UPDATE 1-We'll give Merkel a chance, says new German SPD leader

The incoming leader of Germany's Social Democrats said on Friday she was sceptical that their coalition with Chancellor Angela Merkel's conservatives would survive but she was ready to give it a chance. SPD members last Saturday chose two critics of the coalition to jointly lead their party after months of turmoil and dismal performances in regional and European elections. Many party members want to quit government and rebuild in opposition.

"I was, and I am, sceptical about the future of this grand coalition. But with this resolution, we give the coalition a realistic chance of continuing - not more, not less," new SPD co-leader Saskia Esken told delegates. At a party conference, delegates will vote on demands they will put to Merkel to stay in government, including tougher climate protection measures, an increase in the minimum wage and investment in infrastructure.

The conservatives say they will not renegotiate the 2018 coalition deal but the relatively modest demands set out by the SPD's new leaders appear to avoid a direct confrontation with Merkel's CDU/CSU bloc. Esken drew loud applause from delegates when she said the minimum wage must rise to at least 12 euros an hour from 9.19 euros.

Her leadership partner, Norbert Walter-Borjans, outlined a vision of a socially just country with clean air, digitalised industry and excellent education. Achieving this would take priority over sticking to a self-imposed fiscal straightjacket. Many conservatives are committed to a 'black zero' policy of achieving a balanced budget without issuing new debt.

"If we leave behind a lower level of debt but the environment is poisoned, infrastructure is dilapidated and Germany has gone backwards technologically, it would be a far worse debt to hand over to the next generation," he said. "If the 'black zero' stands in the way of a better future for our children then it is wrong, then it must go," he added.

He also attacked the conservatives' stance on defence, in particular that of Merkel protege Annegret Kramp-Karrenbauer. "When a defence minister who is also CDU chairwoman wants to see the Bundeswehr (Germany's armed forces) again deployed - as she innocently puts it - in as many places as possible in the world, that is utterly wrong ... That is the militarisation of foreign policy," he said.

Ditching the coalition could trigger a snap election or a minority government, unsavoury options for both ruling parties and for many Germans. Merkel says she will not seek a fifth term. The new leaders face a huge task. An opinion poll on Thursday put the SPD on 13%, just off record lows and trailing the conservatives, Greens and far-right Alternative for Germany. ( Editing by Mark Heinrich and Giles Elgood)