German elections. Where Angelas need to grow

An early German election could boost much-needed economic reform

NOW that Chancellor Gerhard Schroder has held, and deliberately lost, a vote of confidence in the Bundestag, Germany's lower house of parliament, the stage is set for an early election, probably on September 18th. It could yet be called off, either by the federal president or by the Constitutional Court. But that would be a shame for Germany - and for Europe. The ruling Social Democrat (SPD)/Green coalition has lost its way and looks certain to lose in September. A new government led by Angela Merkel's Christian Democrats (CDU) offers the best chance of reviving Europe's biggest economy, whose slow growth has blighted the neighbourhood.

Mr Schroder has, admittedly, tried to shake up the economy in recent years, first with his Agenda 2010 set of pension, social-security and health-care changes and then through the Hartz labour-market reforms. But he largely wasted his first term from 1998 to 2002, and made no effort in the 2002 election campaign to persuade voters of the need for changes that might hurt. He has since been hamstrung by left-wingers in his own party, by trade-union resistance, by the opposition's grip on the upper house, the Bundesrat, by his government's unpopularity and by the SPD's losses in state elections - but also by that failure to prepare the voters for pain.

This creates an opportunity for Ms Merkel. She knows that Germany needs more and deeper reforms if it is to prosper again. She is also aware that Mr Schroder and, even more so, German business have laid the groundwork for improvement. Unit labour costs have fallen, profits and investment have risen, Germany is once again the world's biggest exporter. The two big shadows over the picture are unemployment (11.7% in June) and continuing low consumer confidence. A CDU victory in September, if followed by bold enough tax measures and further labour-market and other reforms, could presage a rebound in the economy.

Formula for an iron lady

Yet Ms Merkel is adopting a deliberate fuzziness over reform. She has talked, on the one hand, of the need to do things in a fundamentally different way in Germany; but she has promised, on the other, not to put the country's social model at risk in any way. If she wins in September, her party's control of the Bundesrat, which represents Germany's states, should make it easier to push change through. But it could also leave her beholden to powerful CDU state bosses, and to her Bavarian sister party, the Christian Social Union (CSU), led by Edmund Stoiber. Many in the CDU, and even more in the CSU, are enthusiasts for the country's generous welfare system and for the European social model. It was a CDU-led government that first conceived of co-determination, the now much-disliked system of union representation on company boards.

Ms Merkel's reticence on reform may be merely tactical. First, she has to win in September. Her admirers note that Margaret Thatcher (comparisons with whom she fiercely resists) hardly sounded radical before she came to office in Britain in 1979. An exhausted SPD is now tacking to the left by promising tax increases and no more reform, partly to fend off the rise of a new hard-left party. This new party may well complicate coalition-building after the election. But if a CDU-led government emerges, there is every prospect of its staying in power for eight years. That gives plenty of time to devise and adopt radical measures.

This calculation may turn out to be right. But there are still dangers in not spelling out in advance to voters how much change is needed. Even under a government that controls both houses, Germany's traditional desire to proceed by consensus will remain strong. Governments in Berlin are always fretful about upcoming state elections. And Ms Merkel will anyway be engaged in a perpetual fight against the soggy statist instincts of many in her own party and in the CSU.

That is why she should use the campaign to make the case for reform. This need not mean a long list of specific proposals, which would run the risk of turning off those voters most affected. Nor should it mean ignoring the poor state of German public finances. But Ms Merkel should still be setting out a stall for lower taxes, a smaller public sector and greater reliance on markets. She needs to lean towards the CDU's would-be coalition partner, the traditionally liberal Free Democrats, more than towards her CSU allies. The risk of losing a few votes is less worrying than the risk that, once in government, she will find her plans for fundamental reform once again stymied by a failure to prepare the voters for change.

Editorial says that an early German election could boost much-needed economic reform.

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