German Chancellor Angela Merkel has agreed to form a coalition government with campaign rivals the Social Democrats, two months after her conservatives won elections but fell short of a full majority.
Merkel's Christian Democratic Union (CDU), their Bavarian allies the CSU and the Social Democratic Party (SPD) agreed on the deal on Wednesday after marathon talks lasting 17 hours, with bleary-eyed party leaders formally presenting it to a meeting of about 75 delegates from all three parties.
In the tense round of talks, following weeks of political horse-trading, 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 her own red-line issue and blocked higher taxes for the rich.
The chancellor now hopes to be sworn in for a third term on December 17 as leader of Europe's biggest economy, but a key hurdle remains: a binding SPD membership ballot next month must still sign off on the proposed left-right "grand coalition".
"We negotiated hard till the end," said SPD general-secretary Andrea Nahles emerging from the Berlin talks in the pre-dawn hours, adding that "for us it's a package that, I believe, we can present to our members, and we recommend it and say we can say yes to it".
"The result is good for our country and carries a strong Christian-Democratic imprint," said CDU secretary-general Hermann Groehe, while his CSU counterpart Alexander Dobrindt voiced satisfaction that "all our key elements are reflected in the coalition contract".
Despite the late-night breakthrough, another political nail-biter looms in coming weeks.
The outcome of the SPD rank-and-file postal ballot, expected on December 14, remains far from certain because many party members reject the notion of their traditionally blue-collar party again governing in the shadow of powerful Merkel, as it last did in 2005-09.
After that uneasy political marriage, the SPD scored two humiliating electoral defeats in a row, winning less than 26 per cent against the conservatives' nearly 42 per cent in the September 22 ballot.
SPD chief Sigmar Gabriel, who would be Merkel's vice-chancellor, hopes to convince the base of his 150-year-old party with the key concessions his team has wrested from the conservatives.
To avoid the impression that SPD chieftains are worried only about gaining ministerial posts for themselves, they have focused on the policy deal they have fought for and reportedly plan to stay silent for now on who would get which portfolio in the next Merkel cabinet.
In the protracted talks, the SPD scored a major victory on its core demand, a minimum wage of 8.50 euros ($A13) an 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 the scrapping 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 ageing Germany.
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