By Holger Hansen and Jörn Poltz
BERLIN/MUNICH (Reuters) - The leaders of Germany's Social Democrats (SPD) agreed on Monday to enter talks with Chancellor Angela Merkel's conservatives on forming a government that could end political deadlock in Europe's largest economy.
The center-left SPD set the contours of its demands in coalition talks with the conservatives expected to start next year in a document seen by Reuters, with proposals on issues like the economy and immigration likely to cause friction.
Merkel turned to the SPD after she failed to form a three-way alliance with the left-leaning Greens and the pro-business Free Democrats, plunging Germany into a political impasse and raising doubt about her future after 12 years in power.
On the highly divisive issue of immigration, one of the main reasons for the collapse of Merkel's first effort, the SPD said it opposed a conservative plan to extend a ban on the right to family reunions for some asylum seekers that expires in March.
"Family reunions and the cohabitation of a family lead to good integration," the SPD document said. "That's why we are against the extension the suspension of family reunions."
Merkel could also face complications emanating from her own conservative camp.
Her arch-conservative allies in Bavaria on Monday named a right-winger to be their candidate for the premiership in a regional election next year. The move raises the risk of disputes in Merkel's conservative bloc and weaken her hand as she negotiates with the SPD.
Markus Soeder will be the Christian Social Union (CSU) candidate for premier in a vote in the rich state of Bavaria next autumn where the far-right Alternative for Germany (AfD) is set to enter the regional parliament for the first time.
MACRON OR MERKEL'S EUROPE?
Merkel's Christian Democrats (CDU) and their sister party CSU bled support to the AfD in the general election on Sept. 24 and the Bavaria-based CSU fears the far-right party will steal conservative voters angry with the chancellor's decision in 2015 to open Germany's door to more than a million asylum seekers.
The future of current Bavarian premier Horst Seehofer had been in question since the election. After the election losses, Merkel reluctantly accepted a CSU demand to put a limit on the number of asylum seekers Germany will accept each year.
The SPD did not stake out a position on the conservatives' upper limit on refugees in their document.
The SPD, which has governed in coalition under Merkel since 2013, suffered its worst election result in postwar history and is reluctant to join another "grand coalition".
It dropped its pledge to sit in opposition after Merkel failed to form a government, bowing to pressure from President Frank-Walter Steimeier to unwind the impasse.
The SPD will hold a party congress in Berlin on Dec. 7-9, where it is expected to debate its position in coalition talks.
The future of the European Union and euro zone reforms championed by French President Emmanuel Macron are another policy issue that could complicate life for Merkel.
The SPD said during the election that Germany should embrace Macron's proposals.
In its position document, the SPD said Germany should work with Macron on strengthening the European project through economic policies geared to fight high youths unemployment.
It did not mention key elements of Macron's demands that the euro zone should have its own budget and finance minister but it did mention his plan for closer cooperation in defense.
On the economy, the SPD's proposals for more rights for workers and employee-friendly regulation of the large temporary work sector could draw fire from the CSU.