German parties reach agreement on 'grand coalition'

Schulz faces strong resistance within parts of his party, including the SPD's youth wing (Juso) against plans to support another Merkel cabinet. Internal critics have mounted a "no grand coalition" campaign and invited the public to temporarily join the party in an effort to overturn the agreement between the CDU, CSU and SPD in the upcoming vote.

Schulz has also heard growing calls not to assume a ministerial post after originally pledging to return to the opposition benches in the case of electoral defeat.

The SPD recorded its worst result (20.5 percent of the vote) since World War II in September's elections, prompting speculation over Schulz' political future.

The SPD leadership will seek to highlight last-minute concessions granted by the CDU and CSU on health care and labor policy as it attempts to persuade the party membership to vote in favor of signing the final coalition agreement achieved on Wednesday.

German media reported that the parties had reached a compromise by limiting the ability of employers to use fixed-term contracts unless directly related to the nature of the work. The number of so-called "unjustified" fixed-term contracts which a company can sign with its staff will be tied to its overall headcount (2.5 percent in a firm with more than 75 employees) and only be valid for a maximum of 18 instead of 24 months.

While no concrete policy proposals were tabled to reduce inequalities between the German public and private healthcare systems, as demanded by the SPD, the new government has announced the appointment of an expert commission to assess possibilities for reform.

Tellingly, the opening chapter of the coalition agreement upon which Merkel's fourth cabinet is based addresses Europe. The parties have committed to significant changes in the governance of the single currency, including accepting the principal of a fiscal union for macroeconomic stabilization and transforming the existing European Stability Mechanism (ESM) into a permanent institutionalized rescue fund.

The change in Berlin's tone towards a more federalist vision of the Eurozone potentially paves the way for ambitious reforms of the bloc as championed by French President Emmanuel Macron.

Nevertheless, German business representatives were less than enthralled by the outcome of negotiations on Wednesday. The Confederation of German Industry (BDI) criticized the coalition agreement for showing no real ambition to lower the fiscal burden on companies.

"There is a clear imbalance towards redistribution instead of future-securing measures in the budget proposals," a statement by the BDI read.

Similarly, the German Chambers of Industry and Commerce (DIHK) expressed disappointment that the "grand coalition" did not respond to recent US corporate tax reforms with corresponding tax cuts for German firms.