Both German Chancellor Gerhard Schroeder and conservative leader Angela Merkel expressed optimism Wednesday about a grand coalition government after emerging from talks on the matter.

"I assume we can and will succeed in achieving a stable coalition that will keep Germany on its reform course for four years," Schroeder told reporters after talks with Merkel for more than two hours.

On her side, Merkel described the talks as "very constructive and serious" to reporters, adding "I am optimistic we can set up a grand coalition".

Both of them said that their talks focused on concrete issues including labor market policy and budget difficulties.

They agreed to meet again for a third round of exploratory talks on Oct. 5, three days after a by-election in Dresden, where elections was delayed because of the death of a local candidate.

Experts here say that the Dresden vote could shift up to two seats in the Bundestag but will not change the overall balance of power in the chamber.

Neither Schroeder's Social Democratic Party-Greens government nor Merkel's Christian Democrats/Christian Social Union (CDU/CSU) alliance achieved majority in the national elections on Sept. 18, but both Schroeder and Merkel claim chancellorship.

As effort to join hands with smaller parties had failed, the two biggest parties have had to seek the possibility of a grand coalition.

Currently the key stumbling point is that both Schroeder and Merkel insist they should lead the country. "It's clear what stands between us. That is the demand of the SPD on the chancellorship," Merkel said.

The Wednesday talks meeting are of only exploratory to determine if there is enough common ground to forge a marriage and no breakthrough had been expected as the parties are waiting for the result of the Dresden election.

(Xinhua News Agency September 29, 2005)