Key points agreed in German exploratory coalition talks

Angela Merkel with leader of the CSU Horst Seehofer and SPD leader Martin Schulz

Merkel strikes preliminary deal to hold power in German coalition

SPD party members still need to formally approve coalition talks before they can begin.

"We determine that the number of new arrivals. should not exceed the range of 180,000 to 220,000 per year", according to a copy of the document agreed by Chancellor Angela Merkel's conservatives and the Social Democrats obtained by AFP.

"We Social Democrats, in our [leadership] committee, decided unanimously to recommend.to the party congress giving the party leadership a mandate to pursue coalition negotiations to form a government", Schulz said on Friday. But both parties lost votes in the September 24 election, which saw the far-right Alternative for Germany (AfD) enter the Bundestag (national parliament) for the first time.

In their joint blueprint, the parties agreed on key policy outlines - to join European Union partner France in a push to "strengthen and reform" the eurozone, to limit the influx of asylum seekers to Germany to around 200,000 a year, and to refrain from tax hikes given the healthy state of state coffers.

SPD Parliamentarian Hilde Mattheis, who opposes a grand coalition, told the daily Schwaebische Zeitung that the mood in her party "is still very fragile".

After more than 24 hours of n egotiations there were reports of an agreement between the negotiators.

But he has been forced to wait for months for a concrete response from Mrs Merkel, who has come under mounting criticism at home and overseas for her plodding reaction, aggravated by her failure to form a new government.

European Commission President Jean-Claude Juncker hailed as "positive" plans for Europe in a deal that brings Merkel a step closer to forming a coalition government.

The SPD used to be part of a coalition with an alliance headed by Merkel - comprised of the Christian Democratic Union (CDU) and the Christian Social Union (CSU). "But let's be optimistic, it's a really good start to discuss the future of Europe", said Baasner.

The prospective partners have governed Germany together for the past four years but Schulz, Merkel's defeated challenger in Germany's September 24 election, initially said after the Social Democrats crashed to a disastrous result that they would go into opposition.

Janes said this could be looked at through a "bifocal lens" - a weaker Germany would mean there would be less of a European united front on, say, trade, in the E.U.

Merkel won German elections last September, but did not achieve majority enough to form a government. Party leaders were expected to provide details of their agreement at a press conference around midday Friday after internal deliberations.

The all-night session confirmed the doubts of leading SPD opponents to another grand coalition, who favour rebuilding their party in opposition.

But another participant in the talks said the two blocs were still struggling to find common ground on the most divisive issues - taxes, pensions, migration and healthcare.

"The longer talks take the more open things are", said Mr Kevin Kühnert, head of the SPD youth wing, to Berlin's Inforadio.

German President Frank-Walter Steinmeier appealed to negotiators on Thursday to consider their responsibility towards Europe, not just their own parties and political futures.

The Chancellor was eager to avoid any repeat elections or attempt at a minority government.

He said the terms of the deal were "more favorable" for his vision of a reformed EU than a separate agreement that was discussed and abandoned between the Union and the pro-business Free Democratic Party (FDP) in November previous year. But they are also decisions that can not be taken by a caretaker government.

Merkel ruled with the SPD in two of her three terms in office, including in the last parliament from 2013-2017.

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