After the CDU's disappointing election result and the subsequent failure to form a coalition with the Free Democrats and the Greens, Merkel's options were limited.
"We realize that the world isn't waiting for us", Merkel said on Monday morning. Jean-Claude Juncker, the head of the EU's executive Commission, said the European part of the deal was "a significant, positive, constructive future-looking contribution to the European policy".
Merkel, the German chancellor, and the SPD leader, Martin Schulz, on Friday morning recommended moving on to formal coalition negotiations after agreeing compromises on a wide-range of issues.
The talks that ended on Friday were Ms. Merkel's second attempt to assemble a new government.
After more than 24 hours of talks and months of political paralysis, red-eyed party chiefs and their negotiating teams reached an in-principle agreement that could lead to a new government for the biggest European Union economy in coming months.
GERMANY will limit the number of asylum seeker arrivals to around 200,000 annually under a draft coalition agreement sealed today in marathon talks between the country's two biggest parties.
The CDU and the SPD began talks on a grand coalition after negotiations for a so-called Jamaica coalition, between the CDU, the Free Democrats, and the Green Party, collapsed previous year. The coalition blueprint starts with the topic of Europe and includes pledges to strengthen common European Union foreign and defence policy. But those talks collapsed and the long-time chancellor turned to the SPD to renew their alliance.
It helps avert new elections after September's poll failed to give Merkel a clear majority. The coalition blueprint document commits: "in close partnership with France", to "sustainably strengthen and reform the eurozone so that the euro can better withstand global crises".
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.
Mr. Schulz, who had expressly wished for a role in the opposition after the party's two stints as junior coalition partner, must now travel the country to convince his rank and file that rejoining the government will be good for both the country and the party.
Scepticism is high after the SPD scored a humiliating 20.5 percent in the September ballot, its worst of the post-war era. "The coalition document is a new start for Europe". In reality, the next "grand coalition" wouldn't be up and running before the beginning of April.
Political observers also judge that Merkel, damaged by the poor election outcome and subsequent stalemate, is now in the twilight phase of her reign.
Another analyst, Lothar Probst of Bremen University, told the Handelsblatt business daily that the coalition could break up early in a fight, which would mean "the deck is reshuffled and Merkel's chancellorship could reach an early end".
"In the interest of her party's electoral strength, she should not stay in office for the entire legislative term".
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