Merkel's Bavarian allies insist on conservative unity before coalition talks

By Andrea Shalal BERLIN (Reuters) - The Bavarian sister party of German Chancellor Angela Merkel's Christian Democratic Union (CDU) has said her conservative bloc must agree policies on immigration, pensions and healthcare before opening coalition negotiations with two other parties. Leaders of Bavaria's Christian Social Union (CSU) - stung by a drop in support of more than 10 percent in the Sept. 24 election - have redoubled their push for a 200,000 per year cap on immigration, a demand that Merkel has rejected, complicating her efforts to form a new government. Merkel's bloc of the CDU and CSU, which have worked as partners for decades, hung onto their position as the largest group in parliament after a Sept. 24 vote, despite seeing their combined support fall to its lowest since 1949. They must find coalition partners to build a government, with the most likely path toward a majority being an alliance with the pro-business Free Democrats (FDP) and the Greens. CSU leader Horst Seehofer said the conservative allies could not begin negotiating with the other parties until they resolved their own position on major issues, the Sueddeutsche Zeitung newspaper reported on Monday. It quoted the Bavarian premier, who is fending off calls for his own resignation, as saying the two parties faced their biggest challenge since 1976 - when his predecessor Franz-Josef Strauss threatened for weeks to break up the alliance. Seehofer, whose biggest challenger is Bavarian finance minister Markus Soeder, a hardliner on immigration, will meet Merkel and other top officials on Sunday, with top officials in Merkel's CDU split on the need for a rightward shift. The conflict inside the conservative camp is straining Merkel's already difficult task of bringing together parties with big differences on energy, Europe, migration and taxes. Armin Laschet, premier of Germany's most populous region, North Rhine-Westphalia, told the Handelsblatt newspaper that the migrant cap sought by CSU leaders was unacceptable. But he suggested a compromise could be found that included some "ballpark" figures. Laschet also said the Greens would have to step back from some of their hardline environmentalist demands. The CDU's leader in the eastern state of Thuringia on Monday argued against the rightward shift demanded by the CSU and the conservative premiers of two states - Saxony and Saxony-Anhalt - where the far-right Alternative for Germany (AfD) party made big gains in Sunday's national elections. "Our job is to fence ourselves off against the left and the right," Mike Mohring told Reuters. "NEW START" Manfred Weber, deputy leader of the CSU and head of the centre-right group in the EU Parliament, told Deutschlandfunk radio it was important to avoid setting "red lines" before the coalition talks, given the urgent need to win back AfD voters. Weber said he expected all mainstream parties to focus on preventing the anti-immigrant AfD from gaining a permanent foothold in the German parliament. He said a three-way coalition among conservatives, Greens and the FDP, dubbed a 'Jamaica coalition' since the parties' colours match those of the Black, Green and Yellow Jamaican flag, offered a chance to build consensus on other issues such as energy and agriculture. "Jamaica offers us a chance ... to embark on a new start," he said. "The CSU is ready to do that." Merkel has sought to keep the door open for a renewal of her "grand coalition" with the Social Democrats that has ruled for the past four years, but the SPD is determined to stay in opposition after suffering its worst result since 1933. "We got 20.5 percent of the vote. That is not a mandate to govern," SPD Secretary General Hubertus Heil told broadcaster ARD on Monday. He accused the other parties of stalling coalition talks until after a state election due on Oct. 15 in Lower Saxony. "They want to govern, now they should govern," he said. A new poll by the Hannoversche Allgemeine Zeitung newspaper showed the CDU and SPD nearly tied in Lower Saxony, with 33.1 percent and 32.8 percent, respectively. (Additional reporting by Andreas Rinke; Editing by Gareth Jones and Peter Graff)