Berlin, Germany (CNN) -- German Chancellor Angela Merkel's party, the Christian Democratic Union, will formally join with two other parties on Monday to form a new center-right government.
The deal with Bavaria's Christian Social Union and the Liberal Democratic Union was announced Saturday by the CDU.
Merkel will remain chancellor under the agreement to be signed Monday. Guido Westerwelle, head of the Liberal Democrats, will become foreign minister, German media reported.
The new coalition says it wants to cut taxes, consolidate household spending and reform the German health care system as the country claws its way out of recession.
A main point of dispute between the Christian Democrats and the Liberal Democrats had been the level of possible tax cuts.
German public finances are in shambles because of government stimulus spending aimed at softening the effects of the global financial crisis and put into effect by the previous coalition government of the CDU and Social Democrats.
Saturday's announcement of plans for a new government capped almost three weeks of negotiations after September 27 elections, in which Merkel won a second term and the Liberal Democrats gained a substantial piece of the popular vote.
CNN's Frederik Pleitgen contributed to this report.