No new dawn for Europe under German coalition

That prospective new government, made up of the same parties as the outgoing coalition - Merkel's conservative Christian Democrats (CDU), their Bavarian allies the Christian Social Union (CSU) and the centre-left Social Democrats (SPD) - is one many in Europe will be relieved to see.

It comes after Merkel's previous attempt to form a coalition with the pro-business but increasingly eurosceptic Free Democrats (FDP) and the Greens collapsed in November.

The fact that Merkel, with a reputation for her negotiating prowess, has failed to form a government more than three months after elections on 24 September has undermined her authority and influence not only in Germany, but also in Europe.

It has also meant that plans hatched in Brussels and Paris for the reform of the European Union and the 19-member Eurozone have been put on hold. That wait could now be at an end.

"Together, we are determined to use Germany's strength, both economically and politically, to make Europe a grand project again," Martin Schulz, the leader of the SPD and former European Parliament president, said at a news conference with Merkel on Friday morning.

Europe was very much at the forefront of the coalition blueprint, taking up the first three pages of the 28-page document.

While concrete commitments were thin on the ground, with no mention at all, for example, of a banking union, the parties did back increased contributions to the EU budget, an "investment budget" for the eurozone, and a European Monetary Fund based on the existing bailout fund (the European Stability Mechanism), which would come under parliamentary control and be anchored in EU law.

European Commission president Jean-Claude Juncker welcomed the tentative agreement, calling it a "significant, positive, forward-looking contribution".

Macron waiting

A French government spokesman described it as "important for the stability and future of Franco-German relations, but especially Europe."

French president Emmanuel Macron, who was elected last spring on a pro-European platform, had announced his vision for sweeping EU reform days after the German election, but has had to wait for Berlin.

While the coalition blueprint's EU proposals were vague, they at least signalled an openness to his ideas that were unlikely to have been in evidence in a government that had included the FDP leader Christian Lindner, who had rejected Macron's idea of a eurozone budget.

Beyond the rhetoric, it is not entirely clear what a new grand coalition would mean for European Union reform, said Lucas Guttenberg, senior research fellow at the Jacques Delors Institute Berlin, however.

"If you read the text it just signals we don't have red lines, we are ready to talk, we are open, but I'm not sure how much that will actually translate into an agreement on substance," he told EUobserver.

Who gets which job?

If the final coalition agreement remains this vague, then the issue of who occupies important ministries in Berlin will become crucial, he noted.

"If you leave everything open, then a lot comes down to who negotiates for the German government and who has influence on European policymaking further down the road," he said.

There is already speculation that SPD leader Schulz has his eye on the finance ministry.

Those who envisage a very different German approach now that Wolfgang Schaeuble has left the finance ministry may be disappointed, however.

Schaeuble's legacy

According to Guttenberg, the depiction of the former finance minister as uniquely hawkish on Europe may be a misconception. "I think that there is a general mistrust in Berlin towards the other member states and towards the Commission," he said.

While the tone is certain to improve and the SPD will likely want to see more solidarity and more investment, they share the general consensus in Germany that the other member states need to stick to the rules.

"I also wouldn't expect big leaps forward that some in France or Italy or Portugal would expect because the general line on euro area matters cuts across parties," Guttenberg said.

Before the SPD can hope to take the finance ministry, though, it has to sell the deal to a sceptical party. First they need the backing of a special party convention next Sunday, (21 January), in Bonn and if talks then proceed, the final coalition accord would be subjected to a vote by the entire party membership.

The party's left-wingers and its youth wing, Juso, have already sworn to oppose the deal. "Important demands that the SPD made ahead of the elections are simply not in the document," Kevin Kuehnert, head of Juso, said at a regional party meeting on Saturday.

They are particularly disappointed with the failure to increase the top rate of income tax or to replace the two-tier health insurance system.

They also oppose a future cap on family reunifications for refugees to 1,000 per month and a limit of 220,000 asylum seekers a year.

The party leadership is hoping that the focus on reforms in the European Union can help to overcome these disappointments and the very well-placed fear that by staying in government the SPD risks further eroding its already dwindling support.

The SPD and their potential government partners all lost votes to smaller parties, particularly the populist right-wing Alternative for Germany (AfD), which would be the biggest opposition party in the seven-party Bundestag if the SPD went into government.

Merkel weakened

It means that Merkel, if she is elected to a fourth term, will have to oversee a potentially far weaker, less stable coalition than the previous ones, and will be tasked with implementing a coalition agreement that has been widely criticised for lacking any vision or overarching project.

That could test a chancellor known for her detached, presidential style of governing.

For a start, this new grand coalition would only have just over half the Bundestag seats, 53 percent compared to almost 80 percent in the last parliament.

The centrist parties will see rivals to the left and the right hoping to score points, while rebels within the parties could also cause problems, for example when it comes to passing legislation.

Furthermore, after 12 years in office, there is a growing Merkel-fatigue setting in with the larger public. A survey last week showed that 56 percent wanted her to step down before the next scheduled elections. Within her own party, this will lead to increased jockeying among those hoping to replace her.

"She is likely to survive the current turmoil," Pepijn Bergsen, Germany analyst with the Economist Intelligence Unit, wrote in a report on the preliminary deal, "but the battle to succeed her - possibly before the end of her four-year term - will weigh on political stability."

If the frustration with the establishment parties were to lead to the AfD gaining significant support in future state elections, pressure to oust her rather than allowing her to exit at a time of her choosing will undoubtedly grow.