Weakened by an election setback in September, Merkel turned to the left-leaning SPD to renew their grand coalition after the collapse in November of talks on a three-way coalition with the Greens and Free Democrats (FDP).
"Even though these pre-coalition talks are meant more as a getting to know your partner, they really have become coalition talks", said Thomas Meyer, a political scientist at the University of Vienna, noting that final negotiations are increasingly based on the points hammered out during preliminary talks.
The VdK, representing 1.8 million members, also welcomed the prospective coalition's intention to fix acute shortages of nursing personnel for senior residents but said access to basic pensions for the poor was far from everyday reality. "But I don't think we need a new instrument to do so", he said.
Dr Merkel wants to conclude negotiations on forming a coalition government by mid-February, a source in her conservative party said on Friday (Jan 12).
SPD Chairman Martin Schulz was addressing those members when, standing alongside Merkel, he told reporters that the outline deal would preserve and strengthen Germany's welfare state for future generations.
But he has been forced to wait for months for a concrete response from Merkel, who has come under mounting criticism at home and overseas for her plodding reaction to Macron, aggravated by her struggle to form a new government.
Merkel initially attempted to form a coalition with two smaller parties.
"This is good news for Europe", Gentiloni said in a series of tweets.
The conservatives also performed poorly in the election, and the three coalition parties' support dropped by a total of almost 14 percentage points.
As for migration policy, the three parties agreed to would limit the number of refugees entering the country to between 180,000 and 220,000 per year.
Christian Democrat and Social Democrat leaders also agreed to lower the tax surcharge introduced to fund the reunification of east and west Germany by €10bn (£9bn) by 2021.
The parties pledged to fight tax dumping and evasion in Europe, pushing for "fair taxation of big companies" including internet giants Google, Apple, Facebook and Amazon, and called for unspecified minimum rates for corporate tax.
But as hopelessness in the early hours of Friday gave way to cautious optimism in the morning, the steepness of the climb ahead remained evident: All three leaders must now secure the support of their party hierarchies.
The two parties also stress Europe's role in peace and global responsibility in the document, clearly rejecting protectionism, isolationism and nationalism and calling for more worldwide cooperation.
Merkel now leads a caretaker government, limiting her ability to take major policy initiatives as French President Emmanuel Macron pushes an ambitious European reform agenda.
European Commission President Jean-Claude Juncker said he was "very satisfied" with the content of the deal.
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