German Chancellor Angela Merkel said Monday she was ready to lead her party into snap elections after the collapse of high-stakes coalition talks plunged the EUs top economy into a political crisis.
The veteran leader said she was "very sceptical" about a minority government, stressing that Germany needed a stable government "that does not need to seek a majority for every decision".
But the shock breakdown of talks has left Merkel with no viable coalition partner in sight, endangering her fourth term in office.
But any new election also carries risks for her, as it could deliver results that are just as, or even more, fragmented.
President Frank-Walter Steinmeier, who holds the power to call a new vote, made it clear that this was not his favoured option, as he told mainstream parties to rethink their positions and return to the negotiating table.
Underlining the duty of lawmakers to their voters, Steinmeier noted: "We have before us an unprecedented situation in the history of the Federal Republic of Germany, that is, in the last 70 years."
Germany now faces weeks, if not months, of paralysis with a lame-duck government that is unlikely to take bold policy action at home or on the European stage.
French President Emmanuel Macron, who has sought Merkel's backing for an ambitious EU reform plan, expressed concern about Germany's political deadlock, adding that he hoped Berlin would remain a "stable and strong" partner to allow the two partners to "move forward together," his office said.
The euro and Germany's blue-chip DAX stock market index fell slightly on the news of the stalemate, but later clawed back early losses.
After more than a month of gruelling negotiations, the leader of the pro-business FDP, Christian Lindner, walked out of talks overnight, saying there was no "basis of trust" to forge a government with Merkel's conservative CDU-CSU alliance and the left-leaning Greens.
The acrimonious negotiations stumbled on a series of issues, in particular immigration.
Merkel has let in more than one million asylum seekers since 2015, sparking a backlash that allowed the far-right AfD party to win its first seats in parliament.
The AfD's parliamentary co-leader Alexander Gauland welcomed the collapse of the talks, saying that Merkel had "failed" and that his party "looks forward to potential new elections" in which it hopes to make further gains.
The negotiating parties also differed on environmental issues, with the Greens wanting to phase out coal-fired power plants and combustion-engine cars, while the conservatives and FDP emphasised the need to protect industry and jobs.
The Greens angrily deplored the FDP's decision, accusing it of negotiating in bad faith.
Lindner, who had taken a harder line on refugees as the talks progressed, "opted for his kind of populist agitation instead of political responsibility", Reinhard Buetikofer, a Greens MEP, said on Twitter.
Sternly reminding politicians of their duty in public service, Steinmeier said: "Building a government has always been a difficult process of give and take, but the mandate to form a government is... perhaps the highest mandate given by voters to a party in a democracy. And this mandate remains."
"This is the moment where all participants need to reconsider their attitude," he added.
Chancellor in danger
Steinmeier said he would now hold talks with leaders of parties involved in the coalition talks.
But crucially, he also told the Social Democratic Party (SPD) to make itself available for coalition talks.
After suffering a humiliating loss at the ballot box, the SPD's leaders have repeatedly said that they will not renew an alliance with Merkel and that the party's place is now in the opposition.
Minutes before Steinmeier's statement, SPD chairman Martin Schulz had reiterated that his party was "not available to form a new grand coalition" with Merkel's conservative bloc.
Merkel said she was "ready for talks" with the SPD, with which, she said she "worked well together" in a coalition since 2013.
Sarah Untheim, 23, said she feared the "very chaotic" outcome could help the AfD mobilise more supporters.
But law student Alexander Streb, 20, said he believed the upheaval did not spell "the end of the Merkel era".
"She stands for stability, that's also why young people like her," he told AFP.