German reform. The slow walk upstairs

Angela Merkel's reforms are continuing, but they risk being too little and too late

AH, THE relief after Herculean labours. After more than two years of stop-and-go negotiations, Germany's political leaders agreed this week on new legislation to free their country from the "joint decision-making trap" of its federal system. The new plan seems likely to secure the two-thirds majority in both houses of parliament that is needed for any amendments to Germany's Basic Law.

Reform of the federal structure may sound monumentally dull, but it is the biggest achievement so far of Angela Merkel's "grand coalition" with the Social Democrats. It marks not only the Christian Democratic chancellor's 100th day in office but also the start of Germany's third big effort to bring about structural reform. Yet those hoping that Germany may now shift into higher gear when it comes to other measures may be disappointed.

Scepticism is called for by anything termed "a step in the right direction". The new federalism plan does go some way towards disentangling Germany's two main layers of government, at federal and state level. At present the states can collectively block more than 60% of federal legislation, causing political constipation, particularly when the opposition controls the Bundesrat, Germany's upper house, which represents the states.

In order to cut this to some 35-40%, the states and the federal government have done some horse-trading. The states are ceding many blocking powers, but in return for new ones from the federal level, particularly in higher education, the penal system and civil-service law. This deal should let the government be quicker on its feet, says Thomas Fischer of the Bertelsmann Foundation, a think-tank. But it may go less far in practice, because the states still have a say if federal laws require them to spend a lot of money.

In some areas the new system could even make changes harder, most notably in environmental law. States will now be able to pass their own legislation, even if it differs from federal law. Critics worry that the result will be chaos, with businesses having to comply with many different environmental regulations. Similarly, giving states more say over higher education may not be the best way to push Germany's struggling universities back into the top league.

In any case, the overhaul falls well short of a comprehensive modernisation, because it postpones changes in the "financial constitution" that decides how taxes are divvied up between the federal government and the 16 states. Nor is merging smaller states so they can compete on an equal footing with bigger ones on the agenda. On past experience, neither of these changes may happen, because losers will usually block them.

Still, the new system should make it a bit easier for Ms Merkel to push through legislation. Yet whether she will be more successful than her Social Democratic predecessor, Gerhard Schroder, will depend on other imponderables, such as her popularity, the dynamics of her coalition and the strength of the economy.

After a disappointing election result, which forced her to form a coalition with the Social Democrats, Ms Merkel's hand was admittedly weak. But she has played it brilliantly so far, cutting a good figure internationally while calming things at home by taking on a role in tune with her sober self: that of an anti-Schroder. Whereas her predecessor often staged impressive political theatre with scant effect, the new chancellor has opted to underpromise and overdeliver.

This has become the mantra of Ms Merkel's reform method. She quickly abandoned her ambitious election programme to advocate "small steps", which she thinks will bring more progress than great leaps. Without making a big fuss, the coalition has already cut some subsidies, such as for homebuyers. It has adopted a euro25 billion ($30 billion) spending programme to boost the economy. And it will start to push the retirement age up to 67 earlier than previously planned.

This new rationality and slower pace seem to be what most Germans want. Ms Merkel has become the most popular post-war chancellor, with an approval rating of 80%. Indeed, her popularity could undermine the coalition. The Social Democrats have dropped to 27% in polls. If they lose the March 26th election in Rhineland-Palatinate, the only big state that still has a Social Democratic premier, both parties may start to have second thoughts about the grand coalition: the Social Democrats because they are losing votes, the Christian Democrats because they may be tempted to call a new federal election.

The big question is whether Ms Merkel will accelerate reform after March's state elections. The press is irritable, partly because journalists see the need for bigger reforms, but also because there has been no exciting political story for months (except for the two German spies in Baghdad who allegedly helped the Americans with military intelligence and are now the subject of a parliamentary inquiry).

Ms Merkel may not pay attention to any such criticism. She will no doubt look for a few bones to throw the press to chew on. But the government will continue to take its time over any big new reforms. Before the summer break, a new energy policy and a change in health-care finance are on the agenda. Later, the government plans to tackle long-term unemployment and corporate-tax reform. Yet such a methodical approach guarantees neither that the reforms will go far enough nor that they will yield results quickly.

Nor can Ms Merkel hope for a boost from Germany's staging of the World Cup this summer, which is becoming an embarrassing tale of leaking stadiums and ticket-allocation mishaps. This week critics were gunning for Jurgen Klinsmann, Germany's national football coach. Once hailed as the saviour of German football, he was savaged when the team lost dismally against Italy last week. There is even speculation that he may have to resign before the tournament.

In typical German fashion, Mr Klinsmann is not being criticised for being a bad coach, but rather for insisting on living in California and simply jetting in for matches, a habit that some say is weakening his team. It would perhaps be more appropriate if Germany's entire football establishment were to indulge in some self-criticism. The truth is that it could take years for German football to catch up with the rest of the world's--just as it may take years for German reforms to get the country back on track.

Article says that German Chancellor Angela Merkel's reforms are continuing, but they risk being too little and too late.

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