Following elections on September 27, Merkel's Christian Democrats (CDU) and their Bavarian CSU allies were able to ditch her previous coalition partners, the centre-left Social Democrats (SPD), for the pro-business Free Democrats (FDP).
Here follows a brief summary of the centre-right coalition's main policy aims:
TAX: The main sticking point in the coalition talks, the new government wants to implement €24 billion ($36 billion) worth of tax cuts over the next four years in spite of Germany's debt moutain. The new government argues that the economic growth that the cuts will trigger will help cover the cost, together with as yet unspecified reductions in public spending.
FOREIGN POLICY: Germany wants to speed up the transfer of responsibilities to the Afghan government so that foreign troops, including Germany's 4,400, can leave. It also wants all remaining US nuclear weapons withdrawn from German soil.
EUROPE: The FDP succeeded in softening somewhat Merkel's position on Turkish membership of the European Union, meaning that Germany's official position will stay: Turkey is not yet ready to join, membership is neither automatic nor guaranteed and the EU must be able to absorb it.
ENERGY: The new government wants to effectively scrap the 2000 decision to abandon nuclear power by around 2020 by extending the life of some reactors, keeping nuclear as a "transition energy" until renewables like solar and wind power can produce more. Utility firms' profits from nuclear should go towards developing renewables.
LABOUR MARKET: After the far-reaching changes adopted by Merkel's predecessor Gerhard Schröder, the FDP failed to convince her party to go further and make it easier for firms to hire and fire workers. Germany's powerful trade unions had warned of mass protests. There will be no universal minimum wage.
HEALTH CARE: The creaking system was another sticking point in the coalition talks, with Merkel resisting demands from the FDP to give the private sector more clout. Changes will be hammered out by a special committee, but the coalition wants to change the way premiums are set. Employer contributions are set to be frozen, however.