“We have a short and medium-term objective to create a large new ensemble and I even think … it might be possible to list such a company on the market,” Cordes told ZDF television.

The private investment bank Merck Finck it would “regard a combination as positive,” but maintained its outlook for Metro stock on hold.

Arcandor filed for insolvency on Tuesday after failing to obtain state aid under a programme for companies hit by the global economic downturn because it is accused of bad management before the crisis erupted.

It was one of the biggest non-financial failures in Europe since the global financial and economic crisis erupted nearly two years ago. About 43,000 jobs are at risk, though they do not include staff at the British travel group Thomas Cook, in which Arcandor holds a majority stake of 53 percent.

In the event of a merger, Metro would regroup its Kaufhof chain with rival Karstadt, owned by Arcandor, and retain about 160 of the combined 200 department stores, Cordes said.

“The chief executive spoke not only of a German department store group, but even of a European one,” Merck Finck noted.

Following a two-year restructuring, Metro would like to sell most of the combined operation, a spokesman was quoted by the business daily Handelsblatt as saying.

If that does not take place via a public listing of shares, Metro might look for a private investor.

Handelsblatt said Italian retailer Maurizio Borletti, backed by a financial group, could be interested.

“We are currently participating in discussions,” Borletti told the newspaper, without providing details. He owns the Italian chain Rinascente and also holds a minority stake in the French retailer Printemps.

Political fallout

The collapse of the vast German retail group has erupted into a bitter fight on as

politicians gear up for a national election in less than four months.

The centre-left Social Democrats (SPD), who hope to unseat Chancellor Angela Merkel in elections in September, attacked a rising star Economy Minister Karl-Theodor zu Guttenberg who is a key conservative ally for Merkel.

They accused zu Guttenberg of stabbing labour in the back for opposing Arcandor’s request for emergency state aid as well as for arguing two weeks ago against a rescue for GM subsidiary Opel with billions of euros of state aid.

“In a government, we must all pull together,” said Frank-Walter Steinmeier, the SPD’s candidate for chancellor as well as foreign minister and vice-chancellor under Merkel in Germany’s unwieldy grand coalition government.

“It cannot be the case that we have a labour minister who fights for people’s jobs and a economy minister who fights for insolvencies,” Steinmeier told mass circulation daily Bild.

Wolfgang Tiefensee, also from the SPD, the junior partner in the ruling coalition, said zu Guttenberg’s actions were “unacceptable.”

Tiefensee told NDR info radio: “I expect from an economy minister that he tries to ensure that employees keep their jobs.”

But zu Guttenberg hit back, telling Bild in an interview: “If the owners and creditors are not prepared to take the risks, then we cannot burden the taxpayers with them.”

“In addition, bankruptcy now is not the end, but it can be used as a springboard for a successful new beginning,” he added.

Both Merkel and zu Guttenberg have justified the refusal to bail out Arcandor by saying that it was a very different case from that of Opel.

To tap into a special “Germany Fund” established to help firms in difficulty due to the financial crisis, companies must prove they were solid before the recession hit.

Berlin said that Arcandor was struggling before the downturn whereas Opel had been hit with the double-whammy of the credit crunch and a collapse of the auto industry.

“We must think about the taxpayers,” Merkel told reporters on Tuesday.