... but the question of whether there will be a new set of economic policies is very much open. The basics, from the Wall Street Journal (page A1 of the print version):
After an extremely close election and weeks of political wrangling, Germany's two largest political parties agreed to set up a joint government led by a new chancellor, Angela Merkel, leader of the conservative Christian Democrats.
But as the two parties begin weeks of new talks over the new government's policies, it seems likely that Germany's approach to economic change will resemble that of the past seven years under departing chancellor Gerhard Schroeder -- of the opposition Social Democrats -- more than Ms. Merkel's once-ambitious blueprint for restructuring.
That's because the bipartisan structure will severely tie Ms. Merkel's hands. In exchange for acceding to Ms. Merkel's elevation to chancellor -- making her the first woman and the first former citizen of East Germany to do so -- the Social Democrats will fill eight of 14 seats in the cabinet. They will control the crucial finance, labor, health and foreign ministries, overseeing four areas of sharp difference between the parties.
Deutsche Welle runs down what might get done...
A stable government of Social Democrat SPD and Christian Union CDU/CSU parties might be able to push through at least some of the key reforms needed to get the euro-zone's biggest economy back on its feet, they say...
Under the German parliamentary system, opposition parties tend to build a majority in the upper house, the Bundesrat, putting them in a position to block key government legislation.
With a grand coalition holding the majority in both the lower and upper parliamentary houses, such political stalemate, at least on matters of tax, budget and the federal system, can be avoided.
... and what probably won't:
The one area that the two sides may not be able to agree on is labor market reforms.
Merkel had vowed to slash labor costs, ease rules on hiring and firing and allow companies to opt out of collective wage bargaining and tailor wage deals to their own particular economic situation.
The SPD, which shifted to the left in the election campaign in response to voters' anger at its own social reforms, is likely to resist such proposals.
More, from the London Times:
From its base in the labour and finance ministries, the SPD could effectively sabotage reforms proposed by Edmund Stoiber, the Bavarian premier, who will head the economics ministry. And Frau Merkel will find little room for manoeuvre or innovation elsewhere. Easing the most restrictive regulations pushed through by the Greens in the previous coalition, especially on nuclear power, will hardly be possible as long as the SPD controls the environment ministry.
As the Skeptical Speculator notes, the new government has at least some positive economic news blowing through its newly lifted sails, so here's hoping.