migrants at the border, including those who seek asylum.
The SPD says that this would contravene EU law and Germany's constitution.
The CDU/CSU also wants to restrict family reunifications for some refugees, while the SPD wants them to continue.
READ MORE: German election winner Merz starts government talks
Ukraine and defence
While Germany under outgoing SPD Chancellor Olaf Scholz has been Ukraine's second-largest supplier of defence aid after the United States since Russia's full-scale invasion began in February 2022, Scholz has always stressed the need to avoid direct confrontation with Russia.
He refused to supply Kyiv with Taurus missiles which could strike deep into Russian territory.
Merz has been more strident in his support for Ukraine, saying he would deliver the long-range missiles.
Both parties agree that investment in Germany's threadbare military needs to be stepped up, particularly as US President Donald Trump casts doubt on Washington's commitment to Ukraine and its European allies.
However, finding the extra money for the armed forces while respecting Germany's constitutionally enshrined "debt brake" will be tricky.
The SPD favours a broader reform of the debt brake but Merz has instead floated the possibility of a ring-fenced fund for defence.
If Merz manages to raise the funds somehow, "this would send a strong message to Trump and Putin that Germany is rising to the challenge of paying for its own defence - and that it will stand by Ukraine," Berenberg bank economist Holger Schmieding said.
Economic revival
Schmieding pointed out that "apart from vague promises of cutting red tape, the platforms of the CDU/CSU and SPD have little in common when it comes to precise measures to revive the flagging economy".
Battered by high energy bills and tough foreign competition, Europe's largest economy has suffered two straight years of contraction -- before taking into account the possible impact of the tariffs that Trump has threatened.
Merz's economic plan involves business tax cuts while the SPD prefers tax breaks for investments.
The Zeit newspaper predicts that "pensions and social policy are expected to be the trickiest" areas for negotiation.
Merz's plans for welfare reforms will likely run into SPD resistance.
The SPD has promised to keep pensions at 48 percent of average income while the CDU has only promised to keep pensions stable "through economic growth".
Schmieding suggested that among the concessions Merz might have to make to get support for "a pro-growth reform agenda" could be an overhaul of the debt brake and accepting the SPD's demand of a 15 euro ($16) per hour minimum wage.
While this would hurt some small businesses, "the companies that count for Germany's international competitiveness... would not be affected much" as they pay well above this rate in any case.
Climate policy
While the CDU/CSU says it is committed to Germany's national goal of climate neutrality by 2045, it has emphasised that this must not damage Germany's economic competitiveness.
It wants to reverse a planned European ban on combustion engines from 2035 in order to help Germany's ailing car industry.
The conservatives also want to scrap a much-maligned law brought under Scholz to encourage the installation of renewable energy heating systems.
The CDU/CSU has also said it wants to study a return to atomic power while the SPD supported nuclear being phased out.
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