Monday, September 19, 2005

Paralysis in Berlin

That was the verdict of The Guardian last night, one of the first of the British newspapers to respond to the German general election. There is a good chance, it said, that the near-stalemate will lead to a grand coalition of the two biggest parties - and to stagnation instead of reform. The view is shared by most commentators and the Daily Telegraph decided that the Germans have simply postponed the day of reckoning, describing the situation as "a mess".

Our reaction last night was that it seemed as if the Germans had "bottled out", which we felt was bad, bad news. EU commission president José Manuel Barroso seems to agree. Overcoming a reluctance to be seen meddling in domestic politics, he called on Germany's political leaders this morning to find "a stable solution" to the impasse, adding, "Without a dynamic Germany, Europe cannot recover."

That much has been confirmed by the financial markets, where German stocks, the euro and bond yields have all dropped in response to the German electors' failure to produce a clear winner. Of course, markets don't like uncertainty, or so we are told, and there is going to be plenty of that around for a while.

However, while the stock market is expected to normalise in the fullness of time, the political situation is set to remain unstable for some time. No one leader will have a clear mandate for reform, and neither will the be able to provide leadership for the rest of Europe. And with Chirac very much a lame canard, there looks to be a power vacuum right at the heart of the project.

With two key issues - the Turkish accession negotiations and the EU budget - claiming attention, and many more besides including the failed constitution, the "colleagues" more than anyone wanted a clear result. What they got is paralysis - the worst of all possible outcomes not least because, when there is a power vacuum at the heart of a system, it can be filled in unfortunate and unpredictable ways.


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