By Thorsten Severin and Hans-Edzard Busemann
BERLIN (Reuters) - Germany's would-be coalition partners appeared to have reached an impasse over immigration policy as a self-imposed Sunday evening deadline for agreeing the outlines of a government programme passed with no deal.
A deadline of 1700 GMT passed with no announcement being made, suggesting Chancellor Angela Merkel's conservatives, the pro-business Free Democrats (FDP) and the Greens had been unable to agree the painful compromises needed to wrap up talks, which appear set to continue.
The reluctant partners were forced to pursue the three-way tie-up, untested at national level, by voters who deserted the main parties of left and right in a September election, returning a highly fragmented parliament.
Failure could precipitate Germany's worst political crisis in decades, since the Social Democrats (SPD) have already said they intend to go into opposition after coming second. Options include new elections or a minority government, unprecedented in the country's post-war history.
"Everyone has to take a success back home," said Julia Kloeckner, deputy chair of Merkel's Christian Democrats (CDU), highlighting the difficulty of compromise. "People must ask themselves if they are prepared for this to fail over details."
The tie-up represents Merkel's only realistic chance of securing a fourth term. But the FDP, freshly returned to parliament after four years in the wilderness, and the Greens, out of power for 12 years, are reluctant to put their hard-won return at risk by alienating their rank-and-file.
"The FDP is now waiting for the Greens and the conservatives to see how far they are prepared to go and if we can then look each other in the eye," said Greens chairwoman Nicola Beer, suggesting it was now for the others to make concessions.
For Merkel's own arch-conservative allies in Bavaria's Christian Social Union (CSU), the stakes are existential. The CSU fears that a failure to secure an immigration cap could fuel a far-right surge in a regional election next year, perhaps even unseating the CSU after 60 years in power.
While the FDP continues to demand tax cuts, the trickiest sticking point concerns immigration, where the CSU insists on capping new arrivals at 200,000 a year.
The cap is opposed by the Greens, who also want to preserve a rule allowing successful asylum seekers to bring family members to join them - though the CDU's Kloeckner implored the Greens to acknowledge this as only a "subsidiary right".
Failure to reach a deal could lead to a new election, something all the parties are anxious to avoid as they fear this could lead to the far-right Alternative for Germany (AfD) making further gains after surging into parliament in September.
(Additional reporting by Andreas Rinke; Writing By Thomas Escritt; Editing by Pravin Char and David Evans)