Angela Merkel’s hopes of forming a four-party coalition in Germany collapsed on Sunday after the Free Democrats withdrew from talks.
The chancellor now faces the prospect of forming a minority government or calling for a snap election.
A minority government is considered unworkable by many experts, and Merkel said she was "very skeptical" it could work.
It means that German voters are likely to be asked to vote again in a fresh general election if no deal can be salvaged.
President Frank-Walter Steinmeier urged the country's political parties to reconsider their positions and make forming a new government possible.
"This is the moment at which all parties should pause and reconsider their position," he said.
"I expect from everyone readiness to talk, in order to make the formation of a government possible in the foreseeable future."
The pro-business Free Democrats' withdrawal from talks crushed hopes of securing a governing majority for Merkel's Christian Democratic Union (CDU) and their Barvaria-only allies the Christian Social Union. The Greens would also have to have to agree to join the alliance to reach a majority.
Free Democrat leader Christian Lindner said his party exited negotiations because they were unwilling to compromise their principles.
"It is better not to govern, than to govern falsely," Lindner said.
The centre-left Social Democrats, which had previously allied with the CDU in Parliament, had already ruled out returning to the governing "grand" coalition after it slumped to its worst election result since World War.
Its leader, Martin Schulz, said on Monday his party stands by its refusal to enter a new Merkel government and that he favoured an election.
The crisis comes after Merkel failed to get an agreement for a coalition by her deadline of last Thursday.
Peter Tauber, the general secretary of Merkel's Christian Democratic Union, told Deutschlandfunk radio that politicians shouldn't "throw it back to our citizens and say, 'vote again, we didn't agree.'"
Greens politician Reinhard Buetikofer slammed Lindner's decision, saying the Free Democrat leader had chosen "a kind of populist agitation instead of governmental responsibility".
Among the key sticking points among the potential coalition parties were policies on migration and climate change.
On migration, the Christian Social Union demanded an annual cap on refugees, while the Greens wanted to allow more categories of recent migrants.
There was also discord over the Greens' aim to end the use of coal and combustion engines within Germany by 2030.
It is likely to be some days or weeks before it is clear whether a deal can be salvaged or if a fresh election will be called.
Meanwhile, polls suggest a new election would yield a similar result to the September election that has led to the current impasse.