BERLIN—Germany’s political parties on Monday began what could be a monthslong bargaining process to form the next government, with two smaller parties in a position to decide who will succeed Angela Merkel as chancellor.

Sunday’s election marked a leftward shift for the country, with the center-left Social Democratic Party, or SPD, coming first and the Greens scoring strong gains. But together they don’t hold enough seats in parliament to form a government and would need to bring in the pro-market Free Democratic Party as a third partner, forcing them to dilute their agenda.

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