German parties hammer out deal for Merkel-led coalition

German Chancellor Angela Merkel's conservative Christian Democratic Party and its main opposition, the Social Democrats, hammered out a formula for a coalition government early this morning, two months after the conservatives won the country's elections but fell short of an absolute majority.

Merkel's Christian Democrats, their Bavarian allies the CSU and the Social Democrats (SPD) agreed on the deal after marathon talks lasting 17 hours and will formally present it to a meeting of some 75 delegates from all three parties later today.

News that Germany's two main parties have agreed on a 'grand coalition' came in the early hours of the morning - too late for newspapers' print editions. As is often the case these days, the news was broken through Twitter.

"Knot broken. Deal reached," Michael Grosse-Broemer, chief whip of the Christian Democrats, tweeted at 4 am.

In the tense final round of talks, the centre-left SPD scored several key concessions, including the introduction of a national minimum wage from 2015, while Merkel stuck to her guns on blocking higher taxes for the rich.

Chancellor Merkel now expects to be sworn in for a third term on 17 December as leader of Europe's biggest economy, but a hurdle remains - a binding SPD membership ballot next month must still formally agree to the left-right 'grand coalition'.

The predominant mood among press commentators was one of wariness and resignation rather than enthusiasm. The coalition will shift Germany leftward but is unlikely to mean much in terms of Berlin's approach to Europe's debt crisis.

The outcome of the rank-and-file postal ballot remains far from certain because many SPD members reject the notion of their traditionally blue-collar party again governing in the shadow of Merkel, as it last did 2005-09.

After that uneasy political marriage, the SPD saw two humiliating electoral defeats in a row, winning less than 26 per cent against the conservatives' nearly 42 per cent in the 22 September polls.

SPD chief Sigmar Gabriel, who would be Merkel's vice-chancellor, hopes to convince the rank and file of his 150-year-old party with the key concessions that his team has wrested from the conservatives in recent weeks.

In the protracted talks, the SPD scored a major victory on its core demand, a minimum wage of €8.50 ($11.50) per hour from early 2015 to help the country's army of working poor.

The SPD also pushed through a demand for a 30-per cent women's quota on the boards of listed companies from 2016, and an easing of a ban on dual nationality - a key demand of Germany's large Turkish immigrant community.

Both sides also agreed on pension increases to protect retirees in rapidly aging Germany, where many of the elderly are growing scared of facing poverty.

Bavaria's CSU also scored on its own pet issue - charging foreign drivers a toll for using Germany's famed autobahns or highways.

Like Germany's lacklustre election campaign, the coalition talks centred not on big European or global issues and ideas, but mostly on haggling over the finer points of domestic policy.

"The spirit of this agreement is that we are a grand coalition to master grand tasks for Germany," Merkel told reporters, identifying the main priorities as "solid finances, secure prosperity and social security."

At the conservatives' insistence, the new government is pledging not to raise taxes and to stop running up new debts during its four-year term.

The Social Democrats secured key demands such as the introduction of a mandatory national minimum wage, which Germany is unusual among rich industrial powers in lacking. The $11.50 hourly minimum is to be introduced in 2015, though exceptions will be possible for the first two years.

Merkel's Union bloc finished first in the 22 September elections, but her partners in Germany's centre-right government of the past four years, the pro-business Free Democrats, lost all their seats in parliament. Her conservatives, meanwhile, fell short of a majority to govern alone.

That left her reaching across the aisle for a new coalition partner, leading to lengthy negotiations with the Social Democrats, who were her junior partners in her first term from 2005 to 2009.

The fate of the deal now rests on a ballot of the Social Democrat party's 470,000 members.