Merkel to Become German Chancellor

Angela Merkel is set to become the new German chancellor after the country's two biggest parties today concluded a power-sharing agreement.

The deal - which ends a three week stand-off following the September 18 election - means Gerhard Schröder will resign and Ms Merkel will become both the first woman and the first former East German to lead the Berlin government.

But Mr Schröder's Social Democrats (SPD) extracted a heavy price from Ms Merkel's Christian Democrats (CDU) for accepting her as chancellor.

The SPD has come out of the deal with eight cabinet seats - two more than the CDU - and control of the foreign, finance, justice, labour, health, transport, environment and international development ministries.

The CDU will take the defence, interior, agriculture, families and education portfolios. Edmund Stoiber, the leader of the CDU's Bavarian sister party, is to become the economy minister.

Ms Merkel's party took the largest number of seats in the Bundestag, the German parliament - but with only four more MPs than the SPD, it could not engineer a sufficient margin to form a governing coalition with other centre-right parties.

A so-called "grand coalition" between the two parties became increasingly likely after the SPD first ruled out an alliance with the Left party.

The Left party, led by the former SPD leader Oskar Lafontaine, had sought to capitalise on disenchantment with Mr Schröder's economic reforms.

The Greens, citing differences over social policy and nuclear energy, then put a stop to speculation of a coalition with the CDU and the Free Democrats.

The talks were opposed by the left wing of the SPD, which regards Ms Merkel as too neo-Thatcherite to become chancellor.

The deal must still be approved by both parties and the Bundestag. A coalition needs 308 seats for a majority in the 614-seat chamber, which means the CDU and SPD leaderships - with 226 and 222 MPs each - could suffer a rebellion in their parliamentary parties and still get their arrangement approved.

Outside Germany, Ms Merkel's rise to the chancellorship was being treated as a done deal.

France's governing party, the UMP, said it was "good news for Germany and for Europe", while Javier Solano, the EU's foreign policy chief, offered his congratulations.

The Nato secretary general, Jaap de Hoop Scheffer, said: "It is really important for a woman to become leader of the German Federal Republic."

It is not yet known whether Mr Schröder will have a role in the new government. He and Ms Merkel began a final round of talks at the end of last week to determine who would head the government. They met early this morning after running the preliminary deal past party officials.

The SPD leader, who has been chancellor since 1998, said at the beginning of last week that he would not stand in the way of a grand coalition.

However, the SPD was believed to want to keep him in office and alive as a bargaining chip in order to secure a better deal from the CDU.

The SPD-CDU grand coalition is Germany's first since the 60s. Ms Merkel has said the arrangement would "not be the lowest common denominator" but would instead be a "coalition of new possibilities".