The FDP, which returned to parliament with 10.5 per cent after losing all their seats four years ago, have long been seen as Mrs Merkel’s preferred coalition partner.
The Greens, who won 9 per cent, are also seen as a viable partner after moving to a more pragmatic, centrist course in recent years — but they are not natural bedfellows for the FDP.
The drop in the CDU’s vote share means the two smaller parties will be able to demand a heavy price for their support.
“It was a bad night for Martin Schulz and the Socialists, but also for Mrs Merkel and the Christian Democrats. She still heads the largest party, but she enters these coalition negotiations with a weakened hand,” Christian Odendahl, of the Centre for European Reform think-tank in Berlin said.
“It is the FDP who will be in the strongest position and will now demand the finance ministry, along with the Greens who showed they can win with centrist candidates.”
“Forming a three-party government is going to be very difficult,” said Dan Hough, professor of politics at the University of Sussex, who is in Germany to monitor the elections.
“The Greens and the FDP will feel emboldened by the result and given their traditional animosity it’s in no way certain that the three parties will be able to strike a coalition agreement.