BERLIN, Oct. 5 (Xinhuanet) -- German Chancellor Gerhard Schroeder's Social Democrats (SPD) and Angela Merkel's Christian Democrats (CDU) made progress in talks on forming a grand coalition on Wednesday, but the issue on who would be chancellor is still unsettled.

    Emerging from a two-and-half-hour meeting, Schroeder said, "The exploratory talks have shown that a basis for a grand coalition exists."

    He said the two sides edged closer on key issues such as the labor market reform, social welfare system and public finances.

    Merkel also said that it was a good day and the talks were "successful" and had shown "common basis" for a coalition.

    She said she was more upbeat that an agreement would be eventually clinched out.

    As the key dispute on who would lead the next government was not yet resolved, leaders from both parties will meet Thursday to discuss the issue.

    Beside Schroeder and Merkel, SPD Chairman Franz Muentefering and leader of CDU's Bavaria sister party Christian Social Union (CSU), Edmund Stoiber, are to attend the meeting.

    The SDP leadership insisted that the question be settled in formal coalition talks, while the CDU demanded that the SPD accept Merkel as chancellor, otherwise no formal coalition negotiations could be held.

    The political crisis resulted from the Sept. 18 elections, in which neither the SPD-Green coalition nor the CDU/CSU-FDP alliance won majority. The CDU/CSU seized 226 seats in the Bundestag, four more than that of the SPD.

    After attempts to join hands with smaller parties failed, the SPD and CDU/CSU have sought to forge a grand coalition government, but the key point blocking such a marriage was who would lead the new government as both Schroeder and Merkel claimed the chancellorship.

    On Oct. 18 the Bundestag, the lower house of parliament, is expected to elect a chancellor. Enditem