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WORLD BUSINESS

Can the grand coalition deliver?

By CNN Berlin correspondent Chris Burns

SPECIAL REPORT

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Germany
Gerhard Schroeder
Angela Merkel

There has been little cheer in Germany's business community now that Angela Merkel is headed to take the chancellery from Gerhard Schroeder.

The country's leading tabloid, the Bild, flashed the conservative leader's smile across the front page after the deal with Schroeder's Social Democrats Party (SPD) was announced.

But one of the top business dailies, Handelsblatt, picked a more sobering shot.

It showed Merkel with her hands in the air as she tried to put positive spin on progress toward a so-called grand coalition.

"Merkel pays a high price to move into the chancellery,'' it headlined.

The Social Democrats lost last month's election by just 1 percent, and --- in less than three weeks of negotiation --secured more than half the ministries in the government.

Those reportedly included finance and labor -- even before formal coalition talks have not yet started.

That caused the German stock market and the euro to seesaw amid expectations the SPD could derail Merkel's economic reform plans.

Her Christian Democrats and Christian Social Union want deep budget and tax cuts and an overhaul of strict hire and fire rules to fight unemployment that is over 11 percent in Europe's biggest economy.

''We'll see probably a decrease in spending and subsidies and increase in some taxes to close the budget deficit," said Professor Michael Burda of Berlin's Humboldt University.

"On the other hand, I don't see much coming from labor market reforms."

'Tough decisions'

But some business analysts see pressure on the Social Democrats too.

They say there could be a boomerang effect against them if they fail to reform the ministries they preside over.

"The SPD could actually take a lot of heat for the tough decisions that are necessary in the future," Professor Burda said.

It's still not clear yet just what impact the political crisis has had on the economy.

Growth is expected to be 1 percent this year, but that is also put down to high oil prices as well as the post-election stalemate.

Investor confidence has fallen since the election, though new car registrations jumped last month.

What could be most disconcerting for businesses is the time it will take to form a grand coalition. Officials say a deal may not be reached until at least mid-November.

In the meantime, many businesses are likely to hold off on major investments before they know what kind of government they are dealing with.

Even with Angela Merkel at the wheel, there is plenty of backseat driving the Social Democrats can still do.

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