Germany's Merkel says 'we will have a stable government'. Meanwhile the Social Democrat leader Schulz says Germany will take a more active role in the EU.
Angela Merkel's conservative Christian Democrat CDU party have made a breakthrough in coalition talks with the centre-left Social Democrat (SPD) party.
However, this does not mean the Chancellor's worries are over. The deal will be put to SPD members in March. Only when they've approved the plans will the agreement go ahead. In total 460,000 members of SPD will have the change to vote on the measures. Already a movement, called NoGroKo, has sprung up within SPD. They oppose Merkel's so-called "grand coalition" between the parties. In spite of this, the head of the SPD Martin Schulz has said the deal will mean the "end of austerity". The pro-EU Schulz, who used to be president of the European Parliament said Germany would be able to contribute more to the EU budget.
There is also doubt over the future of Mr Schulz. There are suspicions that he will step down as leader of his party to become the Foreign Minister.
The SPD has been allocated the foreign, finance and labour ministries, while the CDU will retain the defence and economy portfolios, according to media reports.
The same reports claim the interior ministry will be taken by Angela Merkel's Bavarian ally, Horst Seehofer. Seehofer has been taking a tough line on immigration up till now.
Major differences during the talks appear to have been on labour reforms and healthcare.
The deal could still be derailed by the SPD's rank and file membership in a vote, the result of which will be known in three to four weeks. SPD membership has surged by tens of thousands in the last few days as campaigners are calling on people to join the party just to vote down the grand coalition plan.