Germany's main political parties have sealed an agreement to create a coalition government of traditional rivals under the leadership of conservative Angela Merkel.
"The coalition agreement is completed," Ms Merkel told a news conference. "I'm convinced that the coalition creates a genuine opportunity for Germany."
The Christian Democrats (CDU) and the Social Democrats (SPD) had already reached an understanding on a range of contentious financial issues going into the final round of talks today and cleared up outstanding issues in time for the deadline they had set themselves for tomorrow.
The pact, which corresponds with details announced earlier, paves the way for Ms Merkel to become the country's first woman chancellor, and its first leader from the former communist East.
She will head a potentially unwieldy bipartisan government of traditional rivals after the inconclusive election on September 18th left neither side able to form a majority of its own.
But it will be able to operate without crippling opposition from the Bundesrat, the upper house of parliament, which has blocked reform efforts by governments of both sides in the past.
In almost a month of surprisingly harmonious talks, the conservatives and the SPD have bridged differences that bitterly divided them during the campaign.
At the heart of the deal is an agreement to bring Germany's ballooning budget deficit back within European Union borrowing limits by 2007.
They will have to find some €35 billion in savings or extra revenues to meet the target and have agreed to adopt tax hikes that have already sparked loud opposition from the media and lobby groups.
Peter Mueller, conservative state premier of Saarland confirmed that Value Added Tax (VAT) would be raised by three percentage points to 19 per cent from 2007, the most controversial part of the agreement.
Some economists have said it could stifle already weak consumer spending in Germany.
Mr Mueller said that two percentage points of the hike would be used to consolidate Germany's strained finances, with one point to be used to finance a cut in non-wage labour costs. He also said that the top rate of tax of 42 per cent would be raised by three percentage points for people earning more than €250,000 a year, but that small businesses would be exempt from this.
A survey today for ZDF television showed 63 per cent of Germans against the planned hike.
The parties also agreed to some loosening of job protection measures and plan a €25 billion research and infrastructure investment programme to boost growth, although some of that total includes previously announced investments.