Agreement reached on basis for German coalition talks

Merkel strikes preliminary deal to hold power in German coalition

The development will come as a relief for Merkel's conservative Christian Democratic Union / Christian Social Union alliance, which remains the country's largest party but was left weakened following a disastrous showing in September elections.

Speaking after marathon talks with SPD leader Schulz, Chancellor Merkel said she was now confident that Germany would find "common solutions with France" on taking Europe forward.

"We have felt since the elections that the world will not wait for us, and in particular regarding Europe we are convinced we need a new call for Europe", Merkel, who has played a central role in tackling crises over the euro and refugees, told journalists after talks that had run through the night.

At the EU level, the prospective deal was welcomed by European Commission President Jean-Claude Juncker during a visit to Sofia, Bulgaria.

A blueprint for formal negotiations was agreed between Chancellor Angela Merkel's Christian Democrats (CDU) and their former coalition partners, the Social Democrats (SPD).

According to a coalition paper leaked to German press on Friday morning, the new government would be prepared to make higher contributions to the European Union budget, as well as support "funds for economic convergence and social convergence and support of structural reforms that can be starting point for future investment budget for eurozone".

If the three parties can agree on the details, and avoid pitfalls along the way, these would become policy in Merkel's fourth-term government expected to be sworn in by late March.

"Even though these pre-coalition talks are meant more as a getting to know your partner, they really have become coalition talks", said Thomas Meyer, a political scientist at the University of Vienna, noting that final negotiations are increasingly based on the points hammered out during preliminary talks.

In their joint blueprint, the parties agreed on key policy outlines - to join European Union partner France in a push to "strengthen and reform" the eurozone, to limit the influx of asylum seekers to Germany to around 200,000 a year, and to refrain from tax hikes given the healthy state of public coffers.

"In close partnership with France, we want to sustainably strengthen and reform the eurozone so the euro can better withstand global crises", the parties said. But when those talks collapsed in November, she had to once more woo a reluctant SPD for a new power pact.

The paper backs the idea of transforming the ESM bailout fund to a European Monetary Fund, but makes no reference to the proposal for a euro finance minister. The Social Democrats must also put the agreement to their members, an obstacle that all three party leaders acknowledged Friday morning. It must now be voted on by the SPD party conference later this month, where there is likely to be resistance from members who believe a coalition would further damage their electoral appeal.

Scepticism is high after the SPD scored a humiliating 20.5 percent in the September ballot, its worst of the post-war era. In reality, the next "grand coalition" wouldn't be up and running before the beginning of April.

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