German parties meeting for a final marathon session to form a coalition government moved closer to a deal tonight as conservative sources said agreement had been reached on key tax and budgetary issues.
Conservative politicians who declined to be identified said the conservatives led by Angela Merkel had agreed with the Social Democrats (SPD) to raise value added tax to 19 per cent from 16 per cent from 2007.
Most of the estimated €20 billion to €24 billion expected to be raised by the move would be used to fill holes in the budget but a portion would go towards cutting non-wage labour costs.
They had also agreed to loosen job protection laws by extending probationary periods during which the rules applied to 24 months from six months at present.
But key issues, including conservative demands to extend the life cycle of nuclear power plants remained unresolved and will be the subject of further talks during the night.
Politicians from both camps cautioned earlier that no final agreement could be sealed before a comprehensive coalition accord is secured. They have set a deadline of Saturday.
The conservatives narrowly edged Chancellor Gerhard Schroeder's SPD in an election on September 18th but were forced into coalition talks with the party because of the tight result.
Leaders from the three parties involved in the talks - the conservative Christian Democrats (CDU), their Bavarian Christian Social Union (CSU) sister party, and the SPD - met in the early afternoon to iron out remaining differences.