“Voting for the C.D.U. Sunday meant putting a stop to Schr?der’s reform agenda…..But in the future, if the C.D.U. has power, there is no stopping the reforms.” says Morgan Stanley’s Elga Barsch (remember her?). This argument draws attention to an important enigma which must be puzzling a lot of people. As the New York Times puts it:

“If voters are angry about economic legislation that rolls back the social welfare state, and they take out their anger on the governing party, does that make more such legislation inevitable?

As undemocratic as that might sound, investors in Germany seem to think so. As financial analysts said chances of new legislation had increased, the country’s stock market rallied Monday after a stinging defeat in regional elections for the Social Democratic Party of Chancellor Gerhard Schr?der, which led him to call for national elections in the fall.”

Actually the ‘engima’ isn’t such an enigma when you get to look at the details, since it isn’t so much the change of party people are looking at, but rather the possibility of coherence in the structure of government:

“As the Bundesrat needs to approve many key legislative changes, including many tax and labour market issues, in the past it has often proved difficult for the government to push through key reform initiatives. It is a regular feature of the German political landscape for the upper house of parliament to be dominated by the opposition parties after a few years of a new government being in office. An incoming CDU-led government would therefore have to make the most of the window of opportunity to push through with reforms while it still enjoys a broad majority in the both houses.”
Elga Bartsch: Morgan Stanley GEF.

So this is the point: control of both houses by one of the main parties, whichever it may be, is what will give the impetus to the reform programme. And note, this will only be a window of opportunity – those few years – before the upper house once more falls into the hands of the ‘new’ opposition, and the whole logjam sets in all over again.

It is not entirely obvious that appetite for some of the reforms will be any more popular amongst CDU/CSU voters than it has been amongst their SPD equivalents. Labour market reforms may prove more popular, but addressing the ongoing financial problems of the health system – as indeed George Bush is discovering in the US – may be another mater altogether:

“Just what those changes would be is far from clear. One idea suggested by Ms. Merkel is to stop paying for the national health care system through a tax on wage earners, which opponents say drives up the cost for employers and discourages hiring. Instead, she suggested a flat tax on all beneficiaries of the system., whether or not they were full-time wage earners. But, Ms. Bartsch said, the Christian Democrats’ allies in Bavaria, the Christian Social Union, might not support the idea, which means their combined election platform might be vague. “