German parties agree 'Grand Coalition'

Merkel and the leaders of the SPD and her Bavarian sister-party, CSU, will present the coalition deal later on Wednesday. The parties have divided the ministries among themselves, but the names of the new ministers will not be made public until after the SPD vote, prompting criticism from opposition parties.

SPD general secretary Andrea Nahles on her way out of the 17-hour long talks seemed confident the party members will endorse the deal.

"I am pretty sure with this result we will be closer to a Yes than a No," she said.

But some prominent Social Democrats, like the writer Gunter Grass are openly against another Grand Coalition, pointing to the fact that the parliamentary opposition will be too small for a proper democratic checks and balances system.

Others fear that the SPD will further erode its support base - as it did in the last Grand Coalition with Merkel between 2005 and 2009 - because it will fail to really steer policies more to the left.

But polls indicate that snap elections would be an even worse option for the SPD. They are currently polling at 23 percent, three points down compared to their 22 September elections result.

As for the coalition deal, the SPD got its way on the introduction of a minimum wage of €8.5 an hour. But it will only be introduced from 2015 and some jobs - like seasonal workers in agriculture or newspaper vendors - will continue to have lower wages.

European Parliament chief Martin Schulz, a member of the SPD negotiation team, gave somewhat good news to troubled eurozone countries.

A 2012 deal on allowing troubled banks to be directly recapitalised from the eurozone's bailout fund (ESM) - which seemed to be off Merkel's table in recent months - seems to be partially back.

"We have agreed in principle, that the cascade of liabilities when a bank is being wound down has to be stopped," Schulz said, in reference to the vicious circle between troubled banks and state coffers.

In order to break this circle, first there will be a "bail-in process" hitting the bank's creditors, then a state guarantee for the banks.

"Finally, if the bail-in process and the state guarantee are not working, then there can be direct recapitalisation from the ESM," Schulz said.