Germany: Merkel reaches coalition deal with Social Democrats - by Jessica SALTZ

Berlin Brandenburg Tor

German Chancellor Angela Merkel agreed to form a coalition government with the Social Democrats early on Wednesday morning, two months after her conservative party won elections but fell short of a full majority.

Germany’s two biggest political forces negotiated through the night and reached a breakthrough at about 5am (4am GMT).

Two months after Merkel’s election victory and a month after coalition talks began, the agreement, if ratified, would enable her to form a government by Christmas – if the SPD gets approval from its 474,000 party members.

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 2005-09.

After that uneasy political marriage, the SPD scored two humiliating electoral defeats in a row and won less than 26% against the conservatives' nearly 42% in the September 22 ballot.

In the protracted talks, the SPD scored a major victory on its core demand, a minimum wage of 8.50 euros ($11.50) per hour from early 2015.

The move aims to narrow a wealth gap brought about by decade-old labour reforms but should also cheer critics in the US, 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 old age.

Read more: Merkel reaches coalition deal with Social Democrats - GERMANY - FRANCE 24