German Chancellor Angela Merkel said on Wednesday her conservatives had made painful concessions to the Social Democrats (SPD) to secure a coalition deal that should give Europe's powerhouse a new government after months of political paralysis.

Heralding a shift in Germany's euro zone policy, the SPD will take the finance ministry, a post held until recently by conservative Wolfgang Schaeuble, loathed in the euro zone's indebted periphery during his eight-year tenure for his rigid focus on fiscal discipline.

SPD leader Martin Schulz, who now needs his party's grass roots to approve the deal in a postal ballot, said this week that the SPD had ensured the coalition would stop "forced austerity" and set up an investment budget for the euro zone.