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BERLIN (Reuters) - German Chancellor Angela Merkel's conservatives will form a three-way coalition in the northern state of Schleswig-Holstein with the pro-business Free Democrats (FDP) and the pro-environment Greens, political sources said Tuesday.
The parties agreed on Tuesday to form a so-called "Jamaica coalition" - a reference to the black, yellow and green colours of the Jamaican flag - and will put it in writing on Wednesday, according to the sources.
Pollsters say Merkel, who is seeking a fourth term in office, may be able to forge a similar three-way coalition on the federal level after elections in September, ending her party's current link with the centre-left Social Democrats.
Merkel's Christian Democrats (CDU) scored a decisive victory in Schleswig-Holstein in May, ousting the previous three-way governing coalition led by SPD and including the Greens and the South Schleswig Party (SSW), which represents the Danish minority [nL1N1IA06C].
A spokesman for the FDP confirmed that an agreement had been reached, but gave no details.
Merkel's CDU is also close to an agreement to govern with the FDP in North Rhine-Westphalia, Germany's most populous state, after a surprise win for the CDU in that state on May 14, the head of the FDP, Christian Lindner, told Reuters.
"We still have some work to do, but the main substantive issues have been settled," he said.
The SPD had previously governed in that state together with the Greens.
Reporting by Thorsten Severin, Thomas Seythal and Birgit Mitwollen; Writing by Andrea Shalal; Editing by Larry King