Merkel Finally Has Her Coalition Deal with the SPD

Angela Merkel Reaches Deal to Form Coalition Government in Germany

German Chancellor Angela Merkel's conservatives and the Social Democrats sealed a deal on Wednesday on a new coalition, officials said, potentially ending four months of political deadlock in Europe's top economy.

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The agreement, which supports investment capacities for the European Union, as well as the appointment of an SPD finance minister, are considered as a boost for French president Emmanuel Macron's plans.

Mr. Schulz, who led the Social Democrats to the polls past year, declined to comment on reports in the German news media that he would hand the party leadership to Andrea Nahles, the minister of Labor and Social affairs in the last government. SPD head Martin Schulz will become the foreign minister, while Olaf Scholz, the SPD mayor of Hamburg, will head the Finance Ministry. Despite their differences, The deputy leader of Merkel's Christian Democrats (CDU), Julia Klöckner, told reporters on Monday evening she assumed "we will be ready tomorrow night on Tuesday into Wednesday".

Days of talks between negotiators had covered everything from foreign policy to labour issues and healthcare. But to claim anything more, at this stage at least, would be premature: the Europe chapter is short, vague and conspicuously silent on major subjects like banking union.

On the news, Italian, Spanish and Portuguese 10-year government bond yields were 5-7 basis points lower on the day, and spreads over benchmark German bunds tightened, according to Reuters, as investors became more positive about the SPD's pro-European stance. Anyone expecting a Teutonic Varoufakis will be disappointed.

The parties spent the last two weeks negotiating a governing pact, but if members of the Social Democratic Party reject the deal, the country could face more uncertainty and the prospect of a snap election.

The referendum will be held by postal ballot, with the result expected to be announced in early March. How they will vote is unclear: delegates at the party's conference in Bonn last month endorsed entering formal negotiations by only 56% to 44%.

"In 2013, 76 percent of members voted in favour of approving going into a coalition with Merkel", he said.

The other big winners in the new "Groko" (as the Germans call these Grand Coalitions) are Alternative für Deutschland. That would leave only an unprecedented minority government under Mrs Merkel or a new election as the remaining options. If they vote no, then this agreement collapses, and parties start again from scratch. All have ambitious young pretenders breathing down their necks.

There is one more hurdle before a government can be installed. Both sides of the nascent new coalition are committed to more open disagreement in order to preserve their identities (which is welcome).

Germany has been stuck in political limbo since September's inconclusive general election saw mainstream parties bleed support to the far-right AfD, which tapped into anger over Merkel's liberal refugee policy. And this is where any advantages of a grand coalition can also be its pitfalls.

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