BERLIN, Sept 20: Fears of continuing political instability continued to cast a pall over Germany on Tuesday as politicians struggled to come to terms with unprecedented weekend poll results which have left both Chancellor Gerhard Schroeder and conservative challenger Angela Merkel claiming the right to form the next government.

Political chaos in Europe’s largest and richest nation is also causing concern in other parts of the continent, with European Union officials urging German political leaders to work urgently to set up a stable government.

With both Schroeder and Merkel insisting they had the right to lead any future government, analysts said forming a new governing coalition was likely to be a long, painful and acrimonious affair.

They predicted a further slowing down of Germany’s faltering economic reform efforts and said the gridlock could affect policy-making in the entire 25-nation EU.

Numerically, the conservative Christian Democrats (CDU/CSU) led by Angela Merkel emerged as the narrow winner in Sunday’s polls, with three more seats in the Bundestag than Schroeder’s Social Democrats (SPD). But Merkel, whose electoral performance was much weaker than expected, is facing increasing criticism from her party barons for having lost the election. Merkel, led by as much as 17 percentage points in opinion polls at the start of the campaign, only to finish in a virtual dead heat with the Social Democrats on election day.

Schroeder, still jubilant at having done much better in the polls than expected, is also under fire for riding roughshod over his political rivals in a televised debate held right after the election.

Both leaders face a daunting task in their bid to set up government by seeking coalition partners among the smaller parties. Politicians, business leaders and pundits predicted a fraught period of negotiations during which Germany may become distracted and inward-looking.

Most analysts predict that the two leading parties may end up working together in a so-called “grand coalition” - but warn that the issue of just who would lead such a formation remains open.

There is concern, however, that such a cross-party coalition would be weak, messy and unstable — and unlikely to undertake the kind of radical reforms needed to regenerate the German economy and cut 11.4 per cent unemployment.

In addition to the prospect of a “grand coalition,” analysts say there could be an alliance between the Social Democrats, the Greens and the FDP — nicknamed the “traffic light” coalition because of the red, green and yellow trademark colours of the three political parties.

There is also talk of an alliance between the conservatives, the liberals and the greens in a so-called “Jamaica coalition,” — called such because the black, yellow and green colours associated with the three parties are the same as those of the Caribbean nation’s flag.