German coalition talks: Angela Merkel's conservatives and SDP agree terms to curb months of political uncertainty

German Chancellor Angela Merkel's conservatives (CDU) and the Social Democrats (SPD) agreed after all-night talks on Friday to a blueprint for formal coalition negotiations, party sources said, raising prospects of an end to months of political uncertainty.

The agreement between party and parliamentary leaders should pave the way for detailed negotiations, ending a stalemate that has undermined Germany's role in international affairs and raised questions about how long Merkel will stay in her job.

After 24 hours of talks, the six leaders began presenting the 28-page blueprint to party members, party sources said.

A source involved in the negotiations said the two sides had agreed not to raise taxes if they form a governing alliance.

“We agree on the aim of a balanced budget without new debt,” read a draft of a coalition blueprint seen by Reuters, which was still subject to possible changes.

The blueprint showed they wanted to gradually abolish the "solidarity tax" introduced after reunification in 1990 to support poorer eastern states.

On foreign policy, it said they would introduce further limits on arms exports and immediately end arms sales to countries involved in the Yemen conflict. They would also rein in progress in EU accession talks with Turkey.

Weakened by an election setback in September, Merkel turned to the left-leaning SPD to renew their so-called “grand coalition” after the collapse in November of talks on a three-way coalition with the Greens and Free Democrats (FDP).

The chancellor, who commands wide respect abroad after more than 12 years in power, needs the talks to succeed to avoid further erosion of her personal authority and weakening of German international influence, not least in the European Union.

As Europe's largest economy and pre-eminent power broker, Germany is crucial to the region's fortunes. Berlin's partners are eagerly awaiting a new German government to help drive forward Brexit talks, eurozone reform and EU diplomatic initiatives.

The euro climbed to a three-year high after news of the breakthrough in the talks. In early London trading, the euro rallied 0.7 percent against the dollar to hit its highest levels since January 2015 at $1.212.

The blueprint also foresaw Germany generating 65 percent of its energy from renewables by 2030.

Merkel has ruled with the SPD in two of her three terms in office, including in the last parliament from 2013-2017. A re-run of their partnership is not yet certain.

Before the two groups move to formal coalition negotiations, SPD leaders need to persuade party members to give a green light at a congress planned for 21 January.

Many SPD members fear governing with the conservatives again would further weaken their party after it suffered the worst result in September's vote since the modern Federal Republic was founded in 1949.

Kevin Kuehnert, head of the youth branch of the SPD, said on Thursday he planned a tour of Germany to persuade party delegates to vote against the grand coalition.

Reuters