German Chancellor Angela Merkel's conservatives and the Free Democrats (FDP) are trying to bridge differences on a range of policy issues before finalising their coalition pact by the end of next week.

Merkel and other party leaders will hold negotiations this weekend to agree a policy blueprint that will allow a new centre-right coalition government to take power.

Below are key policy areas where working groups have reached an agreement and where compromises must still be reached:

TAXES

What has been agreed:

* The parties want to cut taxes. The FDP is expected to win agreement on simplifying tax brackets although this looks likely to be phased in over the 4-year legislative period rather than pushed through in one big bang reform.

Outstanding differences:

* The amount and timing of cuts. Merkel's conservatives campaigned on a pledge of cuts worth 15 billion euros ($22.35 billion) but were vague on when to implement them. The FDP promised swift tax cuts worth up to 35 billion euros.

* Senior FDP politicians have acknowledged Germany's strained finances will make it difficult to pursue the cuts they want, suggesting total relief will be closer to the level the conservatives pushed for. It could also mean modest relief would start in 2011 and bigger cuts would come in 2012 and 2013.

DEFICIT

What has been agreed:

* How to cut a bulging deficit depends on tax decisions. However, the new coalition will look at selling some state holdings in companies -- a move that would go some way to plugging the deficit. Among the candidates for possible sale are banks the government took stakes in during the financial crisis and rail operator Deutsche Bahn.

Outstanding differences:

* Conservatives want to reduce the deficit but Merkel has resisted pressure from some in her party for aggressive spending cuts. She has also dismissed the possibility of raising sales tax towards the end of the legislative period.

Some FDP members want to cut back military projects such as the third Eurofighter tranche or the A400M military transporter.

FINANCIAL MARKET SUPERVISION

What has been agreed:

* German banks will be forced to adhere to tougher capital requirements and supervisory powers for the financial markets, until now split between Germany's Bundesbank and watchdog Bafin, will be concentrated at the central bank.

* An idea that the Bundesbank also take responsibility for supervision of the insurance sector has been shelved.

* Measures to boost the private equity sector and remove hurdles facing real estate investment trusts (REITs), mainly demanded by the FDP, will not be implemented until at least 2011 due to the dire state of public sector finances.

LABOUR MARKET

What has been agreed:

* The new coalition will keep minimum wages already agreed for certain sectors. It will seek to protect workers from immoral wages by banning salaries that are a third below the sector average.

Outstanding differences:

* The FDP wants to make it easier for firms to hire and fire but conservatives oppose this. A senior FDP official has said it is not a top priority, indicating there may be no change.

* The FDP wants to reform co-determination rules giving workers a seat on company boards, but Merkel has ruled it out.

ENERGY

What has been agreed:

* The parties will look to extend the lives of at least some of the safest of Germany's 17 nuclear plants.

* The parties are expected to put strict conditions on extending their lives and power companies will likely have to make concessions in return for longer plant life cycles.

Outstanding differences:

* The timing of a nuclear extension remains divisive and could be fudged as sources have told Reuters that Merkel wants to postpone firm decisions until after a state election in North Rhine-Westphalia in May 2010. Some FDP members want quicker action. 

* The coalition is expected to review financial support for renewable energy. The FDP wants to reduce state-mandated feed-in tariffs for renewable energy but differ with the conservatives on the extent and timing of any cuts.