The two largest political parties appear to have reached an agreement on forming a grand coalition government.

German Chancellor Angela Merkel, left, Chairwoman of the Christian Democratic Union, CDU, Martin Schulz, right, chairman of the Social Democratic Party, SPD, and Bavarian Governor Horst Seehofer, chairman of the Christian Social Union, CSU, arrive for a press statement after Merkel's conservatives and Germany's main center-left party reached a deal to form a new coalition government.
German Chancellor Angela Merkel, left, Chairwoman of the Christian Democratic Union, CDU, Martin Schulz, right, chairman of the Social Democratic Party, SPD, and Bavarian Governor Horst Seehofer, chairman of the Christian Social Union, CSU, arrive for a press statement after Merkel's conservatives and Germany's main center-left party reached a deal to form a new coalition government. (AP)

German Chancellor Angela Merkel's Christian Democratic Union (CDU) party and the Social Democrats (SDP) sealed a deal Wednesday on a new coalition, officials said, potentially ending four months of political standstill in Europe's top economy.

The parties ironed out their final differences and were ready to sign an agreement for Merkel's fourth term, her chief of staff and acting finance minister Peter Altmaier said, calling it a "good day for our country."

Merkel hailed the hard-fought deal saying the new "grand coalition" government was one international partners had long been waiting for.

"I am convinced that the coalition agreement that we agreed together can form the foundation for the good and stable government that our country needs and that many in the world expect from us," she said, speaking at a press conference.

TRT World's Sarah Morice reports.

"You'll forgive me for thanking Mrs Merkel and Mr [ Horst] Seehofer, especially regarding the European policy chapter of this deal, because what we wrote down in this coalition agreement about the European Union and its future will be a fundamental change of direction in Europe," Martin Schulz, the embattled leader of Germany's Social Democrats who is slated to become foreign minister, said at the same press conference.

"With this coalition agreement, Germany will take an active and leading role in the European Union again," he said.

Seehofer is the leader of the smaller Christian Social Union in Bavaria that is part of the coalition.

An appointment that is likely to be closely watched is that of the country's finance minister, which according to the German Press Agency (dpa) had been allocated to Olaf Scholz, the SPD mayor of Hamburg. It was a post that had been under the control of the conservatives.

Against the 'GroKo'

Germans went to the polls in September, the outcome of which saw the two largest parties take a hammering. The far right Alternative for Germany became the third largest party.

However, any deal is subject to approval by the SPD's 464,000 members in a postal ballot before their party can move ahead and join another coalition with Merkel after serving as her junior partner from 2013.  

Results are expected to be announced in early March.

Observers expect the outcome to be tight, with the SPD's left and youth wings fiercely opposed to another four years governing in Merkel's shadow. 

The party's fiery youth chief Kevin Kuehnert has led a campaign against another "GroKo," as the grand coalition is known.

A green light could see a new Merkel-led government in place by the end of next month.

A thumbs-down could spell disaster for Merkel and Martin Schulz, whose political lives hang in the balance, and see the country headed for fresh elections or an unprecedented minority government.

A negotiating source said the SPD would get the foreign, finance and labour ministries under the deal.

Mass-selling daily Bild reported that Merkel's CDU would get the economy and defence ministries and her Bavarian ally Horst Seehofer would become interior minister.

TRT World's Ira Spitzer has more.

Long-drawn negotiations

The conservative bloc and the SPD began talks about renewing their alliance after Merkel's coalition talks with two smaller parties collapsed last November. Both camps face waning support.

An Insa poll on Monday showed support for the SPD dropping to 17 percent, below its election result of 20.5 percent. The conservatives slipped to 30.5 percent, suggesting there would be no majority for a grand coalition if an election were held now.

The SPD initially vowed to rebuild in opposition before changing course and negotiating with Merkel, a U-turn that has divided the party.

The two blocs had aimed to strike a deal on Sunday but extended that deadline as they grappled with reforms to health insurance reform and employment policy demanded by the SPD, which promised members it would negotiate until the conservatives squealed.

SPD negotiator Carsten Schneider said during the final stretch of talks that the agreement was "no masterpiece".

SPD delegates voted only narrowly last month to begin formal coalition talks with Merkel's conservatives. 

Source: AFP