• Germany's main political parties are just beginning to explore possible formations for a coalition government after an inconclusive election in September.
• Experts say that the stars are aligning for a coalition to be led by Olaf Scholz, the candidate of the Social Democratic Party.
• Speculation is mounting that Armin Laschet, the beleaguered head of the CDU, could resign.

Germany's main political parties are just beginning to explore possible formations for a coalition government after an inconclusive election in September, with many experts still backing Olaf Scholz, the candidate of the Social Democratic Party, to be the new chancellor.

The center-left SPD gained 25.7% of the vote in the Sept. 26 election (53 seats more than the 2017 election), while outgoing Chancellor Angela Merkel's Christian Democratic Union and Christian Social Union (CDU-CSU) alliance got 24.1% of the vote, marking a 50-seat loss from the last election.

The results, while still provisional, signal a potential sea-change in German politics which have been dominated by the conservative CDU-CSU for decades.

Two smaller parties, the pro-business Free Democrats and the Green Party, got 11.5% and 14.8% of the vote, respectively, and are now in the position of kingmakers when it comes to coalition formation.

Experts had initially seen Germany facing two likely coalition formations with either the SPD or the CDU-CSU forming a government with the FDP and Greens.

Much depends on the progress of coalition talks, however, and what agreements can be reached over more contentious policy areas, such as spending on environmental initiatives and taxation. Making matters more complicated were initial signs that the Greens would prefer a coalition with the SPD while the FDP leaned toward the CDU-CSU, its more natural bedfellow.

Three signs for Scholz

After a week of initial coalition talks between the parties, and more formal talks set to be announced imminently, the changing dynamics in German politics point to an increasingly likely scenario that the SPD's Scholz will lead the next government, experts note.

"Developments since last Sunday suggest stars are aligning for a traffic light coalition between the SPD, the Greens and the FDP," Naz Masraff, director of Europe at Eurasia Group, said on Monday, putting the likelihood of this scenario now at 75%. This coalition formation is called a 'traffic light' option as it refers to the colors associated with parties involved: red for the SPD, yellow for the FDP as well as the Greens.

Three signs pointed to this, she said:

"First, post-election polling indicates support for the SPD is rising, while that for the center-right is falling. There is a clear popular preference for Olaf Scholz to become the next chancellor."

Secondly, she noted that CDU leader Armin Laschet is coming under ever-increasing internal pressure, facing increasing explicit calls to resign and competition for the leadership of the CDU, which he heads up after Merkel stepped down.

Thirdly, Masraff noted that there are signals from both the FDP and Greens that they see a traffic light coalition as more likely.

"Even FDP leader Christian Lindner, who previously articulated a preference for Jamaica [a coalition of the CDU-CSU, FDP and Greens, so-named because the party colors replicate those of the Jamaican flag], warned that the CDU/CSU needed to clarify whether it really wanted to lead the next government."

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The key signpost to watch now is the nature and frequency of "traffic light" coalition talks, she said, with a swift commencement of a three-way dialogue between the SPD, FDP and the Greens, "and frequent contacts with little being exposed to the public domain about policy differences would increase the odds of traffic light coalition."

Laschet to resign?

With it looking increasingly likely that the CDU-CSU could be left out in the cold and will go into opposition in Germany, members of the party have commented in the last week on the need for "renewal" during a period of soul-searching for the party as it prepares to bid farewell to Merkel who is stepping down after 16 years in office.

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Political experts agree that the CDU appears to be in disarray under new leader Laschet, who has failed to attract the same level of public admiration and affection that Merkel has done.

Speculation is mounting that Laschet could soon step down following internal pressure after his poor performance at the polls in which the party witnessed its worst election result since its formation after World War II.

"He (Laschet) might step down because there's a lot of infighting and it's not clear he's going to survive (in fact) it's unlikely he's going to survive," Dalia Marin, professor of International Economics at Munich's School of Management, told CNBC on Monday, describing the situation that the CDU finds itself in post-election as a "mess."

"Merkel leaves a big hole in this party and I think many people will miss her. The whole winning of the conservative party was due to her personality, authenticity and integrity and her stability and they don't really have a successor who is really convincing."

Eurasia Group's Masraff noted that pressure on Laschet was building in the CDU, commenting that "many within the CDU-CSU consider Laschet as too weak to lead coalition talks, let alone a government, given the risk he will be blackmailed by the smaller parties into granting too many concessions. That said, no leading CDU/CSU politician is quite ready to topple Laschet."

"Laschet will try to keep talks alive for as long as he can," Masraff said, predicting however that "when these fail, Laschet will resign, potentially along with members of the party's federal executive committee."