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16-year Merkel era draws to a close as Olaf Scholz seals pact for new coalition to take over in Germany

Angela Merkel, Chancellor of Germany.

The 16-year Angela Merkel era draws to an end, with Social Democrat Olaf Scholz sealing a deal to form a new governing coalition in Germany on Wednesday that aims to modernise Europe's largest economy and speed up the green agenda.

The Centre-left alliance between the Greens, the liberal Free Democrats (FDP) and Scholz's centre-left SPD paves the way for Scholz, 63, to replace Merkel as Chancellor.

The three parties with different ideologies have come together in what is called a traffic light coalition that gives them a majority in the lower house of parliament. The new government will be sworn in early next month after they ratify the 177-page coalition pact.

Named after the colours of the three parties, the traffic light alliance will bring a new era of relations with Europe, and plans to speed up digitalisation of the economy while maintaining fiscal discipline.

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Merkel was a towering leader and leaves behind a huge legacy as she guided Germany and Europe past several crises and championed the cause of liberal democracy in the face of a rising wave of authoritarianism worldwide.

However, her critics say she has managed rather than solved problems and leaves her successor facing a difficult situation on several issues.

The incoming government faces immediate challenges as COVID-19 cases are surging again. Europe is also still struggling with the fallout from Brexit and a crisis on the European Union's border with Belarus.

Scholz, 63, who was finance minister in the outgoing Merkel-led coalition of the SPD and Conservatives, said that fighting the COVID-19 pandemic would be his top priority.

But his coalition also has an ambitious agenda which includes a big push to renewable energy and a quicker exit from polluting coal, according to the pact.

Olaf Scholz is also promising the “biggest industrial modernisation of Germany in more than 100 years”. He said the agreement would pave the way for Germany to become a “pioneer on climate protection”, adding that “we will invest massively to maintain Germany’s status as a world leader”.