Merkel agrees coalition deal for Germany

German Chancellor Angela Merkel has agreed to major compromises to form a new government.
German Chancellor Angela Merkel has agreed to major compromises to form a new government.

German Chancellor Angela Merkel's admits her conservatives have made major concessions to the centre-left Social Democrats to strike a coalition deal that should give the country a new government after four months of uncertainty.

In a move on Wednesday likely to herald a shift in Germany's eurozone policy, the Social Democrats are to take over the finance ministry, ensuring the "grand coalition" that has governed Germany since 2013 continues and Merkel secures a fourth term in office.

Merkel said the "difficult" talks had been worth it and the government would be a stable one, confirming: "We have had to make compromises.

"We know that in order to make sure it continues to be good for our people in the future, we will have to modernise infrastructure, address the challenges of digitalisation," she said.

"Solid finances are the signature of our government. This was one of the toughest chapters.

"It wasn't easy, focusing on humanity on one hand and on directing and steering immigration on the other, but here too we managed to come up with a good packet of measures."

SDP leader Martin Schulz said the agreement would mean a change in direction for the European Union.

Its 464,000 members still have the chance to veto the deal in a postal ballot.

Merkel's Christian Democrats will get the economy, defence, education and agriculture ministries while their Bavarian allies, the Christian Social Union, will provide the interior minister in the form of Horst Seehofer, who talks tough on migration

Seehofer, reported to be taking over as interior minister, said the 177-page agreement was well suited to "overcoming the divisions and polarisation in our country" and he viewed the deal as extremely positive.

The conservative bloc and the Social Democrats began talks about renewing their alliance after Merkel's coalition talks with two smaller parties collapsed last November.

After a session lasting more than 24 hours, the parties ultimately agreed to cap at 18 months fixed-term contracts imposed by employers without justification, down from 24 months under current rules, a source said.

The agreement was welcomed by senior EU officials, who will also greet the prospect of Germany using the fruits of its robust economic growth to increase domestic government spending, a move other EU capitals have long called for.