New German coalition gets set for government

The challenges facing Merkel,55,over the next four years are immense. Germany8217;s export-dependent economy,Europe8217;s largest,has been hit harder than most by the global slowdown,triggering its worst recession since the foundation of the postwar Federal Republic in 1949.

Economic output is set to fall around five per cent this year,but is on course to recover slightly in 2010,with gross domestic product GDP predicted by the government to grow by around 1.2 per cent.

But the recession has left Germany8217;s public finances in tatters,with Merkel rolling out two stimulus packages worth around 120 billion,tax receipts falling and social security spending rising.

As a result,the government is on course to spend 75 billion more than it takes in this year.

It already spends tens of billions in interest payments on its debts each year,and will be forced to borrow hundreds of billions of euros dollars more over the next few years,putting it in breach of EU deficit rules.