Germany's two largest parties to join 'grand coalition' after chancellor gives ground on minimum wage and rent controls

More than two months after the German general elections, Angela Merkel's CDU party has reached an agreement to form a coalition government with the Social Democrats.

After a 17-hour negotiating session over beer and chicken curries, the country's two largest parties finally came to an agreement to form a "grand coalition" at around 5am on Wednesday. A leaked draft of the coalition treaty(pdf) was published on Monday evening on the website of Green politician Malte Spitz.

Merkel had secured her party an unprecedented 42% of the vote at the elections on 22 September, but her party's traditional coalition partner, the Free Liberal Democrats, had failed to clear the 5% hurdle required to get into the Bundestag.

She faces one more obstacle before she can be sworn in for a third term as chancellor: the Social Democrats (SDP) will next month put the agreement to a ballot by its members – some of whom remain deeply sceptical about becoming Merkel's junior partner.

Sigmar Gabriel, the head of the SPD and its vice-chancellor-designate, achieved a number of victories during the negotiations, including the introduction of a minimum wage and rent controls in some major cities.

Dual citizenship is another policy requirement that has made its way from the Social Democrats' party manifesto into the coalition treaty. Currently, people born and educated in Germany who also hold a passport from a non-EU country still have to choose one citizenship by the age of 23.

The treaty also includes a lowering of the pension age from 67 to 63 for those who have contributed to the system for more than 45 years, as called for by the SPD.

But critics on the left have claimed that Social Democrat policies only made their way into the treaty in watered-down form. A minimum wage of €8.50 an hour will be introduced in 2015, but won't come into full effect until 2017, thus potentially giving employers time to negotiate exceptions.

Bernd Riexinger, the co-chair of the leftwing party Die Linke, said: "That is not what a turn for social justice looks like. I don't recognise the Social Democrats' signature in this."

The coalition agreement also includes plans for a road charge on foreign drivers – a key demand by the Bavarian Christian Social Union that Merkel had initially rejected before the elections. Another key CDU/CSU demand that made it into the final document is that German should be made one of the official working languages of the EU alongside English and French.

The challenge for the next German government will be to try to realise these policy proposals without raising taxes: €23bn are set aside to spend on the new policies, with no further borrowings after 2015.

A copy of the coalition treaty will be sent to all 475,000 members of the Social Democrat party, who will cast their vote in early December.

Ministers won't be named until the outcome of the membership ballot is clear. Over recent weeks, figures on the German left had suggested that party members should only approve a grand coalition if it could claim the all-important finance ministry. Prominent SPD members such as the authors Günter Grass and Bernhard Schlink have opposed another coalition with Merkel's CDU.

Andrea Nahles, the SPD general secretary, said she believed that her party base would recognise the victories achieved during the negotiation process. She said: "I think with a result like this, we are much closer to a yes than a no."

If passed, then Merkel would be voted in on 17 December and the new government would get to work on the same day.