Editorial

It could have been worse. Gerhard Schroeder could have continued to provide Germany and the world with the unedifying sight of a Chancellor fairly beaten refusing to give up his position to the victor in last month's election, Angela Merkel. The final result in Dresden must have brought Mr Schroeder to his senses. A deal has been struck and Ms Merkel is the new Chancellor of Germany. Mr Schroeder goes but the SPD receives eight seats in the Cabinet to the CDU's six.

Mercifully for the country and for Europe, the prospect of a long drawn out bitter wrangle between Mr Schroeder and Ms Merkel has been avoided. Both leaders clearly failed in their initial bid to create either a "Jamaica" coalition (CDU/CSU/FDP) or a "traffic light" coalition (SPD/Greens/FDP). Germany is back in business; or so it is hoped.

If Ms Merkel is given a fair chance at government as the leader of a grand coalition, a number of chancelleries across Europe and in the United States will be reassessing their relationship with a new Germany and everybody will breathe a sigh of relief that the centre of Europe is once more operational.

How this decision will work with the electorate remains to be seen. Leader of the Christian Democrats though she is, Ms Merkel's election campaign was lacklustre. A lead of 20 percentage points was subsequently reduced to what was nearly a photo finish on the day. Now she is Chancellor, she will want to stamp her authority on the government as swiftly as possible and to get down to the hard work ahead. She is very aware that the country's near-stagnation for the past three years has held the rest of Europe back.

The problem with the grand coalition that has been formed between the CDU-CSU and the SPD is that unless it acts as a coalition aware of the economic difficulties that have been dragging Germany down - zero growth in the second quarter and more than 11 per cent of the workforce on the dole - and unless it is in agreement that reforms must be made if the economy is to return to the heady days of the wirtschaftstwunder, the days of the coalition will not be long.

But not everything in the garden is thorny. Before the general election Germany was showing signs of a recovery and, even if only marginal, of a strengthening of consumer confidence. Psychologically, it may just be the case that Ms Merkel's origins in Eastern Germany will make a contribution to that half that has had to alter itself so radically after unification 15 years ago - and which has still not done enough. For the same reason, of course, there will be elements in western Germany who will resent this Janie-come-lately.

Much will depend on how the portfolios function. With the SPD holding a majority of them, the difficulties for Ms Merkel are self-evident. Technically, however, this power sharing need not provide a barrier. After all, it was the SPD that was leading, however cautiously, the country towards reforms in the labour market, the welfare state and healthcare before Mr Schroeder called an early election.

What will be instructive is how the SPD side of the coalition will react to Ms Merkel's determination to move the economy forward come hell or high water. If both parties genuinely recognise the sign of the times, the way forward is likely to be clear. It looks like it may be a big if.