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Schroeder narrow win to choke reforms

Berlin, Sept. 23 (Reuters): Germany faced the prospect of continued economic stagnation today after Chancellor Gerhard Schroeder won yesterday’s election with a reduced majority that narrowed his scope to implement painful reforms.

Schroeder’s Centre-Left government of Social Democrats and Greens got a majority of just nine over the combined opposition parties, down from 21 at the last election.

Share prices fell as analysts said the new government was too weak to reform the world’s third largest economy — highly taxed, highly regulated and seen in danger of becoming as stagnant as Japan’s.

“The country remains ungovernable because it is impossible to tackle its economic problems,” said Karl-Heinz Nassmacher, political scientist at Oldenburg University. “What we need is a German Margaret Thatcher but where are we going to find her'”

Schroeder said he would immediately start coalition talks with the resurgent Greens, who saved his government with their strong showing in the election while his Social Democrats (SPD) fell. “Those who think that there will be large difficulties are wrong,” Schroeder told reporters as he entered SPD party headquarters for a meeting of party leaders.

The SPD fell 2.4 points to 38.5 per cent as voters punished it for failing to bring down unemployment in its first term. It was level with Edmund Stoiber’s conservatives, who gained 3.4 points, also to 38.5 per cent.

The surge by the Greens, who gained 1.9 points to 8.6 per cent, rescued the so-called Red-Green coalition’s majority.

Meanwhile Stoiber’s prospective allies, the liberal Free Democrats, let him down by gaining just 7.4 per cent, far short of their own expectations.

The election was partly so close because Germans were torn between liking the telegenic Schroeder and wanting to punish him for failing to honour a promise to cut unemployment, still stuck above four million, where it was when he took power in 1998.

“I’m happy the old Chancellor is the new Chancellor. If the opposition doesn’t block reforms out of principle the majority should be big enough,” said Gabriele Forster, an insurance clerk in Berlin.

Germany’s consensus-based political system, established after World War Two to prevent a repeat of Hitler’s one-party rule, put up multiple hurdles to reforms being tackled, Nassmacher said.

For a policy to be implemented, Schroeder first had to persuade his own Social Democrats, then the Greens, the vested interests of trade unions and business, and a Bundesrat upper house of parliament where he lacks a majority, said Nassmacher. Red-Green secured 306 of the 603 seats in parliament, ahead of the conservatives and liberal FDP combined at 295. Including two seats won by the reform communist Party of Democratic Socialism, the SPD has a majority of nine seats over the combined opposition parties.

Germany faces a bleak winter of weakening economic growth, seen below 0.75 per cent, and of wrangling with Brussels over a budget deficit widely expected to exceed the European Union's ceiling.

“The next government is going to have a very, very slim majority and that will inhibit any kind of change,” chief European economist Julian Callow said.

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