By Andreas Moeser
BERLIN (Reuters) - Chancellor Angela Merkel wants conservative veteran Wolfgang Schaeuble to be Germany's next finance minister, sources said before a likely final round of talks on forming a centre-right coalition with the Free Democrats (FDP).
Merkel's conservatives and the pro-business FDP won a parliamentary majority in an election last month and have been hammering out a joint policy agenda that they plan to complete in the next 24 hours.
But they have yet to agree on the division of cabinet posts and forge compromises on tax cuts and the budget.
With Germany emerging from its deepest recession since World War Two and the budget deficit set to soar next year, the finance ministry is one of the most important cabinet posts and Merkel seems determined to keep it for her conservative Christian Democrats (CDU).
"It's all pointing to Schaeuble," a party source involved in coalition talks told Reuters. "He has been a strong voice on financial policy in the coalition negotiations."
Schaeuble, 67, is a political heavyweight who took over the CDU leadership from former Chancellor Helmut Kohl. However, Merkel helped to oust Schaeuble, who has been confined to a wheelchair since a 1990 assassination attempt, in the wake of a party funding scandal in 2000.
They have since patched up their differences and as Merkel's interior minister over the past four years he has earned a reputation as a hardliner on domestic security.
"I think he's a tough cookie and this is what will be needed," said Carsten Brzeski, senior economist, ING Financial Markets. "He is someone who would not be afraid of ruining his public image due to unpopular decision-making."
Last minute horse-trading could still produce changes in the make-up of the cabinet, making Schaeuble's appointment uncertain even if Merkel does favour him.
The only ministerial post that seems sure is that of FDP leader Guido Westerwelle, who is widely expected to become foreign minister.
DEAL CLOSE
Merkel wants to be sworn in next week and senior figures say they expect a final deal on a policy blueprint and the composition of the cabinet late on Friday or early Saturday.
The new government will bring an end to Merkel's awkward four-year coalition with the Social Democrats (SPD). But despite getting the centre-right coalition she wanted, there are no signs that she will abandon her cautious policy approach and pursue radical reforms.
Her conservatives, made up of her CDU and the Bavarian Christian Social Union (CSU), have forged compromises on issues from nuclear energy to foreign policy in recent days.
But deals in several other policy areas have been short on detail and many tricky decisions are likely to be pushed back.
An example is a deal on health funding, which had been a major hurdle due to a 7.5 billion euro (6.9 billion pounds) funding gap. The parties said on Friday they had agreed to keep the existing fund but to reform the financing arrangements in about 2011.
Other than the make up of the cabinet, the main outstanding issue is how to reconcile a promise of tax cuts with a separate pledge to bring the budget deficit under control.
Merkel must find an estimated 50 billion euros to plug a hole in the budget and deliver tax relief that is expected to total about 20 billion euros.
(Additional reporting by Paul Carrel)
(Writing by Madeline Chambers; Editing by Noah Barkin/David Stamp)
