The agreement has come at the end of more than four months of wrangling since the inconclusive elections in September.
The pro-business Free Democrats unexpectedly pulled out of more than four weeks of negotiations with Merkel’s conservative bloc and the ecologist Greens, citing irreconcilable differences.
Talks between conservatives, Greens and Free Democrats resumed on Monday after Angela Merkel convened a meeting to clear the air between the ideologically diverse parties forced by electoral arithmetic into awkward partnership.
Merkel’s manifesto for the 2017 German federal elections shows her playing safe, focusing more on domestic issues while skirting around hot-button topics.
Merkel, Europe’s longest-serving leader, has looked like the one safe bet in the region as angry voters have taken down leaders in Britain, Italy and France. But the Berlin market attack is a reminder that even she is vulnerable to events on the ground.
The suggested start of Brexit negotiations doesn’t do Britain any favours, nor Germany, France or Italy.
Merkel’s CDU party slumped to its lowest level since 1990 in a Berlin state vote that rejected her open-door refugee policy.