The small hose just under the cap is the overflow hose that runs from the radiator back to the expansion tank. This hose may need to be replaced. The dealer sells it by the foot and it ain't cheap.
You may also have a leak on the expansion tank cap neck. This part of the tank gets weak with age. I'd replace the hose and consider replacing the expansion tank cap as well because leakage from this point can cloud the issue. With a new cap and hose on, you'll know if the neck on the expansion tank is leaking.
The bottom line is you could be losing coolant from one of 3 areas that are all right next to one another. Sometimes it's tough to know for sure which one it is. The cap and hose are the cheapest to replace. If you have to replace the expansion tank, you'll also end up buying a new coolant level sensor.
1991 300-SEL - Model 126
M103 - SOHC
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