Germany's business-friendly Free Democratic Party (FDP) said it is willing to start coalition negotiations to form a "traffic light" alliance led by the Social Democrats' (SPD) Olaf Scholz, following in the steps of the Greens, which made a similar announcement on Sunday.

After explorative meetings last week, the FDP's members in parliament and the party's federal leadership voted on Monday to go forward with the negotiations. The SPD has also approved starting talks.

The possible coalition – called the "traffic light" alliance because of the parties' red, green and yellow colors – could be in place by Christmas. And it would be "a big win for the Greens, for Germany," according to Robert Habeck, the party's co-leader.

"In the coming government, the Greens can take on more responsibility for our country than ever – we will be drivers of major transformations," he added, while talking to delegates.

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The announcements come after all three parties said on Friday they intended to start negotiations to form a coalition pending approval – with the goals to modernize the country and fight climate change.

"If such different parties could agree on joint challenges and proposed solutions, there is an opportunity in this to bring together our country as a whole," said Christian Lindner, the leader of the Free Democrats, after the announcement.

"We are convinced after these talks that there hasn't been a comparable opportunity for a long time to modernize our society, economy and state."

A key step has been an agreement to spend $580 billion to address climate change and modernize the country. 

The increase in spending would happen gradually over the next 10 years and would be funded through loopholes in Germany's constitutional debt amendment, which normally places strict limits on the amount of debt that can be taken on. 

The $580 billion investment figure has been a priority for the Greens, who were adamant that all parties agreed on the scale of public spending needed in order to help the economy transition towards being climate-neutral. 

Much of the spending is expected to go towards public infrastructure projects, such as electric car charging and climate-neutral transportation. 

More precise details about how the money will be spent and on what timeline will be negotiated during coalition talks over the next two months. 

"There's a clear understanding of leveraging public investment activities in Germany within the framework of the debt brake, but with the possibilities that the debt brake allows," said Habeck in an interview Sunday. 

Any large investment program would likely be overseen by Germany's Finance Ministry, which has been led by current Scholz since 2018. With Scholz close to assuming the chancellorship, both the FDP and Greens are hoping to have one of their members replace him.  

The prospective coalition partners are aiming to finish negotiations in the coming months and formally assume power before the end of the year.

But the road ahead will not necessarily be smooth because the parties have different goals. For example, both the Greens and the SPD want to raise taxes for top earners, while the FDP is opposed to the idea.

How the coalition will fund its plans will also be central to the upcoming negotiations.

If these talks prove unsuccessful, both the FDP and the Greens have said they could turn their sights to the conservatives to form a coalition.

The Social Democrats won the country's national elections on September 26, with the Greens and the FDP coming third and fourth respectively. The country's conservatives finished second.