The Christian Democrats (CDU) of German Chancellor Angela Merkel secured on Wednesday a coalition deal with the Social Democrats (SPD) to form a new government after months of wrangling.
She said it was possible after her conservatives had made “painful concessions”.
"I know that millions of citizens have been watching us closely on this long road over recent weeks," Merkel said. "They had two justified demands of us: First, finally form a government — a stable government — and second, think ... of people's real needs and interests."
The coalition deal could be "the foundation of a good and stable government, which our country needs and many in the world expect of us," she added.
In a move that heralds a shift in Germany’s euro zone policy, the SPD will take the finance ministry, a post held until recently by conservative Wolfgang Schaeuble, widely loathed in the euro zone’s indebted periphery during his eight-year tenure for his rigid focus on fiscal discipline.
SPD leader Martin Schulz, who now needs his party’s grass roots to approve the deal in a postal ballot, said this week that the SPD had ensured the coalition would stop “forced austerity” and set up an investment budget for the euro zone.
Ceding the crucial finance ministry shows the high price the conservatives had to pay to renew the “grand coalition” with the SPD that has governed Germany since 2013, and secure Merkel’s fourth term in office.
“After so many years in which Wolfgang Schaeuble held the finance ministry, himself becoming an institution, it was hard for many of us that we couldn’t hold on to that ministry,” Merkel said.
“The question of who gets what job wasn’t an easy one,” she said, adding that the CDU would take the helm at the economy ministry for the first time in decades.
For the SPD, Schulz said the deal marked a “fundamental change of direction in Europe”, adding: “Germany will take an active and leading role in the European Union again.”
Bruised by its worst election result in the post-war era, the SPD had planned to revamp itself in opposition and only agreed to the coalition talks reluctantly. Its 464,000 members still have the chance to veto the deal in a postal ballot whose results will be announced on March 4, party sources said.
Schulz highlighted policies that the SPD had pushed through, notably reducing the scope for short-term work contracts and increasing student loans and minimum wages for trainees - as demanded by the party’s leftist youth wing, which has drummed in new members in the hope that they will vote against the deal.
The SPD also gets the high-profile foreign ministry as well as the labor, justice, family and environment portfolios.
Schulz is expected to become foreign minister, despite having previously vowed not to take a cabinet position under Merkel.
Hamburg Mayor Olaf Scholz, a down-to-earth, pragmatic politician who was worked well with Merkel in the past, is slated to take over as finance minister, according to sources familiar with the negotiations.
The CDU will get the economy, defense, education and agriculture ministries while their Bavarian allies, the Christian Social Union (CSU), will provide the interior minister, with an added “homeland” portfolio, in the form of Horst Seehofer, who talks tough on migration.
Merkel dismissed suggestions that SDU-led ministries would force her to open Germany's purse wider for French President Emmanuel Macron's European reform proposals than she would like.
"Regardless of whether a ministry is led by the Social Democrats or the (Christian Democratic) Union, you can only spend the money you have," Merkel said. "To be honest, I'm not at all worried."
If the coalition comes together, the nationalist Alternative for Germany will be the biggest opposition party. Co-leader Alexander Gauland criticized the deal, particularly the possibility of deeper European financial integration.
"You ask yourself why Mr. Macron doesn't just move into the chancellery," he said.
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