Berlin - German Chancellor Angela Merkel early on Wednesday agreed to form a coalition government with the Social Democrats, negotiation sources told AFP, two months after her conservatives won elections but fell short of a full majority.
Merkel's Christian Democrats, their Bavarian allies the CSU and the Social Democrats (SPD) agreed the deal after marathon talks lasting 17 hours and were due to formally present it to a meeting of some 75 delegates from all three parties.
In the tense final round of talks, the centre-left SPD scored several key concessions, including the introduction of a national minimum wage from 2015, while Merkel stuck to her guns on her own red-line issue and blocked higher taxes for the rich.
The chancellor now hopes to be sworn in for a third term on 17 December as leader of Europe's biggest economy, but a key hurdle remains: a binding SPD membership ballot next month must still be signed off on the proposed left-right 'grand coalition'.
The outcome of the rank-and-file postal ballot remains far from certain because many SPD members reject the notion of their traditionally blue-collar party again governing in the shadow of Merkel, as it last did from 2005 to 2009.
After that uneasy political marriage, the SPD scored two humiliating electoral defeats in a row, winning less than 26% against the conservatives' nearly 42% in the 22 September ballot.
SPD chief Sigmar Gabriel, who would be Merkel's vice chancellor, hopes to convince the base of his 150-year-old party with the key concessions his team has wrested from the conservatives in recent weeks.
To avoid the impression that SPD chieftains are worried only about gaining cushy ministerial posts, they have focussed on their policy deal and reportedly plan to stay silent on who would get which portfolio in the next Merkel cabinet.
In the protracted talks, the SPD scored a major victory on its core demand, a minimum wage of €8.50 per hour from early 2015 to help the country's army of working poor.
The move aims to narrow a wealth gap brought about by decade-old labour reforms but should also cheer critics in the United States, the IMF and Europe who want the export-power to stimulate domestic demand and correct its lopsided trade balance.
The SPD also pushed through a demand for a 30% women's quota on the boards of listed companies from 2016, and an easing of a ban on dual nationality, a key demand of Germany's large Turkish immigrant community, sources said.
Both sides also agreed on pension increases to protect retirees in rapidly ageing Germany, where many elderly are growing scared of suffering poverty in high age.
Bavaria's CSU also brought home the bacon on its own pet issue, charging foreign drivers a toll for using Germany's famed autobahn highways, negotiation sources said.
In all, the additional spending and investment agreed by all sides until 2017 amounts to €23bn, reported national news agency DPA. Details of the more than 170 page coalition deal were to be presented at noon on Wednesday.