It was a good result,for both Germany and Europe. After the September 27th election,Chancellor Angela Merkel will escape from the cage of the grand coalition between her Christian Democrats (CDU) and the Social Democrats (SPD) by forming a new centre-right coalition with Guido Westerwelles Free Democrats (FDP). The sclerotic and unwieldy grand coalition found it hard to discuss,let alone implement,many of the reforms that Germany needs,including to its tax and welfare systems,and to health care and the labour market. Now Ms Merkel has been set free to push for change.
The big worry is that she may be too timid. She was badly burned four years ago when her brief embrace of reform led to a sharp fall in her partys ratings. This time the CDU did even worse than in 2005,winning its lowest share of the vote in 60 years. But the exceptionally good result for the pro-market,liberal FDP should strengthen Mr Westerwelles bargaining power in a new coalition. He will insist on tax simplification,and ideally also on tax cuts. Yet Ms Merkel has already hinted that she does not favour more labour-market reforms and will stick to the outgoing governments planned minimum wage. With Germany just emerging from recession and unemployment likely to rise,her innate caution and fondness for consensus will put her off more radical change.
She can afford to be bolder. The opposition SPD is in disarray after winning its lowest share of the vote in almost 80 years and seeing the Left Party,with which it refuses to work,creep close to 12%. The centre-right has a majority not only in the Bundestag,the lower house,but also in the Bundesrat,the upper house made up of state representatives,which it will retain so long as it keeps control of North Rhine-Westphalia next May. And the case for change in Germany is urgent. Although the economy is reviving,the banks (especially state-owned Landesbanks) are troubled and growth will remain sluggish. Further ahead,Germany has to cope with a shrinking and ageing population,a fast-growing public debt and the need to switch from dependence on exports towards more consumption. This agenda is sure to need more reforms.
Reform is hard for any government,but the FDPs ideas for lower taxes and further liberalisation are promising. Lower taxes should stimulate growth. And the wisest response to high unemployment is to deregulate labour markets and eschew minimum wages. German experience of limited reform six years ago and the evidence from other countries like Denmark both demonstrate that the best way to encourage employers to hire is to make it easier for them to fire.
A centre-right coalition may pursue a more sensible energy policy as well. Both parties favour extending the life of Germanys nuclear-power stations,so the new government should overturn the 2000 decision to phase out all of them by 2022. With Ms Merkel in the chancellery,and with Mr Westerwelle likely to be foreign minister in place of the SPDs Frank-Walter Steinmeier,there is also more chance of the government responding to Germanys growing dependence on Russian gas not by pandering to the Russians but by helping to liberalise the energy market in the European Union.
Mr Westerwelle is somewhat more pro-American and may be less likely than his predecessor to urge early withdrawal of German troops from Afghanistan. By being tougher on Russia,he will at a stroke improve German relations with central and eastern Europe. One foreign-policy blot on the new coalitions copybook is that it may be even warier of Turkish membership of the EUbut neither Mr Westerwelle nor Ms Merkel is likely to torpedo Turkeys accession talks,which are anyway proceeding at a snails pace. In short,with a bit more zeal for reform,the new black-yellow government could be just what Germany needs.
© The EconomistNewspaper Limited 2009