German parties near coalition deal; Merkel bids colleagues farewell

Finance Minister Olaf Scholz was on the verge of succeeding Angela Merkel as German Chancellor on Wednesday after three parties announced they were ready to present a coalition deal to govern Europe's largest economy.

Scholz's centre-left Social Democrats announced a news conference for 3 pm (1400 GMT) to present the results of a final round of talks with the ecologist Greens and the libertarian Free Democrats (FDP).

Presiding over what could be her final cabinet meeting, Merkel bade her colleagues farewell, and Scholz presented the European Union's longest-serving leader with a tree to plant in her garden, according to a person at the meeting.

The deal will install the first three-way federal coalition government in Germany since the 1950s and end 16 years of Merkel-led conservative government, marking a new era for the country's relations with Europe and the rest of the world.

The alliance - named a traffic light coalition after the three parties' respective colours - has said it will modernise the economy by upgrading its infrastructure and accelerating measures to protect the climate.

It has immediate challenges, with Germany facing its worst Covid-19 surge yet and Europe grappling with the fallout from Brexit and a crisis on the EU's border with Belarus.

Sources told Reuters on Tuesday that the parties had agreed to commit to a coal phase-out by 2030 and to end power generation from gas by 2040.

Some political analysts fear the parties will struggle to bridge their ideological divides, which could in turn paralyse the 27-nation European Union, in which Germany is a driving force.

The parties have so far defied predictions that their coalition talks could last into next year or fail.

While the Greens and SPD are widely seen as natural centre-left partners, the fiscally hawkish FDP have historically been closer to Germany's conservatives.

The main obstacle in talks were divisions on how to finance the transition towards a green economy, according to sources close to the talks.