MercoPress. South Atlantic News Agency

Sigh of relief in Europe: German Chancellor Merkel works out a 'grand coalition'

“The result is good for our country and has a conservative imprint: no new taxes and no new debts” said Merkel coalition partners

Chancellor Angela Merkel's conservatives and the center-left Social Democrats (SPD) clinched a coalition deal early Wednesday that puts Germany on track to have a new government in place by Christmas.

 The agreement was struck roughly two months after Merkel was the clear winner in national elections but fell short of a parliamentary majority, forcing her into talks with the arch-rival SPD, with whom she ruled in an awkward “grand coalition” during her first term as Chancellor from 2005-2009.

The deal, spelled out in a detailed 185-page policy document, will not be final until approved over the coming weeks by a postal ballot of the 474,000 card-carrying SPD members, many of them skeptical about partnering with Merkel again.

But the agreement will be greeted with a sigh of relief in other European capitals. The lengthy talks have delayed movement on major European reforms, including the creation of a “banking union”, an ambitious project designed to prevent a recurrence of the Euro zone's crippling debt crisis.

“The result is good for our country and has a conservative imprint,” said Hermann Groehe, secretary general of Merkel's Christian Democrats (CDU). “No new taxes and no new debts.”

Martin Schulz, president of the European Parliament and a senior SPD negotiator, called it an “excellent result” for his party.

To clinch the deal, Merkel agreed to SPD demands for a minimum wage of 8.50 Euros per hour, which some economists have warned could push up unemployment, particularly in eastern Germany.

In order to prevent that, the wage will be phased in over a period of years, with sector-specific exceptions allowed until 2017, when the wage formally kicks in nationwide. Cabinet seats will also be distributed among members of the new coalition although will remain secret until the final approval of the coalition terms.