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Germany's Angela Merkel signs 'grand coalition' deal with Social Democrats

By Laura Smith-Spark and Stephanie Halasz, CNN
November 27, 2013 -- Updated 1610 GMT (0010 HKT)
German Chancellor Angela Merkel arrives at the headquarters of the German Social Democrats on Tuesday in Berlin.
German Chancellor Angela Merkel arrives at the headquarters of the German Social Democrats on Tuesday in Berlin.
STORY HIGHLIGHTS
  • German chancellor's deal paves the way for a coalition of parties from the right and left
  • CDU general secretary: "We have achieved a result that will be good for the country"
  • The coalition deal must still be put to SPD members for final approval
  • Merkel's CDU party got the most votes in September's poll but not an outright victory

(CNN) -- German Chancellor Angela Merkel signed a coalition deal with the center-left German Social Democratic Party (SPD) on Wednesday, paving the way for a "grand coalition" of right and left.

The SPD membership must still give final approval to the coalition agreement. They are expected to vote between December 6 and 12.

The deal, agreed to early Wednesday, came more than two months after Germans voted in parliamentary elections and followed lengthy negotiations between Merkel's conservative bloc, her Christian Democratic Union party and the allied Christian Social Union, and its main opposition, the SPD.

Speaking at a joint news conference with the leaders of the SPD and CSU, Merkel said the three main points of the deal concerned solid finances, safeguarding wealth, and social security.

On the issue of solid finances, Merkel said Germany wants to see an end to debt and added that its strength relies on Europe also being strong.

As for wealth, Merkel said it is important that the treaty includes no tax increases, which would help small businesses and give their workers job security. She promised investment in education and infrastructure projects, and spoke of the need to ensure Germany's future energy supply without nuclear power.

Germans get minimum wage, pension boost

Despite their differences, the parties managed to reach a compromise on social security that balances flexibility and security, Merkel said.

"We went into the talks with very different ideas, and that is why it took a little while," she said. "We have a good chance to say in 2017 that people will be better off than today."

Under the coalition treaty, a new nationwide minimum wage of 8.50 euros ($11.50) an hour will come into force starting January 2015.

The 185-page treaty also includes a provision to lower the retirement age for some Germans. From July 2014, workers who have paid social security contributions for 45 years will be able to retire on a full pension at 63, two years earlier than is currently the case.

If the deal is approved, as is widely expected, Merkel will be in line for a third term in office.

'Good for the country'

Hermann Groehe, general secretary of Merkel's center-right Christian Democratic Union party, said in a statement on the party's website: "The work is done. The coalition agreement between the CDU, CSU and SPD bears a strong conservative imprint.

"We have achieved a result that will be good for the country. Solid finances and the stability of the euro are at the heart of the agreement."

Leaving the late-night talks, SPD lawmaker Martin Schulz told CNN's German affiliate RTL he believes the treaty is "an excellent result" for his party.

Pepe Egger, senior analyst for IHS Country Risk, said the coalition deal does not contain any major surprises but represents a compromise between current policy and the campaign pledges of the SPD.

The inclusion of a minimum wage increases the likelihood that SPD members will back the deal in their postal vote next month, he said.

"Although the text of the deal vows to retain budgetary discipline and refrain from raising taxes, realization of what has been pledged is only likely to be possible in a markedly growing economy, or else it will push the budget balance back into deficit," Egger said. This means slow growth or a downturn may force the renegotiation of parts of the agreement, he said.

The treaty "does not depart markedly" from current German government policy on European and eurozone issues, he added.

Merkel emerged from the September elections with the CDU's biggest vote in 20 years. But the CDU and CSU did not win an outright victory, requiring them to form a coalition government.

The pro-business Free Democrats, Merkel's previous coalition partner, failed to pass the 5% threshold for getting into parliament, making a grand coalition with the SPD, the CDU's chief election rival, the most likely scenario.

Merkel's expected third term would give the country consistent leadership at a time when the future of the euro has come under question amid the economic problems of some euro zone members.

While Germany has emerged from the crisis with its economy relatively intact, nations such as Greece have entered deep recessions while unemployment has soared.

READ: Angela Merkel: Europe's Mrs. Nein

CNN's Anna Maja Rappard and Mark Thompson contributed to this report.

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