The German government signaled on Wednesday talks between Berlin and General Motors over the fate of its European unit Opel are threatening to drag on, raising the prospect of weeks more of negotiation.

Talks to sell Opel have been running for months and loom as a hot political issue ahead of German elections in September, because of the state support required for the eventual buyer.

Opel has been surviving on a six-month 1.5 billion euro ($2.15 billion) bridge loan from the German government that is due to mature at the end of November, when a new investor has been expected to take control.

Absent a deal to roll over that debt or pay it down, Opel could face insolvency.

GM's board is not expected to convene again until early September when the Opel issue will be discussed again.

But a final resolution on Opel could be postponed again until after German elections in late September, according to one person close to the sale process who was not authorized to discuss the matter publicly.

Although GM would still prefer to find an investor for Opel, the automaker's new board is leaning toward a solution that would allow GM to maintain more control, the person said.

It becomes more and more apparent that GM is trying to hold Opel as closely as possible. GM wants to have maximum flexibility as to the potential of keeping Opel, the source said.

Although GM's European operations posted a $2.8 billion loss last year, Opel represents the heart of GM's small and mid-size car engineering and provides the technology behind key models such as the Chevy Malibu and the upcoming Chevy Cruze.

Opel has drawn down just over 1 billion euros -- or two-thirds -- of its German bridge loan to date, Ute Berg, who represents the German Social Democrats on economic matters, told reporters on Wednesday.

GM had originally planned to sell a controlling stake in Opel to a consortium led by Canadian auto parts supplier Magna , but GM began to back away from that option when the U.S. carmaker emerged from fast-track bankruptcy proceedings just five days before the July 15 target.

Even after Magna submitted a 600-page contract backed by German loan guarantees, the board of now state-owned GM shocked Berlin by refusing to approve the deal last Friday.

Part of GM's concern has centered on the potential for Magna's Russian partners Sberbank and automaker GAZ to use GM technology to develop a competitive threat to its own Chevy brand in the Russian market.

Brussels-listed RHJ International, which focuses on investment in autos and Japan, is the remaining rival bidder.

Chancellor Angela Merkel of the conservative Christian Democrats told German TV that she still hoped for a quick decision in favor of Magna, but the deal had to be sound.

Content must come before speed. We will clear up the issues that still need to be resolved ... I think there is a good chance that in the end we will come to an agreement, she told the N24 news channel.

Since the U.S. government said it will not finance GM's international operations, Merkel said GM would then be dependent on European aid if it wants to keep Opel afloat.

German Economy Minister Karl-Theodor zu Guttenberg told reporters at a parliamentary budget committee meeting in Berlin that there was no clear date now for an Opel decision.

An agreement will come when an agreement can be made that holds, he said.

Worker representatives, like Armin Schild of the IG Metall labor union, fear insolvency as the alternative to a deal.

I believe there are supporters at GM for three different concepts. The first want Magna, the second RHJ and the third insolvency. That's why the company is paralyzed: there is always two-thirds majority against each concept, the trade unionist and non-executive Opel director told Reuters.

POKER TACTICS

Meanwhile, Italy's La Republicca published a report reviving the interest of Fiat in Opel. A deal is seen as highly unlikely since the Italian carmaker pulled out of the bidding in May.

As our chairman and CEO have said many times, our proposal for Opel stays the same. We don't intend to modify it, a source at Fiat told Reuters.

Earlier, leading German tabloid Bild reported that the German government might be willing to drop its opposition to RHJ should the investor team up with an independent, strategic partner in the auto industry.

On Monday, sources told Reuters that GM was considering an alternative that would see the automaker inject billions into Opel to hold on to the company.

That approach would require raising some $4 billion, a possibility since GM's bankruptcy has been completed and there is growing confidence that the worst of the credit crisis and auto sales slump had passed, some analysts said.

GM has $11 billion in U.S. debt but came out of bankruptcy with some $20 billion in cash from federal funding.

Guttenberg said it could be difficult for GM to come up with the amount of money it needs to hold on to Opel.

To come up with such a not-insignificant sum after a Chapter 11 proceeding -- that's a big chunk, he said.

One would have to look perhaps for support from the American government, which I believe would be holding back after AIG and other experiences.

($1=.6983 Euro)

(Additional reporting by Angelika Gruber and Peter Dinkloh in Frankfurt and Gianni Montani in Turin, Soyoung Kim in Detroit; editing by Will Waterman, Erica Billingham and Matthew Lewis)

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