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Germany's new conservative-liberal coalition has decided to support 'open-ended' EU-Turkey negotiations and favour a 'privileged partnership' in case they fail, it emerged on Wednesday.

The deal is a compromise between calls to reject Ankara's EU bid, coming from chancellor Angela Merkel's Bavarian sister party (CSU) and the Turkey-favourable stance of her liberal junior partner, the Free Democratic Party (FDP).

Ms Merkel was a strong supporter of the 'privileged partnership' before becoming chancellor. She now maintains that Turkey must fulfil accession criteria and also that the EU has to honour its commitments. But if negotiations were to fail, the coalition agreement is likely to say that Turkey could be offered a 'privileged partnership.'

The wording of the coalition agreement is very similar to the one Ms Merkel negotiated with her former government partner, the Social Democratic Party.

EU commissioner Olli Rehn, in charge of enlargement, said the Macedonian government should see the move as "very strong encouragement" to "finally settle the name issue," however. The reference concerns an 18-year old dispute between Macedonia and neighbouring Greece about the use of the name Macedonia.

Croatia, hoping to join the EU in 2011, is "nearing the finishing line" after years of negotiations, said Mr Rehn, but needs to further tackle corruption and organised crime "before negotiations can be concluded."

The commission report urges Turkey to do more to ensure freedom of expression and freedom of religion as well as bolster the rights of women and trade unions.

Ankara has been lagging far behind Zagreb in its EU progress in part due to poor relations with EU member Cyprus, with whom it still has to fully implement a customs agreement. Progress is also slow due to a lack of enthusiasm on the part of several member states for Turkish membership and the pace of Turkish domestic reform.

Of the remaining five entities - Albania, Montenegro, Bosnia and Herzegovina, Serbia and Kosovo - that want to join the EU, Mr Rehn had the most to say about Bosnia and Herzegovina.

The war-torn country was recently given an ultimatum by the EU and the US to sort out internal problems between Bosnian Muslims, Croats and Serbs by 20 October.

Defining the country as of "paramount importance for the region and for the European Union," Mr Rehn said that Bosnia and Herzegovina could only consider an application for EU membership once it "can stand on its own two feet."

"No quasi-protectorate can join the EU," he said, spelling out that the Office of High Representative would have to be closed down first. The post was created as part of the peace deal that ended the 1992-1995 war in the country, and can only be closed after a positive international assessment.

Meanwhile, the Serbian government, which is being pushed to arrest two war crimes suspects from the 1990s, was praised for being "stable" and "demonstrating" a high degree of consensus on EU integration as a strategic priority."

But even as the EU tries to bind all of the countries of the western Balkans and Turkey ever more closely through political and economic ties and the promise of eventual membership, there are continuous doubts about whether it has the political appetite to go through with another large round of expansion.

Apart from Croatia, strongly supported by Germany and where EU membership is virtually assured, internal EU question marks remain over the rest.

The European Union opened negotiations with Turkey on two more reform areas on Wednesday as part of Ankara's bid to join the bloc.

This brings to five the number of so-called "chapters" Turkey has opened of the 35 that must be completed to conclude the accession process. The EU said it hoped to open talks on two or three others in the first half of 2008.

EU Enlargement Commissioner Olli Rehn said the opening of the chapters on health and consumer protection, and trans-European transport networks, showed accession talks were on track despite difficulties.

Turkey became an official candidate country in 2005, but progress in negotiations has been slow. Following last year's report, the EU decided to suspend membership talks in eight out of 35 negotiating areas, due to Turkey's refusal to open up its ports and airports to ships and planes from EU member Cyprus.

Since last December, four negotiating chapters have been opened on enterprise and industrial policy, statistics, financial control and energy. But under President Nicolas Sarkozy, an outspoken critic of Turkish accession, France managed to block the opening of the chapter on economic and monetary union.