Germany's two leading political parties signed a coalition deal on Friday, formally setting aside decades of rivalry exactly two months after an election in September that gave neither side victory.
The conservatives of chancellor designate Angela Merkel and the Social Democrats (SPD) put pen to paper to form Germany's first "grand coalition" of the traditional opponents since 1969.
The almost 190-page document lays out plans to rein in Germany's public sector deficit, raise sales tax by three percentage points to 19 percent in 2007 and seeks to promote economic growth with a multi-billion euro investment programme.
"Will we ensure that by 2009 people say 'Yes, for me personally it's a bit better than in 2005'?" Merkel said before the signing near the Reichstag.
"I say this agreement offers every chance that we are able to answer the people, who ask if things will be better, with a united and clear yes," she continued. The Bundestag, the lower house of parliament, is expected to back Merkel as Germany's leader in a vote due next Tuesday.
Matthias Platzeck, the new SPD chairman, said Germany urgently needed more growth. Europe's largest economy is saddled with some of the lowest growth rates and unemployment at 11 percent, just below record post-war highs over five million.
"We are in the middle of an upheaval, probably the biggest upheaval since the foundation of the federal republic," Platzeck said, adding that the new government would need to prepare Germany's social security system for future challenges.
Germany's ageing population means its health and pension costs are rising while contributions from a diminishing workforce are sinking.
Industry has complained that the new government's promises of higher taxes will stall Germany's fragile recovery.
The German public doubt that the coalition government, forged in talks lasting a month, will last the full four-year term, according to opinion polls.
The first sign of a spat emerged on Thursday when Social Democrat Health Minister Ulla Schmidt outlined her ideas in newspaper interviews.
The conservatives complained she was pushing through her party's model of a unified health insurance for all Germans. The parties had agreed to delay any decision over financing of the expensive health system until 2006. Politicians of both parties are aware of the precarious nature of the agreement with their natural opponents, and called for both sides to work hard to bridge differences.
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