"We are waiting for this quite impatiently".
The news that Europe's biggest economy could end political uncertainty after a September 2017 election delivered a hung parliament boosted the euro and pushed investors away from safe haven German bonds.
Sources said both parties had also agreed that the share of renewable energy in Germany's electricity consumption should rise to 65 percent by 2030 from roughly a third previous year.
Part of the agreement involved calls for increased German financing for the European Union so it can strengthen its institutions.
"I am quite satisfied", he said.
Germany is unfamiliar with the long negotiations that mark coalition building in many neighbouring countries.
"Angela Merkel is past her zenith", Oskar Niedermayer of Berlin's Free University told business daily Handelsblatt. The euro's lack of a central fiscal pot to even out recessions has been discussed as one its weaknesses.
Her Christian Democrats (CDU) and their Christian Social Union (CSU) Bavarian allies promised tax relief during campaigning for September's election and the initial agreement to raise the bar indicates the SPD is willing to compromise.
Details were expected to be released later in the morning.
Early Thursday, Merkel had expressed optimism about a deal, telling reporters in Berlin that "large obstacles" remained but she meant to push for new compromises.
"Good news seems to be coming out of Germany", spokesman Benjamin Griveaux said on Friday, adding that France hoped and members from both parties would accept the accord.
The Social Democrats plan to meet January 21 for a party conference in Bonn to discuss next steps.
The agreement between party and parliamentary leaders should pave the way for detailed negotiations in coming weeks, lifting the uncertainty that has undermined Germany's role in worldwide affairs and raised questions about how long Merkel will stay in her job.
Germany's would-be coalition partners have made progress in talks on power-sharing, with draft documents showing they have agreed to support cleaner combustion engines, but on Thursday the two sides will tackle the issues that divide them most.
Even if coalition negotiations prove fruitful, it remains unlikely the new government would take office before April.
She says "many, many hours of work, serious wrangling and shaping are contained in these 28 pages".
Chancellor Angela Merkel was struggling Friday to find a coalition deal with Germany s second biggest party, as a last-ditch round of negotiations goes down to the wire with "big obstacles" left to clear.
If talks fail, Merkel's only remaining options will be to form a minority government or hold new elections.