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German Chancellor Angela Merkel's Christian Democratic Union (CDU) received a boost on Sunday as the Social Democratic Party (SPD) agreed to form a "grand coalition" government with them, ending months of political uncertainty across the country.

European partners waiting impatiently for Germany to end its longest stretch of coalition haggling since the end of the war heaved a sigh of relief, with French President Emmanuel Macron calling the SPD decision "good news for Europe".

"France and Germany will work together on new initiatives in the coming weeks to bring the European project forward", the President's office said in a statement.

The center-left Social Democrats voted overwhelmingly to remain in a coalition with Merkel's conservative bloc, after hard and drawn-out negotiations triggered by September's elections, which saw the rise of a new right-wing force in German politics and raised questions about Merkel's future.

Macron's ambitious reform plans for further integration of the euro zone had been put on hold for months by the absence of a new government in Germany.

Addressing party activists lining the balconies around the atrium of the party's Berlin headquarters early on Sunday, acting SPD leader Olaf Scholz said: "We now have clarity: the SPD will join the next German government".

Merkel, who has been in power for 12 years, posted on Facebook "I congratulate the spd on this clear result and look forward to further cooperation for the good of our country". The party had initially planned to go into Opposition after its worst election result since Germany became a federal republic in 1949. "I'm happy it worked out this way", said Andrea Nahles, the SPD's likely next leader.

Scholz declined to comment on reports that he would be finance minister, saying only that the SPD would appoint three men and three women to the federal cabinet. It includes key proposals of the SPD and assigns major ministries such as finance and foreign affairs to the SPD. Of 362,933 valid postal ballots, some 239,604 members backed entering the grand coalition - 66 per cent support - while 123,329 opposed.

Both sides had been weakened as voters angry about the arrival of more than a million asylum seekers in Germany since 2015 turned to the far-right party Alternative for Germany (AfD).

SPD left-wingers and its vocal youth wing campaigned for a return to the opposition benches, as was promised on election night last September. "The SPD needs to be more like it has been in recent weeks and less like it has been in recent years - the Jusos will ensure this", he tweeted. Turnout in the poll was over 78%. This forced Merkel to negotiate with two smaller parties, one of which eventually rejected a deal.

Many Social Democrats, particularly on the left, had argued that the party failed to make its mark on the last government and wouldn't benefit from propping up Merkel for another term.