On Friday, German Chancellor Angela Merkel's conservatives and the centre-left Social Democrats (SPD) pledged to work closely with France to strengthen the eurozone, saying they were open to creating an "investment budget" for the currency bloc.
The 28-page deal reached in a marathon negotiating session that lasted more than 24 hours at the end of almost a week of talks was enough for leaders of Merkel's two-party Union bloc and the Social Democrats to recommend moving on to formal coalition negotiations.
Since the September 24 federal elections Germany has not yet formed a new government so that Merkel's caretaker government could not make major policy changes on any issues.
On Friday morning, after 24 hours of talks, Germany's prospective coalition partners signalled it would back the deployment of European Union budgetary funds to stabilise euro zone economies.
At the start of the final day of exploratory talks that could lead to formal negotiations, Merkel said it would be an arduous day but she recognised that Germans expected results.
But he has been forced to wait for months for a concrete response from Mrs Merkel, who has come under mounting criticism at home and overseas for her plodding reaction, aggravated by her failure to form a new government.
While the main issues were refugees, climate goals, social security, and the relationship with Europe, taxes and the ability to pay for new programs appear to have been the sticking point overnight.More news: California mudslide response turns from rescue to recovery
"Together, we are determined to use Germany's strength, both economically and politically, to make Europe a grand project again", said Martin Schulz, leader of the SPD, at a news conference with Merkel after the marathon talks. Despite the challenges ahead, the news buoyed markets and sent the euro to a three-year high of $1.2138.
The conservatives also performed poorly in the election, and the three coalition parties' support dropped by a total of almost 14 percentage points.
The German parties' glacial place in setting up a new administration is testing the patience of voters who gave Merkel's Christian Democratic-led bloc the most votes in the September 24 contest.
They pledged to fight tax dumping and evasion in Europe, pushing for "fair taxation of big companies" including the internet giants Google, Apple, Facebook and Amazon, and called for unspecified minimum rates for corporate tax.
"In the long time since the elections, we have seen that the world is not waiting for us", Merkel told reporters on Friday. The SPD leader plans to tour local party chapters next week to sell the deal, while the SPD's youth organization plans protest rallies to lobby against it. "We are convinced that we need a new awakening for Europe".
European Commission president Jean-Claude Juncker said the deal was "significant" and "positive" for the EU's future, while French President Emmanuel Macron said he was "satisfied and happy" that the deadlock was broken.