Better Berlin?

Gro�e Koalition: "Es sieht gut aus"

It actually looks like it's shaping up as a stronger government in Berlin than most people - me included - thought likely just a week ago.

The SPD hasn't as of yet imploded, but instead will get a new leadership with Brandenburg Prime Minister Matthias Platzeck nominated as new Chairman. An Easterner like Angela Merkel, it's worth noting that his success comes out of leading a coalition between SPD and CDU in Potsdam.

And the coalition negotiations are moving forward in a reasonable way. They should be completed by this weekend so that the result can be endorsed by the two party congresses next week so as to allow the new government to assume office around November 22.

On economic policy there is obviously a lot of dealmaking.

Cutting the public deficit will be a priority, with cutbacks in subsidies as well as a rather drastic increase in VAT from 16 to 19 percent in 2007 the key instruments.

But then there will be a loosening up of the restrictions on the labour market - difficult to swallow for the SPD - in exchange for not doing anything to expand the use of nuclear power - and diffucult thing to swallow for CDU/CSU.

The balance is likely to be positive for business. And with the guess that the government will be there for some years to come we might well have a substantial confidence effect, which is exactly what the German economy needs.

So, it doesn't necessarily look that bad.

And both the CDU/CSU and the SPD knows that they are condemmed to success. The party that is seen as being a threat to the coalition is likely to be punished by the electorate - as least during the next few years.

It could turn out somewhat better than expected.