Germany's Christian Democrat (CDU) leader Angela Merkel is on course to become the country's first woman chancellor, after the two largest parties agreed yesterday to begin coalition talks.
Dr Merkel said it remained to be seen whether a new government, what she called a "coalition of new opportunities", would emerge from the talks. "But I am determined to go this route with optimism and the absolute will to do something good for our country."
Dr Merkel said she had reached "a good and fair" deal that would end Social Democrat Gerhard Schröder's seven years in office.
Social Democratic (SPD) leader Franz Müntefering was far more cautious, saying yesterday's agreement was a "building block" but not a coalition agreement in itself.
The agreement came three weeks after a general election which left neither side with a parliamentary majority in its preferred coalition.
The door has been opened to a grand coalition, only the second in Germany's post-war history.
The two sides face a month of difficult negotiations, bridging the gaps between two contrasting election programmes to the satisfaction of their respective parties.
Both parties went into the election with largely contradictory tax and healthcare reform proposals, and may clash on Turkey's hopes of joining the EU. The SPD supports and the CDU opposes Turkey's EU ambitions.
Dr Merkel has said her priorities would be to tackle mass unemployment of over 10 per cent, deficit consolidation and to simplify decision-making between Germany's government and the federal states, which is blamed for slowing-up progress.
The promise of power has come at a high price for Dr Merkel, the 51-year-old pastor's daughter from the former East Germany.
To break a three-week deadlock and secure her claim to the chancellery, the CDU has agreed to give the SPD eight cabinet posts in a future government.
The agreement appears to have ended Mr Schröder's seven years as chancellor, but he declined to comment on his future yesterday, saying only that he will participate in the coalition talks.
Mr Schröder will also be needed to sell any coalition deal to SPD rank and file at a party conference next month.
The euro rose briefly after news of the breakthrough, but sank yesterday afternoon as the reality sank in that, in a grand coalition, Dr Merkel does not have the mandate to push through her plans for the euro zone's largest economy.