Merkel's hopes of salvaging German economy

Chancellor-designate Angela Merkel campaigned on pledges to reveal Germany's stagnated economy. To deliver, she may have to battle not just ideological foes, but also supposed allies such as incoming Economy Minister Edmund Stoiber.

Stoiber, 64, built his reputation on the strong high-tech and industrial economy in Bavaria, where he is governor. But his views lean away from Merkel's free-market emphasis, and he is a political rival who may still covet her job.

That further complicates running a Cabinet where half the seats will belong to her former opponents, the Social Democrats, in a so-called "grand coalition." Merkel and the Social Democrats were forced into talks after neither won a majority with their preferred partners.

She also had to parcel out two seats to Stoiber's Bavaria-only Christian Social Union, the sister party of her Christian Democratic Union.

"It's a tough starting point for Ms. Merkel," said Thorsten Polleit, an analyst with Barclays Capital. "This grand coalition is a compromise and it reflects the German voters' preference for actually slowing down reforms."

Merkel has said repeatedly that the key tasks of her government will be to tackle unemployment, currently 11.2 percent, and to bring down Germany's budget deficit.

She will find tough measures such as cutting labor costs and union power hard to implement, said Lothar Probst, a political scientist at the University of Bremen, in part because her cabinet is made up of enemies and allies who may have other agendas.

Stoiber the conservative candidate for chancellor in the 2002 election will have to answer to his own party. So will Franz Muentefering, the Social Democratic vice chancellor and labor minister.

"She is in an uncomfortable position," Probst said. "On one hand she has Muentefering and on the other she has Stoiber. Both are very ambitious and both want to bring their own parties forward."

That, he said, would leave Merkel in the position of having to serve as a referee between the two rather than focusing on ambitious reforms.

Stoiber has drawn unfavorable reactions from analysts and economists, reports the AP

P.T.