Mrs Merkel, who swept back to power in September 27’s election, will now open talks with the liberal Free Democrats (FDP). She believes a coalition between them and her centre-right CDU/CSU bloc offers the best chance for recovery.

Her previous coalition partners, the Social Democrats (SPD) suffered their worst election performance for decades.

In her victory speech, Mrs Merkel said she wanted to be a chancellor of all Germans at a moment of crisis and that protecting and creating jobs would be her "highest aim". She added: "We can really celebrate tonight, but afterwards we have a hard job ahead of us."