By Erik Kirschbaum
BERLIN (Reuters) - Chancellor Angela Merkel and the leader of Germany's Social Democrats (SPD) will meet late on Tuesday to try to hammer out a "grand coalition" agreement in a decisive round of negotiations expected to last until far beyond midnight.
The final scheduled round of talks between Merkel's conservatives and the SPD begins at 7:30 p.m. (1830 GMT). They have a long list of unresolved issues to sort out that subordinates failed to agree on during 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 ahead of 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."
Among the key issues that Germany's two leading parties have not agreed on are on a national minimum wage that the SPD wants, details of energy policies and expensive changes to the pension system that the two sides have different views on.
The parties are expected to overcome their remaining differences by early Wednesday even though there is an element of uncertainty how some of these issues, especially public spending, will be resolved.
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 any coalition deal that does not contain the big public spending boost they had called for in the election.
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.
Some of the critical rhetoric from both camps is posturing. By taking a skeptical line, both the SPD and CDU are sending the message to each other that they can live without a deal.
They may be hoping this will help them wring last-minute concessions from the other side in the final round.
Merkel's CDU appears to have quashed the SPD's demand for tax increases on the rich in order to fund a boost in public spending on infrastructure, education and research. But it is unclear where the money for such investments, which all the parties support, will now come from.
The SPD looks to have got its way on the introduction of a nationwide minimum wage of 8.50 euros an hour and the loosening of a ban on dual citizenship.
But grassroots members are worried that the Bavarian CSU may succeed in its push for a motorway toll targeting foreigners that Merkel herself had ruled out during the campaign.
(Additional reporting by Matthias Sobolewski; Editing by Giles Elgood)