A Grand Coalition of commonsense - hopefully

Equity markets responded positively with the DAX, the index of Germany's top 30 blue-chip companies, climbing 15 points to 5,022.79. There was a similar reaction elsewhere in Europe with national indices rising in 16 West European markets. 'A big part of the mess left by the election has now been cleared', said Bernd Meyer, equity strategist at Deutsche Bank.

Before the elections, a grand coalition with the left-of-centre social democrats and their softly, softly approach to economic reform, was largely regarded as a nightmare by the captains of German industry.

Life has to go on

After dinner, the message has changed a bit: life has to go on after all. Germans do not like uncertainty; they want a stable government. According to Ludolf von Wartenberg, CEO of Germany's industry federation, 'a grand coalition would mean progress, since we need clear majority conditions'.

The general spirit seems to be: a great opportunity to turn Germany around has been missed by the electorate on 18 September, but we have to make the best of it; now we will have to put as much pressure on the new government as possible to make it move.

Although Frau Merkel will have to abandon quite a few of the overdue plans to restructure labour and social welfare policies, both coalition partners, on the other hand, are committed to tough budget cuts, to simplify income tax, to reduce the deficit to 3 per cent of the GDP by 2007 and to overhaul the unwieldy federal system of the country. Many other details will have to be agreed in the negotiations on the coalition contract in the next weeks.

Despite clear indications of an upswing of the German economy, many observers abroad still regard Germany as the 'sick man of Europe', unable to adjust to the new challenges of today. Others hold a different view. Klaus Baader, chief analyst Europe of Merril Lynch:

'There is a broad consensus on reforms in Germany spreading over all political parties'.

The proof of the pudding is in the eating. Time will tell whether the new government will be able to deliver or is a mere interregnum arrangement.

As far as Germany's Middle East policies are concerned, it can be safely assumed that the predictable and stable course of Gerhard Schröder's outgoing government will not be changed. A spokesman for NMI, the Near & Middle East Initiative of German Industry, told AME Info that the excellent economic relations with the ME region would be definitely continued.

Figures just released by the Federal Board of Statistics for the first half of 2005 show a rise of German exports to the United Arab Emirates by 22.5 per cent and to Saudi Arabia by 39.2 per cent as compared to the same period of last year. This data underlines the importance of the Middle East to Germany as a business partner.