By Erik Kirschbaum
BERLIN (Reuters) - Chancellor Angela Merkel's conservatives and the center-left Social Democrats (SPD) narrowed differences on several contentious policy issues on Tuesday as marathon talks to hammer out agreement on a "grand coalition" got underway.
The latest draft coalition deal showed the SPD had given into demands from Merkel's Bavarian allies to introduce a motorway toll for foreign cars. However they extracted a pledge from the conservatives to end discrimination against homosexual couples in areas like adoption rights.
The final scheduled round of talks between Merkel's conservatives and the SPD begins at 7:30 p.m. (1830 GMT) and they still have a long list of unresolved issues to sort out after more than a month of negotiations.
Merkel's Christian Democratic Union (CDU) and their Bavarian Christian Social Union (CSU) allies soundly defeated the SPD in an election two months ago but failed to win a parliamentary majority, forcing her into talks with the SPD.
Negotiations have dragged on, leaving Merkel's outgoing center-right coalition in charge in a caretaker role but unable to move on urgent European policy decisions.
"It's going to be a long night but we've known that all along," said Andrea Nahles, deputy SPD leader, ahead of a penultimate round of talks at midday in Berlin that will attempt to forge agreements before the final session.
"There are some big issues still to resolve that can't be pushed off anymore. We've got to deal with those now."
Germany's two leading parties must still clinch an agreement on a national minimum wage, one of the SPD's key demands. Also unresolved are details of energy policy and changes to the pension system.
The parties are expected to overcome their remaining differences by early Wednesday and preliminary talks on Tuesday indicated that progress was being made.
Probably the most significant agreement so far was on the motorway toll which the CSU had insisted on but which both the SPD and Merkel herself had opposed.
The SPD has also given ground on executive pay with the latest draft deal dropping a clause saying the salaries of top executives in listed companies should not exceed the average employee salary in their companies by a certain ratio.
Another SPD demand, that utilities bear more of the cost of the nuclear phaseout has also been dropped.
However, these could be tactical concessions enabling them to wring compromises from the conservatives on other issues they deem more important, including a minimum wage of 8.50 euros on hour and big public spending increases for infrastructure, education and research.
SPD leader Sigmar Gabriel, whose party is hosting the final round in their Willy-Brandt-Haus party headquarters building, will have a difficult task convincing the grassroots to back a coalition deal if he fails to score victories on these points.
Gabriel will go into campaign mode on Thursday to try to persuade the party's 474,000 members to vote for the coalition agreement. The results of the ballot will be known on December 14.
The agreement to end discrimination against homosexual couples, aimed at ensuring equal adoption rights, will be some comfort to SPD members, as will any agreement to loosen a ban on dual citizenship.
(Additional reporting by Markus Wacket, Matthias Sobolewski; Writing by Erik Kirschbaum and Madeline Chambers; Editing by Noah Barkin)