Merkel set to pay heavy price for a final deal on coalition
Angela Merkel has agreed a deal to form a new coalition government in Germany, four months after suffering damaging losses in elections.
The chancellor yesterday reached an accord with her former coalition partners, the Social Democrats (SPD), after the longest period without an elected government in post-war Germany.
"This agreement can be the foundation of a good and stable government, which our country needs and which many around the world expect of us," Ms Merkel said.
The deal could bring an end to months of uncertainty in Europe's biggest economy. But the relief turned to shock as Martin Schulz, the SPD leader, announced he would step down to become foreign minister.
The deal comes at a significant cost to Ms Merkel, who has had to relinquish control of three ministries of state and agree to a number of coalition demands.
And it still has to be approved by the full SPD membership - where rebels have sworn to stop Ms Merkel with a Momentum-style campaign that is signing up new members to vote No.
Ms Merkel has been fighting to remain in power since September's disastrous elections and the price she pays could be heavy, with her new government set to be much more active in pursuing greater European integration and reform and Mr Schulz, the former European Parliament president who has called for a United States of Europe, ensconced in cabinet as foreign minister.
Andrea Nahles takes over as SPD leader and is expected to rebuild the party, which suffered its worst ever result in September's election.
At the foreign ministry, Mr Schulz will direct Germany's EU policy with the support of Olaf Scholz, a party colleague.
Mr Scholz, the mayor of Hamburg, will become a powerful figure as both finance minister and vice-chancellor.
The coalition agreement includes commitments to strengthening the EU and working with France on eurozone reform, pledging to turn the eurozone bailout fund into a full-blown European Monetary Fund.
In a shot across the City of London's bows, the agreement also states: "In light of the upcoming withdrawal of the UK from the EU we are going to make Germany more attractive for financial institutions."
Horst Seehofer, a critic of Ms Merkel's "open-door" refugee policy, gains control of the issue as interior minister.
Many of Ms Merkel's deals have infuriated her Christian Democrat party.
Wolfgang Steiger, head of the party's economic council, said the agreement was "not the spirit of the future, but the garbage of redistribution".
The result of the SPD vote to approve the deal is expected to be announced on March 4. (© Daily Telegraph, London)