Merkel’s Conservatives Clinch Coalition Gov’t Deal With SPD

German Chancellor Angela Merkel’s conservatives made major concessions to the center-left Social Democrats (SPD) to agree a coalition deal on Wednesday that should give Europe’s powerhouse a new government after four months of uncertainty.

In a move likely to herald a shift in Germany’s euro zone policy, a source involved in the negotiations said the SPD would take the finance ministry, a post held until recently by conservative Wolfgang Schaeuble, widely despised in struggling euro zone states during his eight-year tenure for his rigid focus on fiscal discipline, Reuters reported.

SPD leader Martin Schulz said earlier this week that his party had ensured an agreement with the conservatives that would put an end to “forced austerity” and set up an investment budget for the euro zone.

Handing over the crucial finance ministry suggests the conservatives had to make big concessions to get the SPD to agree to renew the “grand coalition” that has governed Germany since 2013 and secure Merkel’s fourth term in office.

Merkel said the difficult coalition talks had been worth it and the government would be a stable one.

Schulz said the agreement reached with the conservatives would mean a change in direction for the European Union.

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.

Julian Reichelt, editor of Germany’s biggest selling paper, Bild, suggested they had got the better end of the deal, tweeting, “This is the first SPD government led by a CDU chancellor.”

While the talks have dragged on, Europe’s biggest economy has moved into overdrive, suggesting that there may be increased scope for government spending and investment.

In a message posted alongside a photo of Schulz and other SPD negotiators smiling, the SPD negotiators wrote: “Tired but happy. There is an agreement! Finally. Now the final details are being worked into the text.”

The deal should allow Germany to resume its leading role in international affairs and, at least for now, put an end to questions about how long Merkel will stay in her job.

***Multiple Challenges

Investors and partner countries had been concerned by Merkel’s struggle to assemble a government at a time when Europe faces multiple challenges, including the need for euro zone reform and Britain’s looming departure from the EU.

In a 177-page coalition document, the parties laid out plans to develop the euro zone’s bailout fund into a full-blown European Monetary Fund and support budgetary means to shield the euro zone from crises.

“We want a (European Union) budget for future spending geared toward bringing more benefits for Europe,” they wrote, adding that they backed structural reforms championed by French President Emmanuel Macron.

A negotiating source said the SPD would have the finance and labor ministries while media reported it would also secure the justice, family and environment ministries.

Bild newspaper reported that Schulz would become foreign minister, despite having previously vowed not to take a cabinet position under Merkel. Newspaper Sueddeutsche Zeitung said Schulz would quit as SPD leader and parliamentary floor leader Andrea Nahles was ready to take over.

Hamburg Mayor Olaf Scholz is slated to take over as finance minister, according to sources familiar with the negotiations.

Merkel’s Christian Democrats (CDU) will get the economy, defense, education and agriculture ministries while their Bavarian allies, the Christian Social Union (CSU), will provide the interior minister in the form of Horst Seehofer, who talks tough on migration, media reported.

The conservative bloc and the SPD began talks about renewing their alliance after Merkel’s coalition talks with two smaller parties collapsed last November.

The two blocs, whose support has waned in polls since the election, had aimed to strike a deal on Sunday, but repeatedly extended that deadline as they grappled with reforms to health insurance and employment policy demanded by the SPD.