A green light could see a new Merkel-led government in place by the end of next month.
The country has been in limbo since the September 24 election, breaking its record for the longest time between an election and the swearing-in of a new government.
After weeks of negotiations, Germany's main political parties have finally reached an agreement to govern together. Germany's highest court said on Wednesday it had dismissed a series of complaints against the ballot.
The European Commission declined to comment on the German coalition agreement, but did say that it was examining "all possible policy options" and would come forward this spring with new rules for digital taxation.
Many Social Democrats argue that being in a coalition with Ms. Merkel is moving their party to the right and eroding its identity, and that entering a new coalition would leave Alternative for Germany as the leading voice of opposition.
"In 2013, 76 percent of members voted in favour of approving going into a coalition with Merkel", he said.
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Schulz's zigzag course has undermined his authority.
"We have a coalition agreement that will do a lot of positive things for a lot of citizens", Altmaier told reporters after he emerged from more than 24 hours of contentious talks.
According to dpa, the Social Democrats were set to get the foreign, labour and finance ministries - the latter a major prize, held by Mrs Merkel's party for the past eight years.
The conservative bloc and the Social Democrats began talks about renewing their alliance after Merkel's coalition talks with two smaller parties collapsed last November.
His party reached compromises on two key demands: curbing the use of temporary work contracts in larger companies and at least considering narrowing differences between Germany's public and private health insurance systems.
Bavaria's Christian Social Union, which is tougher on immigration than Merkel, would lead the interior ministry.
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Peter Altmeier, one of Merkel's closest allies, and finance minister since September, was expected to become economy and energy minister.
That the division of cabinet responsibilities resembles that of Mrs Merkel's first government from 2005, when unlike now the SPD had nearly as many MPs as the CDU/CSU, speaks to the scale of the concession.
"After so many years in which Wolfgang Schaeuble held the finance ministry, himself becoming an institution, it was hard for many of us that we couldn't hold on to that ministry", Merkel said. "But we have important jobs". It gets the defense, economy, education, and agriculture ministries.
She dismissed suggestions that Social Democrat-led ministries would force her to open Germany's purse wider for Macron's European reform proposals than she would like.
A Social Democrat finance ministry - replacing pro-austerity Wolfgang Schäuble - is more likely to go along with French President Macron's ambitious plans for European Union reform, by allowing more German support for struggling eurozone economies.
"You ask yourself why Mr. Macron doesn't just move into the chancellery", he said.
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Data on Friday showed the year-on-year increase in average hourly earnings rose to 2.9 percent, the largest rise since June 2009. Tuesday morning's initial nose dive came after two consecutive days of negative trading, including a 600 point drop on Friday.