Mrs Merkel has handed all the top ministries in Germany, including finance and foreign, to the SPD - the price the party demanded to form a government with her following an indecisive general election past year which saw her party's majority slashed by the anti-immigrant Alternative for Germany upstarts.
The SPD, Christian Democratic Union (CDU) and the Christian Social Union reached the coalition deal on Wednesday, which will possibly end the new government vacuum since the September 24 federal election, the longest period ever since 1949.
Many young and leftist members are against the renewed so-called Grand Coalition between the SPD and the Union.
But in the end it appears it was the party leadership's fears that the row over Mr Schulz could lose them the vote on the coalition deal that finished him off. Michael Groschek, the head of the party's biggest regional association, is said to have been given the task of telling Mr Schulz he had to go.
The perception among SPD activists that Schulz had constructed a life raft from the wreckage of an election disaster led many analysts to predict that the party's rank and file membership would not authorise the coalition deal sealed just two days ago.
He had previously ruled out both repeating the "grand coalition" for a third time under Merkel, and serving as a minister in her cabinet.
There was no sign of an imminent end to talks between Merkel's Union bloc and the Social Democrats early Wednesday, some 21 hours into what party leaders have said should be the final round of negotiations.
Soraya reports Wednesday on Morning Edition that thegovernment "is moving more to the center on health and welfare benefits for Germans, especially seniors", but that "the ultra-conservatives in the coalition also won a key concession on refugees: There will now be a cap, more or less, of about 200,000 per year and a half-year delay on refugee family reunification, and a maximum, 1,000 relatives per month being allowed to come Germany when that delay is over".
The coalition agreement "certainly won't simply be waved through", CDU MP Sylvia Pantel told mass-market daily Bild. His announcement upset the incumbent, Sigmar Gabriel, who bemoaned the "lack of respect" his labors had received. He also wants to create the post of European Union finance minister. He was officially elected by a party congress with 100 percent of the vote. Paul Ziemiak, leader of the bloc's youth wing, called for a broad discussion about the longer-term future of Merkel's Christian Democratic Union (CDU) and its leadership.