WHITE SMOKE FROM THE CHANCELLERY.

It took longer to agree on the new German Chancellor than on the new German Pope. But the European Union's largest member state is at last starting to make plans - and the European Union can start to assess the likely impact of a Merkel-led coalition.

Predictions of paralysis in a grand coalition of opposing parties may be premature. The coalition implies compromise on the radical CDU-CSU manifesto. But some common ground exists with the SPD on such domestic issues as modernising federal-regional institutional links, fiscal consolidation, and tax reform. And after Schroeder's problems in pushing change through the CDU-dominated upper house, the chances of reform could be improved now that the CDU occupies the Chancellery.

Agreement on labour and welfare reform will be more elusive, given the polarised positions of the two coalition partners. This will deprive reformers in the EU of the impetus they had expected from a Merkel landslide: Europe's current uneasy balance between competitiveness and the social model is not going to be tilted by any decisive shift in Germany's position. But a coalition approach to these sensitive issues may in the end stand more chance of sustainable success than any shock therapy an unconstrained CDU-CSU might have delivered.

Germany's coalition solution to its electoral stalemate might even influence voters and politicians in the 2007...