Angela Merkel wins chancellor seat

RESOLVED: Merkel now has her eye on making needed economic reforms. HERIBERT PROEPPER/AP

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Gerhard Schröder, who was ultimately unable to convince Germans that he was the right person to steer their country down the reform path, agreed to step aside after seven years as chancellor as part of a deal reached Monday between Germany's two main political parties.

"I'm in a good mood," said Ms. Merkel, in a rare moment of personal candor while talking with reporters. "But I know there's a lot of work ahead of us."

Rather than basking in the glow of a historic moment, however, Merkel and analysts alike are looking to the difficult, sobering days ahead - both for Germany's political leadership, as well as for its lagging economy.

As part of the deal reached Monday, Mr. Schröder's Social Democratic Party (SDP) - which won many votes in the final weeks by promising reform-wary Germans a slower path to reform - will control of eight ministries. Merkel's Christian Democratic Union (CDU) party will control six.

Though agreeing on the importance of adjusting Germany's social market economy to the challenges of globalization, the Social Democrats, which will hold the foreign, finance, health, and labor ministries, will probably slow Merkel's agenda of stripping away the country's strict job protection laws and radically trimming public spending.

Beginning next Monday and over the next four weeks, Schröder's SDP and Merkel's CDU - together with its sister party the Christian Social Union - will hold the talks necessary for them to form a "grand coalition." Though close on some reform points, Germany's two major parties may not have the political will to introduce radical changes to the social market economy that business leaders say are needed to reduce an 11 percent unemployment rate and attract investment.

"It will be a compromise," says Uwe Andersen, a political science professor at Ruhr University in western Germany. "The Union will be able to push through fewer reforms than they planned to, or than we need."

Merkel, who has surprised skeptics with her ability to maneuver in the old boys' network of the CDU, prevailed in her wish to become chancellor, despite criticism from within her own party on its disappointing election-day performance three weeks ago. Her dexterity in negotiating her own party's treacherous terrain will serve her well in mediating between the country's two major parties, says her biographer, Jacqueline Boysen.

Observers don't doubt her ability to maneuver politically at Germany's highest level, but whether she'll be able to sell Germans on the need to increase taxes, dismantle health care subsidies, and reduce union power, is another matter.

"I don't think she'll be able to win over the hearts of the people," says Ms. Boysen. "But she will be able to do politically what's necessary."