Post-election conundrum awaits Germany's Merkel

By Madeline Chambers BERLIN (Reuters) - Barring an upset, the main uncertainty surrounding Europe's most important election this year is not whether Angela Merkel will continue to lead Germany after this weekend's vote, but who with and how long they will take to get going. Although a surprise cannot be ruled out in the wake of any Russian interference, pollsters say they are confident about their surveys, which show Merkel's conservatives winning the most seats in the Bundestag lower house. The far-right, anti-immigrant Alternative for Germany (AfD) is set to enter parliament for the first time, and some experts have said it may gain more support than the roughly 10 percent polls suggest, an alarming prospect for many at home and abroad. But all the other parties have ruled out joining it in a coalition - an inherent part of Germany's electoral system - and the most likely scenario is probably a repeat of Merkel's 'grand coalition' with the Social Democrats (SPD). She will start sounding out partners right after the Sept. 24 vote, but coalition building is a protracted process, which could paralyze policy for months at a time when Brexit has shaken Europe's foundations. The process is especially complex this time as the number of parliamentary groups could rise to six from four. Informal soundings and then exploratory talks precede formal coalition negotiations and party leaders may also seek approval from their members before signing off on any deal. Depending on the shape of the coalition, the main issues at stake are the integration of the more than 1 million migrants who have arrived in Germany in the last two years, and investment in Europe's biggest economy as well as Merkel's leading role in talks on reform of the European Union and relations with Russia and Turkey. Here are the main scenarios: CONSERVATIVES, SOCIAL DEMOCRATS ('GRAND COALITION') The most likely option, according to opinion polls. Merkel's parliamentary party, made up of her Christian Democrats (CDU) and the Bavarian Christian Social Union (CSU) has governed with the SPD for eight of the 12 years that Merkel has been chancellor, including the last four. WHAT MAKES IT POSSIBLE: Merkel, who has steered the conservatives towards the political center ground, looks comfortable ruling with the SPD. Such a coalition would likely have a large majority, provide continuity and broadly agree on Europe, Turkey, foreign policy, migration and security issues. HURDLES: It is a last resort for both sides, especially the SPD, which fears it will lose out as junior partner. It wants more emphasis on investment, education, tackling inequality and fair pensions while conservatives are more focused on tax cuts. The SPD is also reluctant to back planned defense spending hikes. CONSERVATIVES, FREE DEMOCRATS ('BLACK-YELLOW') The conservative block and pro-business Free Democrats (FDP) are traditional partners, especially on financial and economic policy, having ruled together for almost half of post-war Germany's seven decades. If they win sufficient votes, this is the most likely scenario. WHAT MAKES IT POSSIBLE: The pro-business FDP has rebounded this year, winning enough votes in a vote in Germany's most populous state, North Rhine-Westphalia, in May to share power with the CDU there. A repeat at federal level would herald tax cuts and deregulation and possibly tighter laws on immigration, asylum seeking and security. HURDLES: The FDP was wiped out of parliament in 2013 after four chaotic years ruling with Merkel. It has more radical tax reduction and privatization plans, opposes deeper EU integration and wants EU countries to be able to quit the euro zone. Party leader Christian Lindner has also suggested Germany accept Russia's 2014 annexation of Crimea from Ukraine, something Merkel has ruled out. CONSERVATIVES, FDP, GREENS ('JAMAICA' - REFERENCE TO PARTIES' COLORS: BLACK, YELLOW, GREEN) As yet untested at a federal level, this combination rules in the northern state of Schleswig-Holstein. WHAT MAKES IT POSSIBLE - If Merkel's bloc can't form an alliance with the FDP or the Greens alone, it may try a three-way deal. Both smaller parties have played down this option but may be lured by the prospect of power. HURDLES - The Greens and FDP are at opposite ends of the political spectrum. Policy clashes would be likely on tax, energy, the EU and migrants. CONSERVATIVES, GREENS ('BLACK-GREEN') Untested at a federal level, this has been mooted as an option under Merkel, who has pushed renewable energy. The CDU and Greens have worked together at regional level, including in a Greens-led coalition in the rich southern state of Baden-Wuerttemberg. WHAT MAKES IT POSSIBLE: The Greens' leaders are pragmatic, worlds away from the eco-warriors who founded the party. The prospect of power may persuade them to compromise. Such a coalition would promote a strong Europe and focus on fighting climate change. The Greens would push for a phaseout of coal-fired power stations. HURDLES: Doubtful they would win a majority. Conservatives want lower taxes while Greens want to tax the super rich. Greens have a more liberal migrant policy which could pit them against the CSU, and they oppose plans to increase defense spending. Clashes are also likely on some aspects of energy policy and auto emissions regulation following the diesel scandal. MINORITY GOVERNMENT/NEW ELECTIONS/PARALYSIS A minority government would be a first and stability-craving Germans would not like it but may prefer it to new elections. WHAT MAKES IT POSSIBLE: If Merkel fails to find a partner, she may feel she has a mandate to rule given her personal popularity. She would probably get support for individual policies from the FDP, SPD and Greens. HURDLES: Merkel's natural caution coupled with Germans' fear of instability, a legacy of the fragmentation in the years that preceded the rise of Hitler's Nazi party. SPD, LEFT, GREENS ('RED-RED-GREEN' or 'R2G') Highly unlikely. Never tested at a federal level, a tie up between the SPD and Greens, preferred partners, and the radical Left party, could be the only way for the SPD to take the chancellery. It is being tested in the state of Berlin under SPD leadership and, with a Left premier, in the state of Thuringia. WHAT MAKES IT POSSIBLE: For the first time, the SPD has not excluded the possibility of joining the Left. Such a coalition would probably focus on boosting investment and tackling inequality and adopt a more Russia-friendly stance. HURDLES: The Left's links with Communists in former East Germany and painful SPD memories of an exodus to the Left over deep labor market reforms more than a decade ago. While the SPD and Greens could rule together relatively easily, the Left wants a top tax rate of 75 percent, a 30-hour week and to replace NATO with an alliance including Russia. For an interactive on German elections, click: http://tmsnrt.rs/2fv8Yqv (Editing by Philippa Fletcher)