World Bulletin / News Desk

Chancellor Angela Merkel's conservatives reached a "breakthrough" deal Friday with Germany's second biggest party, the Social Democrats, toward building a new coalition government, sources close to the negotiations said.

In the all-night negotiations in Berlin, Merkel and her Christian Democrats, Horst Seehofer of her Bavarian allies the CSU and Social Democrats (SPD) chief Martin Schulz hammered out a 28-page paper that will form the basis for the talks ahead.

In their blueprint, the three parties agreed on key policy outlines -- among them to join EU partner France in a push to "strengthen and reform" the 19-member eurozone, to limit the controversial influx of asylum seekers to Germany to around 200,000 a year, and to refrain from tax hikes given the healthy state of state coffers.

Despite the deal, potential pitfalls remain, including votes by sceptical SPD delegates and then party members that could yet derail plans for another left-right "grand coalition", the constellation that has ruled Germany for the past four years and remains in charge as a caretaker government.

Germany has been in political limbo since a September 24 election in which Merkel failed to win a clear majority -- in part due to the rise of the far-right and anti-immigration Alternative for Germany (AfD) which took millions of votes from all major parties.

Merkel initially turned to two smaller parties, the Free Democrats and Greens, to form a new coalition government for her fourth term, but when those talks collapsed in November, she had to once more woo a reluctant SPD for a new power pact.