Germany's two-month political deadlock may be on the verge of a breakthrough after the country's No.2 party, the Social Democrats, said for the first time it could enter coalition talks with Angela Merkel's Christian Democrats.

"The SPD will not say no to discussions," Social Democrat General Secretary Hubertus Heil told reporters on Friday following meetings amongst his party's senior members.

The comments come amid mounting pressure on the SPD to reverse a pledge to go into opposition following its worst result in decades in September's election. That commitment threatens to leave Germany with a weak minority government, or facing new elections, after Merkel on the weekend admitted failure in her efforts to strike a complicated three-way coalition agreement with Germany's Green's and the pro-business Free Democrats.

A coalition between Merkel's CDU/CSU and the SDP would mark a return to the arrangement ahead of September's vote.

A deal would be welcomed by other EU nations, which have looked on with concern at the prospect of German political gridlock during a period when the trading and political union is negotiating the exit of Britain and is under pressure to pursue radical reform from France's new President Emmanuel Macron.

Merkel, Germany and the EU are not out of the woods just yet.

Heil's comments fall well short of a commitment to enter government as a junior coalition member. The SDP secretary notably didn't say who his party would be willing to negotiate with and leaves the door open to an informal commitment to support the CDU/CSU rather than a more formal coalition deal.

Heil said his party would wait to hear the outcome of talks between Germany's President Frank-Walter Steinmeir and the leaders of other parties before commenting further.

Steinmeir, who served two stints as foreign minister while part of the SDP, has urged his former party to abandon its opposition to talks, claiming that the ongoing failure to form a government was Germany's biggest political crisis since World War Two and a sign that politicians had failed to "live up to their responsibilities."

German's stock markets seemed unimpressed by the possibility of a political breakthrough. The country's benchmark DAX share index, was largely unchanged Friday at 13016.64, up a slim 0.06%. German 10-year Bond yields climbed to 0.366%, up 0.018 or just over 5%, as they reacted to news that the European Central Bank was considering ending bond purchases next year. Bond yields move inversely to bond prices, with higher yields suggesting greater risk.

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