Coalition lifts fog of uncertainty from Germany

Angela Merkel

PARIS - European politicians have heaved a huge sigh of relief after German formed a "grand coalition" government between left and right, but the calm may be short-lived.

More than three weeks after elections plunged Europe's biggest country into a worrying political fog, the Social Democratic Party and Christian Union alliance agreed to join forces under the leadership of conservative Angela Merkel.

Merkel is the first woman to lead Germany, and its first leader from the former East Germany.

Missing from the coalition Cabinet, whose outlines were agreed after torturous negotiations, is the outgoing Chancellor, Gerhard Schroeder, who had demanded the top job and turned his back on the prospect of working under his bitter rival.

In return for giving her the Chancellery, the SPD was given eight of the Cabinet posts, with six for Merkel's Christian Democratic Union and its Bavarian ally, the Christian Social Union.

Among the reported attributions of portfolios, Bavarian state Premier Edmund Stoiber - architect of the "laptops and lederhosen" policy of high technology and conservatism - will get the Economy Ministry.

The mood of other European politicians was one of almost tangible relief. Europe is facing several crises, from a wrangle over the European Union's budget to the admission of Turkey as a future member, and these problems amplified as Germany's political future remained up in the air.

In Brussels, the head of the EU's Commission, Jose Manuel Barroso, said he welcomed "firstly the fact that the political parties have agreed on a government and [secondly] on a solution which ensures a stable and strong government for Germany".

France declared Germany was "moving out of uncertainty. There can be no European construction without perfect collaboration between France and Germany".

Britain sent warm congratulations, with Prime Minister Tony Blair saying he eagerly looked forward to working with the new chancellor.

The euro firmed against other currencies and the Frankfurt DAX 30 rose to its highest in 3 1/2 years after investors reversed judgment on the grand coalition's effects.

The changes are deemed essential for curing Germany's tired economy and 11 per cent unemployment.

Deutsche Bank economist Norbert Walter said the coalition could make agreement on moderate reforms, such as simplifying tax codes and tackling public finances.

Merkel is likely to remain thwarted in her plans of easing rules on hiring and firing and collective wage bargaining.

Her hopes of reviving Germany's relationship with the US, damaged after Schroeder refused to back the Iraq War, will also remain on hold.

Merkel is against granting Turkey EU membership but her position will be countered by the SPD.

The coalition limits the manoeuverability of both parties. Each party will be under intensifying pressure to get results while not make concessions. That problem could be acute for the SPD, which has lost a big vote-winning asset in Schroeder.

The Social Democrats face a mass defection of members to the more radical Left Party if their coalition policy is considered a sellout.

Yet Merkel, too, will have problems with Catholic male conservatives in her party, and they will be quick to seize on signs of weakness.

A snap opinion poll found that only 38 per cent of respondents supported the grand coalition, while 26 per cent said those who had crafted the coalition were self-serving.

It is unclear whether Schroeder, 61, will have any role in a new government but it is widely thought he will bow out of public life for good to write his memoirs and draw pensions. He has made it clear he saw no job other than the one he held as suitable.

- additional reporting: INDEPENDENT