Germany urgently needs reforms. Unemployment and social expenditure have been rising continuously, raising the government deficit consistently above 3.5 per cent of gross domestic product. Still, the government has trailed behind other European Union countries in reforming social security and labour laws. The allocation of tasks to regional and local authorities is ill-designed; it is now a major impediment to the government's capacity to regain control of expenditure. The country's structural weaknesses must be corrected.

The results of the September 18 parliamentary elections may prevent Germany from carrying out these badly needed reforms, just when economic recovery ought to be set into motion. There is a serious risk that a grand coalition of the biggest parties could reduce Germany to a chaotic standstill. To prevent the situation from running out of control, parties must transform the outcome into an opportunity to reform. To this end, the SPD and CDU/CSU need to agree on how to co-ordinate their actions to make progress. Such co-ordination is, however, implausible under a grand coalition in which political heavyweights would primarily keep an eye on their prospective votes in the next election. If parties let such re-election motives dominate, the government will not have proper incentives to undertake unpalatable reforms. What Germany needs is a technical caretaker government, like those experienced by Italy in the early 1990s; a government run by a chancellor who has no interest in re-election. Parties must tame their leaders' ambitions.