Social Democrats agree to join chancellor's Union bloc in government, though party members must vote on plan first

Chancellor Angela Merkel's conservatives and Germany's main centre-left party have reached an overnight deal to form a new government, more than two months after the country's elections.

Negotiators from Merkel's Union bloc and the Social Democrats concluded their agreement to form a "grand coalition" of Germany's biggest parties after a final all-night round of talks.

A hurdle remains before Merkel can be sworn in for a third term: the Social Democrats are putting the agreement to a ballot of their roughly 470,000 members, some of whom are deeply sceptical about becoming the chancellor's junior partner. The result is expected in mid-December.

Merkel won the election on 22 September but her partners in Germany's centre-right government of the past four years, the pro-business Free Democrats, lost all their seats in parliament and her conservatives fell short of a majority to govern alone. That left her reaching across the aisle for a new coalition partner.

The Social Democrats secured key demands such as the introduction of a mandatory national minimum wage, which Germany is unusual among rich industrial powers in lacking. The €8.50 hourly minimum is to be introduced in 2015 but Julia Kloeckner, a deputy leader of Merkel's party, said it would not apply to everyone without exception until the beginning of 2017.

In addition people born and educated in Germany who also hold a passport from a non-European Union country will no longer be obliged to choose one citizenship, a change that will apply largely to the children of Turkish immigrants.

Both sides secured changes to the pension system that they had sought and Kloeckner stressed on ZDF television that "we will have no tax increases and we will run up no new debts from 2015". The conservatives adamantly refused to raise taxes, which the Social Democrats had advocated during the election campaign.

Negotiators said the parties would not allocate jobs in the new government until the Social Democrats completed their membership ballot. That could be tricky because the "grand coalition", while popular among voters, is disliked by party activists and the Social Democrats suffered a heavy electoral defeat in 2009 after serving as Merkel's junior governing party in her first term. The party finished a distant second in this year's vote.

"The Social Democratic signature on this coalition agreement is everywhere," said senior Social Democratic lawmaker Karl Lauterbach. He added that "we succeeded on the most important points" but conceded that party leaders will have to overcome "many reservations" among members.

In the meantime Merkel's second-term government remains in office on a caretaker basis.